What Is a Supply Chain Audit?
Supply chain audits offer in-depth insights into your supply chain processes and identify corrective actions for internal and external parties.
There are two types of supply chain audits, internal and external audits (also called supplier audits).
- Internal audits help businesses assess the health of their internal supply chain processes and systems.
- External audit programs allow companies to identify potential risk areas, implement on-site quality assurance, and improve supplier communication.
Below are the steps involved in the supply chain audit process. The supply chain audit team (both external and internal auditors):
- Defines the scope of the audit (e.g. finding bottlenecks causing delivery delays, etc.)
- Devises an audit strategy (e.g. invoice audit strategy to check carrier SLA compliance)
- Collects data (e.g. from logistics management systems)
- Gathers feedback from stakeholders (e.g. carriers, suppliers, distributors, warehouse staff, etc.)
- Creates audit report
- Draws insights to propose corrective steps (e.g. adopt a multi-carrier strategy).
According to a 2021 Institute of Supply Management study, 42 percent of supply chain management organizations said that the increasing cost of supply chain management was one of their top concerns.
In this article, we’ll review the importance of supply chain audits for the success of your business and discuss the different types of supply chain audits.
Why Supply Chain Audits are Important
Third-party service providers and partners help fulfill the growth of your business and gain a competitive advantage. But outsourcing your logistics operations also increases the likelihood of fraud and financial risk.
A 2020 study revealed that 92% of US businesses experienced a breach that emerged from a third-party vendor.
Here are some of the most important outcomes of supply chain audits:
- Supply chain auditors conduct a supply chain risk assessment to understand which entities are most vulnerable to risk. You can implement supply chain risk management strategies to mitigate the risks, reduce costs, and increase efficiency.
- Supply chain audits tell your partners and customers that you value quality management, increasing the credibility and reliability of your business.
- Supply chain audits improve the accuracy of supply chain planning and forecasting mechanisms–which prompts suppliers and logistics partners to enhance their resources and processes.
Global supply chains are increasingly complex as most companies’ business operations have processes carried out in different geographical locations, from procurement to warehousing and contract management. Supply chain audits help them focus on one of these processes at a time and identify issues before they spread out.
Different Types of Supply Chain Audits
Not all business types have the same risks, even when they are related to the same industry.
For example, manufacturing businesses are susceptible to different types of risks, including quality risk, geopolitical risk, cybersecurity risk, and price risk. However, shippers are particularly vulnerable to risks related to inventory management, contract compliance, parcel invoice, work compliance, and shipping.
1. Parcel Invoice Audits (or Shipping Audits)
A parcel invoice audit (also known as a shipping audit) assesses where you are being overcharged. Its objective is to identify when, where, and how a carrier charges too much for its services.
During shipping audits, the auditor looks at shipping invoices to identify service failures (e.g. ground vs. air delivery), shipping errors (e.g., duplicate charges), surcharges (e.g. due to rising fuel prices), price hikes, and weight or dimension miscalculations.
You can either manually audit shipping invoices to identify patterns of overpricing or use a shipping audit service to automatically identify shipping errors.
Worried that you may be leaving money on the table? Use Sifted’s automated parcel audit service to track potential refunds for you!
2. Inventory Audits
An Inventory audit involves the physical verification of stock to identify discrepancies between stock records (physical and computed stock) and prevent the shortage of raw materials and high-demand products.
An inventory audit, also called a stock audit, helps businesses identify slow-moving inventory, deadstock, and obsolete inventory. It ensures that the vendor (e.g. a 3PL company) properly preserves and handles the stock. This helps businesses bridge the gaps in inventory management processes, prevent fraud and improve the bottom line.
Amazon’s fulfillment centers regularly mismanage inventory, overcharge FBA fees, and miss shipper refunds. Sifted’s Marketplace Intelligence software automatically reconciles your inventory reports in real-time to quickly identify issues and file claims on your behalf.
3. Workplace Compliance Audit
Workplace compliance is a review that ensures you and your third-party service providers follow laws, regulations, and standards. The audit report confirms if the safety and working conditions of the warehouse and shipping facility meet the compliance standards.
For example, ISO-compliance requires businesses to conduct internal audits of workplace safety hazards and future risks.
4. Contract Audits
Contract compliance is critical to the success of your supply chain operations. It ensures that the carrier complies with the terms (e.g. discounts for shipments, service levels, etc.) negotiated in the contract agreement.
During contract audits, auditors compare your company’s shipping characteristics with carrier rates, cost drivers, and carrier profitability to identify cost-cutting opportunities. This approach gives you the information you need to secure lower rates in contract negotiations while improving carrier relationships.
Keep a Close Eye on What’s Easy to Miss with Sifted
The supply chain is a complex domain because it involves the interactions of multiple interconnected companies and systems. A supply chain audit provides a straightforward way to assess the performance of your supply chain, identify vulnerabilities, and suggest improvements.
Sifted Logistics Intelligence helps shippers track their key shipping metrics and compare them to potential carriers. Sifted’s parcel audit service offers actionable insights from this data to negotiate better rates with carriers and improve your bottom line.
Streamline your parcel auditing with Sifted Logistics Intelligence. Get a free demo from Sifted!