Growing your business often starts by optimizing your existing systems rather than looking elsewhere for opportunities. Optimizing your supply chain is one of the best places to start.
Your supply chain is an integral part of your organization’s functionality, and because it is so complex, there are many ways to improve it.
However, improving your supply chain requires knowing which areas need improvement or aren’t functioning optimally.
Conducting a supply chain audit is the best way to discover which specific areas of your supply chain are functioning optimally and which areas need improvement. It also gives you insight into the overall health of your supply chain.
So, how can you conduct an audit of your supply chain?
In this article, we’ll review the steps of a supply chain audit and explain how supply chain management software can help.
What is a Supply Chain Audit?
A supply chain audit is a detailed examination and critique of your supply chain process.
It helps you evaluate supplier performance, control costs, and mitigate risks to surface disruptions that negatively impact procurement or overall supply chain performance.
Some of the main benefits of running a supply chain audit include:
- Creating better and stronger business relationships with suppliers
- Improving practices related to health & safety, environmental sustainability, anti-corruption, working conditions and finance
- Identifying opportunities to update and improve service agreements
- Increasing your supplier’s compliance with essential standards of operation
- Identifying and resolving fraud or system errors
- Finding risks in your supply chain that could damage revenue and your brand’s reputation
- Building more reliability, trust, and credibility
- Improving supply chain performance
How To Conduct a Supply Chain Audit
Before you can even begin your audit, a few planning steps need to happen first.
An audit is a massive overhaul; if you don’t have your steps in place before you begin, your audit team can be disorganized and ultimately unsuccessful.
Planning and strategic steps you’ll want to outline before you begin your audit include:
- Plan your audit: Have a strict plan that you want to follow before beginning the audit. This ensures that all auditors have the same guidelines and rules before starting.
- Standardize criteria: Examine and evaluate all of the information gathered during the audit. All auditors should use standardized criteria to compare findings against to avoid confusion and keep data organized.
- Decide how to communicate results: A clear and precise reporting method gives stakeholders actionable insights and informs them of decisions they need to make.
- Determine how to follow up: You’ll also want a plan for the actions following an audit. A clear strategy helps ensure that you take the appropriate measures to correct all findings.
Implement Supply Chain Management Software
In addition to the steps listed above, you’ll want to ensure that you have the right tools to conduct your audit.
Without the right software, your audit might have to be done manually in parts, leading to errors, slowdowns, bottlenecks, and even incomplete audits.
Audits are much easier and more manageable with the support of supply chain management (SCM) or supply chain risk management (SCRM) software like Anvyl.
These platforms help manufacturing organizations:
- Track, review, and expedite transactions with digital documentation.
- Maintain a secure record of supply chain data that integrates with an ERP or other records system.
- Monitor the movement of products through the supply chain.
- Convert data into easily readable reports and findings.
Internal Supply Chain Audit Checklist
Conducting both an internal and external audit is an integral part of examining your supply chain and evaluating the health of your organization.
These audits help ensure everything runs as it should and that all parties follow the same rules. They add value to an organization and back up data with clear processes.
An internal audit helps determine which problems you may need to remedy within your systems.
Then, you can consider introducing solutions to ease those challenges, like new software, systems, processes, or procedures that help manage supply chain relationships and keep everything running smoothly.
1. Assess and Manage Risks
There are different types of risks in the supply chain that all manufacturers face, regardless of industry. Manufacturers must assess and manage these risks to maintain an effective supply chain.
Reputation
Your reputation depends on how consumers view your practices and whether they deem them acceptable or questionable. If some of your consumers believe your practices are unethical, you risk damaging your reputation. Keeping things above board and being transparent in your practices helps mitigate reputational damage.
Pricing
Pricing refers to the market prices of your goods. They can change when the price of materials changes or your expenses rise. If, for example, your raw material costs rise and your product becomes more expensive and less desirable to consumers, this can affect the flow of your supply chain. Making sure you are getting the best deal can help mitigate pricing risks.
Cybersecurity
Cybersecurity is essential, as it’s an emerging risk for manufacturers. As software attacks on the supply chain become more frequent, you need to review your cybersecurity processes and create systems that protect your valuable data. This can help you avoid undue cybersecurity risks.
Geopolitics
The global supply chain relies on compliance between different regions and geopolitical areas. However, international conflicts can affect the tariffs and trade agreements between nations. Having alternate suppliers in different regions can help you avoid geopolitical risks.
