Duration Supply Chain Audit Methodology

¶ … Duration Supply Chain Audit Methodology

Even though every supply chain is unique, it is also relatively straightforward in concept; however, in most cases, supply chains are complex in their real-world settings and such complexity can easily result in inefficiencies and duplicative practices that represent diminished profitability for the organizations involved. Therefore, auditing the supply chain from time to time represents a potentially valuable enterprise because substantive improvements in supply chain management can provide substantial reductions in total supply chain costs as well as inventory levels and resulting warehousing costs. In addition, auditing the supply chain can identify opportunities to improve the accuracy of forecasts and the organization's order fulfillment cycle time can be significantly improved (Auditing the supply chain, 2009). To this end, a short-duration supply chain audit methodology would seek to model a given company's supply chain in sufficiently detailed terms to allow the consultant to identify potential areas for improvement and areas where more thorough auditing might be needed. In this regard, Boyson, Harrington and Corsi (2004) advise, "Models can help companies structure and simplify the complex, dynamic nature of their supply chain. These capabilities help structure, transform, and condense information so that managers can quickly grasp a situation and act upon the presented information" (p. 99). The audit model will be developing used a questionnaire and procedures as described further below.

Generally speaking, one of the advantages of using an outside consultant for supply chain auditing purposes is that an experienced auditor can analyze a company's supply chain in an efficient fashion and provide valuable recommendations concerning how to improve the organization's supply chain management function. In most cases, the audit of an organization's supply chain is a straightforward, commonsense analysis; however, it must be emphasized at the outset that there are a number of situations where the complicated nature of the product and the components involved may indicate that additional investigation and follow-up auditing services are necessary. As one industry analyst emphasizes, "Every product is unique just as all audit situations are unique" (Auditing the procurement and supply chain processes, 2009, p. 2). Therefore, the short-duration supply chain audit model described herein should be viewed as a starting point to identify opportunities for improvement which may require subsequent and more thorough analyses.

Properly conducted and interpreted, though, even a short-duration supply chain audit can provide a number of useful outcomes, including the following:

1. Identify the strengths and weaknesses of supply chain strategies and operations;

2. Provide a sound basis for benchmarking supply chain management best practices; and,

3. Act as a powerful framework for planning performance improvement programs (Lascelles, 2008).

The manufacturing company targeted by the supply chain audit would seek to determine, at least in a general fashion, the extent to which the following exist:

1. Does the company have a clear strategy in place for the entire supply chain that is linked to market opportunities and focused on customer service needs?

2. Does the company have an integrated organization structure in place that allows the supply chain to operate as a single synchronized entity?

3. Does the company continuously seek to implement improved supply chain management processes?

4. Does the company have access to and use reliable information and integrated technology to support effective supply chain planning, execution and decision-making?

5. Does the company enjoy effective performance management of all of its supply chain operations to achieve top-line revenue growth, optimum asset utilization and bottom-line profitability? (Lascelles, 2008).

Beyond the foregoing, serendipitous findings concerning opportunities for improvement may emerge from the short-duration supply chain audit process. The extent to which the targeted manufacturing company satisfies the above-listed general questions can be expressed in various graphic formats or as a continuum along a Likert-scaled range (such as "not at all," "most of the time," and "all of the time"). These five dimensions of supply chain operation and excellence should be directly tied to the questions contained in the checklist so that an informed analysis can be provided the client with corresponding areas where process improvement initiatives could benefit the supply chain and where additional auditing may be needed.

For the purposes of this analysis, it is assumed that the "typical" supply chain that will be investigated using this short-duration supply chain audit methodology is that of a vertically integrated company which owns multiple manufacturing sites, some of which feed others with components, and which also owns a distribution system prior to retail. As noted above, though, because all organizations -- and their supply chains -- are unique, a short-duration supply chain audit methodology would typically consist of gathering the same type of basic relevant information concerning the company and the industry in which it competes. By any measure, the specific manufacturing industry involved will have important implications for what specific elements should be considered during the brief time allotted for the supply chain audit. The audit can be accomplished using a paper-and-pencil questionnaire (clipboard recommended for on-sight administration) or an online version that can be completed from the client's offices or using the consultant's laptop for fieldwork and completing the audit on the spot (recommended over clipboard/paper-and-pencil approach).

