Running an effective Supply Chain Audit to discover your operational potential

• A study conducted by Deloitte found that companies that regularly conduct supply chain audits on their operations improve profitability by 5% compared to those that don't.
• A report from KPMG shows that businesses with mature supply chain audit processes in place are a staggering 80% more likely to comply with relevant regulations for their sector.

An end-end supply chain audit will highlight many factors and show you where you’re lagging behind and what to prioritise for quick wins and long-term gains. It will shine a light on your entire operation and provide specific actions for removing obstacles and optimising performance.

This article will help you understand the benefits an audit can have on your business and how to go about getting started.

The value of conducting a supply chain audit

Reviewing your end-to-end operation regularly cannot be undervalued. There are so many benefits from providing a clear overview of operational inefficiencies to identifying specific detailed problems that may be overwise hard to see. The audits conducted by the IMPACT EVOLVE team often highlight common problems shared among businesses. Some of the benefits you’ll likely get from a detailed audit are:

• Identifying inefficiencies and hidden costs: An audit will look at your processes from sourcing raw materials through to final mile delivery. Sometimes visible symptoms such as failed deliveries, mis-picks or missing stock are caused by underlying issues not so easy to identify and could be as much a communication problem as a technology or process one, often a combination of all three. Your audit should be designed to help you understand the true underlying issues and facilitate change for improvement.
• Improved compliance and risk management: One of the biggest benefits an audit will provide is highlighting potential risks, both to staff health and safety and business performance risks. It will also help you align your processes to specific regulatory compliance, which if you’re in an industry where this changes frequently, must be reviewed often in order to ensure you continue operating legally.
• Strengthened supplier relationships and performance: Your processes can be affected by poor performance from suppliers. This is sometimes not apparent on the ground, but a thorough investigation can identify where problems lie and help uncover mutually beneficial solutions. We’ve seen supplier relationships flourish when common bottlenecks have been removed between the 2 parties.

A step-by-step guide to conducting a Supply Chain Audit

So you’ve decided you want to audit your supply chain, great! How do you go about that though? Well, the good news is, that most businesses who operate a supply chain face similar challenges, their processes are similar in nature, and common problems tend to show up time and again. Of course, every business will have some unique concerns and it's important to factor those in when planning your audit, however, our Getting Starting guide will help you plan for the majority of auditing steps.

Define your scope and objectives

It's important to understand why you’re taking action and what you hope to achieve by it. We often find this isn’t immediately apparent. A business founder is rarely fully versed in their supply chain or operational goals, and that’s perfectly fine. A starting point could simply be the need to move from chaos to calm.

If your business is scaling and you’ve identified the need to evolve to keep up, this can be another trigger point for a review. Whatever the reason, be clear in your mind why you’re doing it and be able to discuss that with all relevant team members. That’s the first step in getting everyone on board and will lay the groundwork for change should it be required further down the line.

Gather all relevant data

Your first exercise should be to gather all the data you can that's relevant. This may not be a simple task and the fact you cannot obtain certain data could offer your first insights into where issues lie.

Aim to have enough data to demonstrate (to someone outside your organisation) an understanding of your business operating model, including things like historical sales overall, by sales channel and by SKU, a snapshot of inventory held, and supplier locations. (your actual list of data types will be much more extensive than those examples).

Your sources will vary, but will likely include eCommerce software or an ERP for order data, plus back office systems and inventory management. To streamline this process and minimise friction, we recommend setting up a shared drive you can securely upload to and give access to those involved.

Facilitate a discovery workshop

Once you have data to review, you should gather together all relevant team members for a discovery workshop. The idea of this session is to comprehensively review every aspect of your supply chain, from sourcing to delivery. This includes all processes undertaken, from forecasting to fulfilment.

The workshop leader should be ready to ask precise questions of the team with a view to uncovering challenges, risks, gaps, and opportunities in your processes, systems, data, and people skills. At the end of this, everyone involved should have a high-level understanding of your complete supply chain and operational methods.

We recommend utilising collaborative tools and templates such as Miro and Lucid for these types of sessions as they are cheap and easily accessible and will help foster involvement from all participants.

Map the supply chain

Your next task will be to create several key outputs that help to visualise your supply chain. This process can often be eye-opening as it highlights potential bottlenecks and routing optimisation opportunities. The illustrations we typically recommend creating are:

• A detailed network design map: This should include all manufacturers, suppliers, freight providers, fulfilment locations, and the final mile network.
• A customer sales heat map: This will assist in determining whether you have the right partners in the appropriate locations with the necessary capabilities.
• Your technology stack design: This will show all the systems being used in the business, what they are used for and how they are integrated together.

Once you have these documented, you can start to review them in tandem. This exercise alone often leads to insights into potential efficiency savings, environmental impact and potential lead time reduction. It's also a great base point to help start building out your next phase "To Be" network design.

Conduct an on-site audit

We highly recommend watching the processes be carried out on-site, the theory is great and a requirement to help you set your audit up, assess the data, and build a plan but there is nothing like watching the team and processes in action, seeing what they do and understanding the challenges from their perspective.

Nominate a team member or small group to thoroughly review the site layout, equipment, systems, and processes. Take this opportunity to discuss their challenges with the wider team and actively observe the site's operations from inbound logistics to dispatch.