Inventory Management
Another area of risk is inventory management. When a business doesn’t transport or store inventory correctly, it can lead to inventory waste and shortages of the materials needed to complete orders. Having an undamaged stock and inventory is key to success. Inventory management systems can help you track and maintain inventory.
Contract Management
Contracts with suppliers can also affect your supply chain. For example, if one department owns contracts but does not oversee performance, it can lead to unintentional contract breaches. Keeping people trained and in compliance with agreements can mitigate contract management risks.
Quality
The quality of goods received also affects your supply chain. Damaged goods or poor-quality materials can derail your business processes. Quality assurance procedures can help keep you and your supplier at a high standard and avoid quality control issues.
Shipping
Shipping is essential to manufacturing and production, as it transports materials and goods to buyers. Creating new delivery procedures also prevents undue supply chain shipping risks.
Legal
Your business can suffer if your suppliers engage in illegal activity, even if you are unaware of it. Improving your contracts and creating rules and regulations for suppliers to follow keeps you compliant and avoids legal risks.
2. Review and Cross Reference Transactional Data
The next step of an audit is to review and cross-reference your transactional data. This helps ensure no errors or discrepancies between your documents and data and no conflicts with the quality, number, or price of goods.
Information that your audit should cross-reference includes:
- Receipts and purchase orders
- Receipts and shipping notices
- Receipts and QA reports
- Invoices and QA reports
- Shipping notices and purchase orders
3. Examine Your Data Log
The final step in your internal audit is to examine your data log. The data log keeps track of all your team members’ information. Your auditors need to know who changes data, how data is altered, and where in your organization these changes happen.
Team members might change data for innocuous reasons like correcting an error. However, suppliers can also make fraudulent changes, including raising the price of an item to create a false purchase order, then sending that order to you and lowering the price again so that you are unaware of the changes.
External Supply Chain Audit Checklist
While an internal audit is vital for the success of your supply chain, you should also conduct external audits for your suppliers.
External audits, also known as supplier audits or risk-based supply chain audits, can help reduce risk among your suppliers.
It also gives you big-picture insights into which tactics are successful for your supply chain and which suppliers need to improve to meet your standards.
1. Complete a Supplier Self-Assessment
You can begin external audit programs by having the supplier examine themselves for areas of weakness or improvement. The assessment report the supplier fills out will take place before any onsite evaluation and is meant to give you an idea of what to expect during the full audit.
2. Conduct an Onsite Audit
The onsite audit is the complete audit at the supplier facility. The onsite audit helps provide an accurate picture of the practices, procedures, plans, and processes the supplier manages.
3. Schedule Opening & Closing Meetings
An external supplier audit will have meetings at the beginning and end of the process. This sets clear expectations and avoids confusion between your organization and the supplier about timeframes, verification standards, and acceptance.
4. Verify Risk Mitigation Procedures
Once the audit is complete, you can begin to put procedures in place to track risk mitigation and ensure that the supplier addresses the issues found in the audit.
5. Complete Annual Re-Verification
The audit shouldn’t be a one-and-done deal. The audit should be re-verified annually to ensure the supplier meets compliance goals and takes corrective action. In addition to checking for noncompliance, re-verification can help you avoid (and address) any potential issues between you and the supplier.
6. Review KPIs
Your suppliers should have some key KPIs and metrics for you to review. These KPIs will help you determine whether or not the supplier is meeting the audit requirements or if they have failed the audit. Consider asking your supplier for the following metrics:
- Product presentation
- Correct labeling
- Pallet configuration
- Transaction timing
- Timelines and accuracy of advance shipping notices
- Timeliness of invoicing
- Rate of accepting purchase orders
- Product Quality
- Accuracy of invoices
- Accuracy of fulfillment
Streamline Supply Chain Audits With Anvyl
A supply chain audit is essential for improving your entire manufacturing organization.
Without regular audits, you won’t be able to tell when areas in your supply chain need support or when your business operations aren’t functioning optimally.
Having an audit process in place will ensure that you can identify areas of improvement and create better systems.
Supply chain management software like Anvyl can make conducting a supply chain audit easier. You can easily streamline your audit process and get accurate, real-time data from a single source of truth.
Get a demo of Anvyl today to learn more!
