A supply chain audit is the process of identifying the risks (or benefits) of using one supplier over another. It is also sometimes known as a “risk analysis,” and it’s one of the best ways to increase your business intelligence and supply chain visibility.
However, many companies still aren’t utilizing audits to their fullest potential within a supply chain management strategy. Some even eschew the process entirely, for reasons ranging from cost/benefit concerns, to time constraints, to unfamiliarity of the way an audit should be conducted.
8 Top-Tier Benefits of a Supply Chain Audit
Supply chain audits reduce risk, provide better visibility, and help identify places where the links in your chain aren’t quite as strong as they should be.
Supply chain audits help you:
- Minimize supply chain risks, including supply and demand viability, limits on capacity, and quality control issues. Having real-time data about various suppliers and business partners at your fingertips can help you choose only those who are able to keep up with your output, ensuring on-time production and delivery to your customers.
- Identify sourcing qualities that may be unethical or hazardous. From a discount lumber chain selling formaldehyde-laced laminate flooring to Nike’s sweatshop scandal, it’s clear that many large companies aren’t doing their due diligence where sourced materials are concerned. A supply chain audit allows you to know where every piece of your product comes from, eliminating situations that can be harmful to your customers, your business, or your bottom line.
- Provide precision in the fulfillment process. If you use a 3PL to fulfill your orders, precision is an absolute must. A supply chain audit can help you identify 3PLs with a lower-than-average error rate, ensuring that the correct product gets to the right person in the time frame you’ve specified.
- Gauge geopolitical risks and/or natural disasters. The world is in nearly constant upheaval. From terrorism to civil conflicts, and earthquakes to wildfires, it’s crucial for you to choose suppliers that have the least likelihood of being affected by the unpredictable. Supply chain auditing allows you to assess the risk posed by a supplier or business partner’s location.
- Identify financial risk from key suppliers. Is a supplier running in the red? Do they pay on time? Do they use freight audit and payment solutions to guarantee that you’re billed correctly? Are they at risk of bankruptcy, unable to make payroll, or relying on incoming payments before they can buy the materials to make or ship your product? A supply chain audit can delve into a supplier’s financials and identify any problems that may affect your company.
- Show technical requirement. Your suppliers need to have the technical knowhow to create your product. During a supply chain audit, they’ll have the opportunity to demonstrate that they are up to the task.
- Prove quality control measures. When it comes to accept/reject criteria, tolerances, and blends, you often only have the supplier’s word that your conditions are being adhered to. A supply chain audit can provide concrete proof that those quality control measures are being followed to the letter.
- Determine management systems. A supply chain audit allows you to implement management systems for the contract, ensuring that manufacturing practices; national, international or industry standards; and/or government regulations are being met at every step of the supply chain, thus remaining in compliance from beginning to end.
How to Conduct a Supply Chain Audit
A supply chain audit begins by laying out your requirements. Knowing what your company needs to succeed before the audit begins allows you to evaluate against those requirements, thus seeing where potential problems lie. This becomes the basis for your supply chain audit checklist.
Next, you need to identify your suppliers, who must, in turn, identify their suppliers. If you already have a viable supply chain map in place, this process becomes much easier. If not, now may be a good time to begin creating one for future reference.
Finally, you need to determine what kind of audit you intend to perform. This can be different for each supplier. Some companies consider asking their suppliers about compliance and business practices to be enough. Others delve deeper into certifications, contracts, financial records, invoices, and product samples. Still others aren’t satisfied by anything but a full inspection of all top-, mid-, and bottom-tier supplier facilities.
Auditing Increases Your Supply Chain Visibility
Auditing supports your supply chain management in a variety of ways, and each one of those ways makes the individual components of your chain more visible. Get started by outlining the specific goals and insights you need from a supply chain audit.
A successful audit will provide increased business intelligence, better relationships with your suppliers, and the peace of mind that comes with knowing you’ve mitigated as much risk as possible for your company, your employees, and your customers.