What is a Supply Chain Audit? Definition & Explanation
A supply chain audit is an in-depth review of the processes that an organisation follows to deliver goods and services. The purpose of the audit is to identify weaknesses and bottlenecks in those processes, and to discover opportunities for improvement.
When conducted correctly, supply chain audits give organisations a detailed understanding of:
- Their supply chain procedures;
- Key performance indicators and other metrics;
- Inefficiencies in the supply chain; and
- Their supply chain baseline compared to industry benchmarks.
The audit looks at the organisation’s involvement across the supply chain, giving organisations insight into every part of the delivery of goods and services. It assesses strategic and operational issues – both internally and with suppliers and other third parties.
Benefits of supply chain audits
A supply chain audit demonstrates to stakeholders that your organisation is doing everything it can to operate effectively and in line with its legal obligations.
By reviewing your processes, you prove that you are proactively attempting to identify and address problems that could cause delays throughout the supply chain.
Audits also review your organisation’s contractual agreements with third parties. This helps to demonstrate that you take your business relationships seriously and intend to uphold the terms of your deal.
Meanwhile, audits also help you assess the bigger picture. The supply chain affects not only your organisation and your direct partners but also the organisations that they work with. A weakness at any point in the supply chain could have significant knock-on effects.
For a supply chain to operate smoothly, everyone involved must do their part and trust that others will also act responsibly. If all interested parties take appropriate steps to audit their systems and create a smooth supply chain, it will provide a huge competitive advantage.
Products and services will be delivered faster and with fewer mistakes, maximising business opportunities and limiting unnecessary expenditure.
The supply chain audit process
An effective supply chain audit comprises five steps. First, you must create a purpose statement and define the scope of the assessment.
A purpose statement helps everyone involved understand what the organisation is aiming to achieve. For example, some of the purposes you outline could be finding bottlenecks in the production of services, improving delivery times and discovering compliance gaps.
The scope refers to the processes, documents and other assets that are being audited. The scope of the audit will depend on the nature of your business, but it should include everything that has a significant impact on your supply chain.
The second step is to create a supply chain audit strategy. Every organisation is unique and will have a particular relationship with its third parties.
As such, there is no one-size-fits-all approach to conducting a supply chain audit. You must instead untangle your third-party interactions to identify specific activities that should be reviewed.
The third step is to collect relevant data across all mediums. The specifics will again depend on the nature of your business and your relationship with suppliers, but the data you collect could include physical surveys, on-site assessments and questionnaires.
The fourth step is to collate and evaluate the data you have collected. This is the main body of the supply chain audit and is where you will identify the items on your purpose statement. For example, an assessment of production data could reveal bottlenecks, or on-site audits could indicate compliance gaps or inefficiencies.
Finally, you should create an audit report that summarises your findings. This should be shared with management, who must decide upon appropriate actions.
Some actions will be easy to identify, such as the need to implement corrective measures to address compliance flaws.
However, others will be tougher. The report could, for example, indicate ways to improve processes but which could be expensive to implement. Management must decide whether the benefits outweigh the costs, and if that’s the case, how best to proceed.
Simplify your supply chain audits with DQM
As you can see, supply chain audits are not simple. It’s why many organisations turn to independent experts such as DQM GRC to complete the process.
With our Supply Chain Audit Service, we will design an audit programme around your risks and controls. We’ll also seek answers from your suppliers and processors about their practices.
Our team will create an audit template and test it before carrying out the assessment. You’ll receive a report that identifies areas of good practice and highlights deficiencies, supported by recommendations to resolve or mitigate them.
We will also work with you to monitor the ongoing effectiveness of the audits. The frequency of this review cycle will be agreed upon in advance but will also be triggered by changes to contracts or data-sharing agreements or by known breaches and incidents and will take place at least annually.