Why is a supply chain audit vital?

Most companies know the importance of conducting financial audits to make sure that their books are in order and that there won’t be any many surprises come tax time. More and more however, companies are also conducting supply chain audits as well. The companies that do this realize just how much their revenue flow depends on a healthy, competitive supply chain – and how much harm could be caused to their business by a disruption in that supply chain. These companies have come to realize that conducting supply chain audits is not just a nice thing to do for their business – it is a vital thing to do.

Supply chain audits help to reveal many important opportunities and risks for the company. In this article we will discuss some of the most important elements to include in your supply chain audit.

1. Third party vendors

In business, there is consistent pressure to offer quality products or services at competitive prices. As part of your supply chain audit, you need to evaluate whether your current suppliers and vendors do this or whether there might be a better opportunity with another vendor.

It is also important to make sure that any third-party vendors’ policies and practices align with your own corporate policies. For example, if your company has a policy of environmentalism or of corporate social responsibility, you need to ensure that your suppliers are aligned with your company’s values –  or risk losing the faith of your customers.

2. Contract management

Another area to include in your supply chain audit is the management of your contracts with your suppliers and vendors. It should be clearly defined which person or department is responsible for managing contracts and when those contracts need to be reviewed or renewed.

3. Inventory management

Especially for larger companies, inventory management is a huge part of the supply chain. But whether you have one small building or several large warehouses across the country, having an effective inventory management system in place is critical.

Your supply chain audit should evaluate current systems, software and processes to determine areas where the business might operate more efficiently or effectively.

4. Data protection

You might not automatically think of cybersecurity as a supply chain issue, but according to a 2018 survey by Crowdstrike, 66% of respondents said that they had experienced an attack on their supply chain software.  Of these, 90% incurred financial cost as a result.

As companies increasingly form electronic links with their vendors, the risk for vulnerability also increases. As part of your audit, test what data is available and to whom.

5. Geopolitical risks

Finally, geopolitical risks can have a profound effect on the supply chain. If a country imposes tariffs or if there is political uncertainty, it can cause prices to increase dramatically or in some cases, the supply chain to certain regions can even be cut off completely.

It makes sense therefore, to consider in a supply chain audit, how it might find alternative sources of supply if necessary as well as other ways that it might mitigate risk.

While conducting a supply chain audit may seem cumbersome or perhaps even daunting, they are absolutely necessary to staying competitive. For more tips on getting started with your own supply chain audit, contact us today.