Supply chain management is a key function for any company or organisation that produces and delivers services or goods. A properly executed supply chain enhances profitability, functionality and sustainability. Even the tiniest of changes made to improve the supply chain have made a difference.
For instance, reducing supply chain costs from 9% to 4% can double your profit. On the other hand, a poorly managed one can lead to disruptions, inefficiencies and losses.
The process of auditing the supply chain is a comprehensive evaluation of your supply chain functions from procurement to delivery. The purpose of this audit is to identify and eliminate all potential risks and ensure condolence with regulatory standards.
In this blog, we’ll take a look at the right steps for this audit.
The Importance of Auditing the Supply Chain
For most companies, audits are just routine measures that are either for physical inventory or for their financial records. The purpose of an audit is to ensure that things are where they are supposed to be and that everyone is on the same page.
Usually, there are two types of auditing- internal and external. Internal auditing is an independent and consulting activity that aims to add value to improving an organisation;’s operations. Auditing the supply chain aids the company in accomplishing its objectives through a systematic and disciplined approach.
Internal audit is a multi-step process that is a way to see if your current systems are actually in compliance with the predetermined operating procedures and government regulations. This is very important for companies when they are trying to maintain compliance with increased customer demands.
Auditing the supply chain requires more than just evaluating it. It also takes a necessary look at the interaction of the other players in the organisation like accounting and financial systems and procedures.
Before you carry out the audit, you will need a supply chain audit checklist. This list contains all the details and “tools” you would need before embarking upon the supply chain audit process. Let’s see what they are.
Things to Consider Before Auditing the Supply Chain
Performing an audit is a separate thing from knowing the exact places in your supply chains that need the audit. While every audit should be more or less tailored to the needs of your organisation, here is a basic framework for initiating an audit that you need to include:
- Audit Planning: Internal auditors should have a plan and execute it before the external auditors come in and begin their process.
- Examining and Evaluating Information: Internal auditors need to follow standard criteria to compare their findings against to judge them.
- Communicating Results: The audit should follow a clear and concise method when it comes to reporting their findings.
- Follow-Up: Internal auditors must follow up promptly to ensure that the appropriate actions are taken to ensure correct audit findings.
Such a framework serves as a support system for corporate managers and helps in the larger production of systems to delegate some of the responsibilities to the internal audit department. This is crucial for a few reasons:
- Operating Complexity: With automated data processing you have increased levels of complexity when it comes to data analysis, a task better suited for those who are aware of what they want.
- Decentralisation: Given that the supply chains are prone to decentralisation when it comes to physical locations due to globalisation.
- Lack of Expertise: As the saying goes, focus on your strengths. Let the auditors handle auditing the supply chain.
All of these bring us to the process of conducting the audit for the supply chains themselves. There are many ways to do it. However, following a standard procedure is the best idea. So, let’s see the ‘right” way to conduct the process of supply chain security audit.
The Right Way of Auditing the Supply Chain
To ensure that the audit of your supply chain is in-depth and fruitful, here is a detailed look at the process that you need to follow:
Define the Scope and Purpose Statement of the Audit
Before the audit starts, all the participating parties must be made aware of its purpose and the focus area that’s under review.
It’s important to outline a clear statement of purpose, which states the aim of the audit like finding bottlenecks in the assembly process, improving transportation timelines, etc.
Apart from the scope of policy audit is set which assesses the processes, documents and involved teams that are reviewed.
Frame the Supply Chain Audit Strategy
Each business is different and they have different ways to function. This also means that two different businesses will have two different supply chains. That’s why they need a suitable strategy that is tailor-made for your business and its respective supply chain.
Whether the process of auditing the supply chain is a physical verification or a digitised audit, a review of the grassroots level of activities or a bird’s eye view of the processes- you must consider all these factors to finalise the supply chain audit strategy. It’s better to digitise your process for faster and more efficient audits.
Data Collection and Inputs
Once the officials have decided on the audit scope and strategy, relevant data needs to be collected through multiple mediums like physical surveys, questionnaires, pulse-check meetings, checklists; etc.
In addition to consolidating internal data, the audit team should gather external information, including industry benchmarks, current legislation, and global best practices.
Another crucial step, as highlighted by the British Standard Institution, involves mapping both direct and indirect sources within the supply chain. Complexity, diversity, and outsourcing within the supply chain amplify associated risks.
Reviewing Processes
The next thing to do is to assess the collected data and then evaluate it- put it through checks. Harnessing the data with the latest data analysis technology and AI-powered tools and making a summary of the data presenting them inconclusive reports.
Some of the discrepancies that come to the forefront during the supply chain audit are:
- Accumulation of stock during the off-season
- Consequences of downline suppliers missing deadlines
- Wastage and spoilage of stock due to poor production planning
- Bottlenecks during the transportation phase
The Audit Report can prioritize and highlight these issues effectively.
With that let’s see the last step of the process of auditing the supply chain. This is the end part where the audit is complete and owners and managers draw insights from the audit to make their supply chains more transparent, efficient and sustainable.
Drawing Insights
After auditing, it’s time to generate a report. This report will provide management with insights and takeaways to develop new strategies and decide on a plan of action. Audits often reveal fundamental information about the supply chains, including the sourcing of commodities.
Additionally, experts will use the audit to calculate the financial impact of each concern throughout the supply chain and implement preventative and corrective measures to resolve any issues that arise.
FAQs: Process of Auditing the Supply Chain
What are the benefits of supply chain audits?
These audits establish that a company’s supply chain meets most of the legal requirements, assists in discovering critical vulnerabilities, and improves general organizational transparency and supply chain efficiency.
They assist in cutting down costs, contribute to the development of long-term cooperation with suppliers, and enhance the company’s image when following ethical and sustainable standards.
Should auditors have a supply chain audit certification?
Auditors must have a supply chain audit certification to ensure they possess the specialised knowledge and skills needed. Certification enhances their credibility, ensures adherence to industry standards, and improves the accuracy and effectiveness of the audit process.
What are the risks of supply chain audits?
With such audits, you can reveal non-compliance, increased operational costs, supply disruptions, strained supplier relationships and potential exposure of confidential information, leading to reputational damage and financial losses.
Conclusion
Therefore, auditing the supply chain is highly essential to increase the profitability, effectiveness and sustainability of the organization in question. It checks the compliance of an organization with the laws, helps in risk evaluation, and enhances the level of transparency.
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