Supply Chain Audit: A Step-by-Step Guide


In simple words, Oxford defines ‘Supply Chain’ as “the sequence of processes involved in the production and distribution of a commodity.”

Unfortunately, that definition is the only ‘simple’ component of supply chains! Supply chains bring the food to the table, the clothes to the shops, and every other commodity to their final consumers and it is anything but simple. 

This is why ‘Supply Chain Management’ is one of the most critical steps to ensure that the supply chain is consistent, sustainable, and operating at its efficient best – both time and cost-wise.

And one of the most helpful methods to achieve this is through Supply Chain Audits and ensuring that every process follows the existing guidelines. So, what is the best way to nail the supply chain audit and reap the benefits?

The 5 Major Components of a Supply Chain

Although there are numerous components of a supply chain, they can be classified into five major categories.

1. Pre-Manufacture Procurement

This stage involves sourcing the requisite raw materials, getting on board the right workforce – skilled or unskilled, to carry forward the subsequent processes.

2. Production/Manufacture

This stage includes all the processes for the conversion of the raw materials into the final product. It involves the actual manufacturing process in the factories, workshops, or industries.

3. Transportation

Manufacturing involves considerable logistical arrangements such as physical movement of raw materials from one assembly station to the other, moving the inventory for warehousing, transporting the finished goods to their following location, etc.

4. Warehousing & Storage

Estimating the exact storage capacity required, aligning the distance between the manufacturing plant and the warehouse with the shelf-life of the products, selecting a storage center appropriate to the commodity are some critical aspects conducted at this stage.

5. Distribution & Sales

Although the final stage, this sale includes many activities ranging from the sale of commodities from wholesalers to retailers (B2B) and then retailers to final consumers (B2C), to the after-sale training, quality control, returns management, and customer service.

Blockages, wastage, disgruntled suppliers, overstocked warehouses, lost goods, delayed goods, unhappy customers – all of these are signs of an inefficient supply chain in dire need of management. 

In addition, there are financial implications at every stage of operation. 

This is why a Supply Chain Audit at regular intervals keeps these issues in check and ensures that the overall supply chain is functioning at its optimum best.

What does Supply Chain Audit mean?

In common parlance, an audit includes an objective review by internal or external parties of the existing systems.

Similarly, a supply chain audit is a systematically conducted review of each process involved in a supply chain to check for any weaknesses, bottlenecks, and of course, the scope for improvement.

Supply chain audits will give you meaningful insight into:

  • In-depth knowledge of your supply chain procedures
  • Obtaining performance metrics and other indicators
  • Using data to identify supply chain inefficiencies
  • Creating a supply chain baseline and comparing it to industry benchmarks
  • Using supply chain data to monitor digitalization and modernization.

An internal audit of your supply chain is a proactive way of enhancing business performance.

Rather than waiting for losses to occur and then taking corrective measures, it is better to have a system that conducts regular checks and has the entire supply chain in control. If done right, a supply chain audit can result in significant financial paybacks.

What Is the Right Way of Conducting a Supply Chain Audit?

To conduct a fruitful and productive supply chain audit, below are the steps that need to be followed:

1. Defining the scope and purpose statement:

Before starting the audit, all the involved members should be made aware of the purpose and focus area under review.

You must outline a clear statement of purpose, which defines what the audit aims to achieve, e.g., finding bottlenecks in the assembly process, improving transportation timelines, etc.

In addition, the scope of policy audit is decided, which determines the processes, documents, and involved teams being reviewed.

2. Decide the supply chain audit strategy

No two businesses are the same, and ergo no two supply chains are the same. Therefore, a suitable strategy must be decided and agreed upon, tailor-made for that particular business and supply chain. 

Whether it is a physical verification or a digitized audit, a review of grassroots level activities or a bird’s eye view of the processes – all these factors need to be considered while finalizing the supply chain audit strategy. Given that, it’s always better to digitize your audit processes for faster and more efficient audits.

3. Collection of data and inputs

Once the audit scope and strategy have been decided, relevant data must be collected through various mediums such as physical surveys, questionnaires, checklists, pulse-check meetings, etc. 

Along with compiling the internal data, the audit team should also collate external data such as industry benchmarks, the latest legislation, and best practices being followed across the globe.

Another essential step according to the British Standard Institution is to map out the supply chain’s direct and indirect sources. The risk increases with supply chain complexity, diversity, and outsourcing.

4. Review of processes

The collected data, or process under review, is then assessed, evaluated, and put through stringent checks. Finally, harnessing the latest data analysis technology and AI-powered tools, summarize these data and present them in the form of conclusive reports.

Some of the discrepancies that come to light through a supply chain audit are:

  • Mounting stock during the off-season 
  • Implications of downline suppliers not meeting deadlines
  • wastage and spoilage of stock due to ill-planned production
  • bottlenecks in the transportation stage.

The Audit Report can also help to highlight these issues based on priority.

5. Drawing Insights

Once the audit report is ready, management can draw insights from the outcomes and takeaways and formulate the following action points. 

Did you know, an audit typically sets the stage for working connections in the first place. Sometimes, firms only find out where their commodities are coming from by having their goods audited.

First, the financial impact of each concern highlighted through the supply chain audit has to be calculated. Then, in case any corrective steps need to be taken concerning a particular element of the process or any stakeholder involved, immediate steps can be taken.

What are the Benefits of Conducting Supply Chain Audits?

Recent research on audit methodology shows that audits improve working conditions. It also improves health and safety, environmental sustainability, and anti-corruption and bribery efforts in the workplace.

According to Sedex’s research, organizations that undergo regular audits are more likely to reduce non-compliance occurrences and, as a result, enhance their working conditions.

Here’s a quick glimpse into the most desired positive results from supply chain audits: 

  • Regular audits prompt suppliers to enhance their business operations and management systems.
  • It lowers various risk factors in the field of quality, safety, reputation, credibility, cost volatility, supply disruption, and so on.
  • Increasing health and safety audit data reduces non-compliance with health and safety legislation.
  • Audits help companies increase their credibility and reliability by demonstrating to consumers, suppliers that the business strives for perfection.
  • Audits do not solve all problems, but they help customers and suppliers communicate better and start a productive dialogue.
  • A supplier audit clarifies quality objectives and streamlines the supply chain.

The COVID Factor

The year 2020 showed to the world what disruption meant. As the world tried to cope with the wrath of the pandemic, supply chains across industries went for a toss. 

Only those with resilient, adaptive, and sustainable supply chains could cope with the pressures of conducting business in such trying times. And this has brought into light a new checkpoint in supply chain audits – Resilience.

Conducting stress tests to ensure that the manufacturing supply chain can withstand and operate under pressure has become an additional benefit of supply chain audits.

Summing up

An audit in any form serves a dual purpose – to find out loopholes and plug them and find out areas where there is scope for improvement.

With Pulse, you get customized checklists, insightful reports, and digitized inspections, all aided by state-of-the-art technology that will enable you to conduct productive supply chain audits.

So connect with us today and convert your supply chain into a Value Chain by ensuring each process works in your favor.