Identify gaps and problem areas

At this stage, you’re now ready to collectively review all the information, insights, and data gathered up to this point.

We suggest using tools like Miro for this task which should be treated as an extensive brainstorming exercise. You should ensure every identified issue is detailed and captured. These issues can then be categorised into themes for a more structured analysis.

With all the themes identified, you can begin formulating potential solutions. You may find at this point your team doesn't have all the necessary experience to deal with some of your issues. That's where an experienced team of Supply Chain Consultants such as IMPACT EVOLVE can be leveraged who can draw on extensive networks of solution providers and partners to resolve issues.

Develop a set of recommended actions

You’re now ready to synthesize your observations and put recommended actions into a report. You should aim to create something that is easy to understand and avoids clutter. This may be shared with people outside of the process so needs to include enough information to provide the clear rationale behind the exercise, but not be overly complex and overwhelming to the point where someone won't want be read it.

It should include:

• Insightful data analysis and visualizations that clarify the business challenges
• Outlines of project workstreams with specific, actionable recommendations

You can then have follow-up sessions with your business stakeholders to review and prioritise next steps.

Supply Chain Audit success stories

Working primarily with 0-£200m businesses that are going through growth stage challenges, we’ve seen first-hand the positive effect an audit can have on business processes and efficiencies.

Working with AKT London, a subscription-based healthcare company. We conducted a supply Chain Audit which highlighted a number of issues and opportunities, including:

• Contract Renegotiation - Identified renegotiation opportunities for AKT's UK 3PL contract, securing more favourable terms to support operational efficiency.
• Enhanced Manufacturer Communication - Recommended improved communication with their manufacturer, enabling advanced planning for production and distribution.
• Packaging and Case Size Optimisation - Optimised packaging by analysing sales data and creating case sizes suited to each sales channel. This reduced picking costs and enhanced customer experience.

These are just some of the strategic adjustments that have streamlined AKT London's operations, setting a solid foundation for future growth.

The work we did auditing and its resulting follow-up for We Are Fulfilment, a UK Based 3PL company, helped to:

• Identify the need to review their international carrier strategy, renegotiate key contracts, and introduce new carriers and services, which led to a reduction in the delivery lead time of 2 days and a 10% overall reduction in international delivery costs.
• Carry out a full skills gap analysis that allowed the founders to clearly understand where and when key hires needed to be made; we then led the recruitment and onboarding process of new hires, helping to build out the senior management team for the business.

Best practices and common mistakes to avoid when carrying out your own audit

Conducting a thorough supply chain audit is crucial for optimising your operations and mitigating risk. There are however some common mistakes made that can hinder effectiveness. For instance, trying to audit everything at once (having a lack of focus can lead to a scattered approach which doesn't really help anyone). Also, not having clear objectives in mind, and not communicating effectively with all required team members. Having incorrect or incomplete data can lead to skewed results and neglecting real-world observations (relying on what people say they do rather than observing what they actually do) can all result in flawed analysis of your processes.

So, to avoid those kinds of mistakes and ensure you get the best out of your audit, here are some of our recommended best practices to keep in mind throughout the exercise:

• Observe actual processes: Don’t just rely on anecdotal evidence from interviews or documentation. It’s important to study people in real-world scenarios doing their job. Watch what happens in normal activities and when something goes wrong, document it.
• Prioritise your investigation: Don’t try to audit everything at once. focus on critical areas first based on business goals and known risks. Use this to understand opportunities and quick wins before looking at other areas.
• Define your objectives first: Have a clear understanding of what you’re looking to achieve up-front. Your goals may change depending on what you find, but going in with a game plan will help prioritise activities.
• Assess a diverse team: Your supply chain operations involve people at all levels of the business, so it's important to speak with people in different departments, with different roles, and different seniority levels. You will learn as much (and likely more) from the people on the ground as you will from the boardroom.
• Focus on root causes: Sometimes you might spot a problem and be tempted to try and solve its symptoms (the outputs)… However, digging a little deeper will uncover the root cause found elsewhere (the inputs). Take time to understand the inputs, this approach will give you a long-term resolution to your issues.
• Be objective and avoid bias: Ask open questions and use verifiable data. Try to avoid adding personal bias to your analysis.
• Get buy-in from stakeholders: Make sure everyone involved in decision-making is aware of the plan and your objectives. Be able to present back findings in a clear easy to understand way and focus on key findings and easy-to-understand insights.
• Keep it simple: Try not to overcomplicate what you are doing, look for some early wins that will motivate and engage your team and stakeholders, land them with skill and move on to the next ones.

Final thoughts

If you’re facing challenges in your supply chain, either internally with your own processes or with external partners, an audit can be a very effective and low-cost way of identifying where to prioritise resolution efforts. If done well, it will be transformative for your business (we’ve seen it before many times). The benefits we see time and again help to reduce costs, improve efficiencies, and often open up opportunities otherwise unattainable.

To proceed you will need to assemble the right people, gather all your data, and be comfortable running workshops (and potentially asking some probing questions of your team). There is a lot to consider before embarking on an auditing exercise, but hopefully, this article has given you a starting point and a point of reference as you develop your strategy.

Of course, if you’d like to engage the IMPACT EVOLVE team to help in any way, please reach out via our enquiry form. We’d love to hear from you.