The short-duration supply chain audit should proceed in three basic steps as follows to collect (a) general information concerning the company and its business units and subsidiaries as well as the industry in which it competes; (b) identification of suppliers and buyers with a specific emphasis on determining the relative importance of each and highlighting those that are most important to the company's success; and (c) supply chain issues that are related to the five general dimensions under consideration by the short-duration supply chain audit.

1.

General information concerning company and industry in which it competes.

Which industry group best describes your company?

"https://www.surveymonkey.com/img/t.gif" Which industry group best describes your company? Automotive (OEM or aftermarket parts & supplies)

"https://www.surveymonkey.com/img/t.gif" Consumer Products (durable goods)

"https://www.surveymonkey.com/img/t.gif" Field Service Provider (installations, repairs, maintenance)

"https://www.surveymonkey.com/img/t.gif" Food & Beverage

"https://www.surveymonkey.com/img/t.gif" High-Tech (electronics, computers, peripherals)

"https://www.surveymonkey.com/img/t.gif" Industrial Products

"https://www.surveymonkey.com/img/t.gif" Life Sciences (pharmaceutical, medical devices and related)

"https://www.surveymonkey.com/img/t.gif" Pulp & Paper

"https://www.surveymonkey.com/img/t.gif" Retail Trade

"https://www.surveymonkey.com/img/t.gif" Other (please specify)

How many:

Manufacturing-related employees?

Line supervisors?

Executives?

Support staff?

Other questions would be added as the need for additional information emerged based on the client's responses.

2.

The identification of supplier and buyers. This second step of the short-duration supply chain audit should identify those suppliers and buyers that are most important to the company; a number of variables will reflect their relative importance. According to Elliott, Swartz and Herbane (2002), "For buyers, this includes what is bought from the organization, the value of output sold to the buyer and the proportion of output sold to the buyer. In addition, any collaboration with buyers in terms of distribution, retail and marketing should be considered. Furthermore, through the purchasing department, it should be known whether there are alternative buyers that could be used in the event of a lengthy (or permanent) interruption, in the case of a retailer going bankrupt, etc." (p. 50). The foregoing factors should, of course, be taken into account by the consultant from their perspective as being the suppliers used by the organization (Elliott et al., 2002).

In many cases, audits of the evaluation and selection of suppliers simply consists of a review of the organization's approved supplier list and whether this list has been reviewed at regular intervals. In many cases this may not be sufficient to ensure that the organization has effective control of all of those suppliers within its supply chain. Some of the salient general issues to be considered during the short-duration supply chain audit process include the following:

1. With how many suppliers does the company cooperate per year?

2. What kind of suppliers are they?

3. Under what criteria are the suppliers chosen?

4. What are the major reasons why the company changes the suppliers it cooperates with?

5. Do the suppliers work exclusively with the manufacturing company? If not, how many other companies do the suppliers work with? (extracted in part from questionnaire on supply chain management and occupational safety and health, 2009).

6. Are suppliers of critical component products selected based only on their ability to supply at an economical price or is their ability to supply consistently to specifications also taken into consideration?

7. Are suppliers included in approved lists solely on their continued registration against a recognized quality standard or is the scope of this registration reviewed? (Note: In some cases, it may be advantageous for the consultant to audit the intended supplier to establish clear lines of communication, product specifications, delivery parameters, etc.)

8. How frequently are credit notes raised by the organization for product rejected but subsequently accepted by the organization?

9. How many concessions have been raised allowing the organization to accept previously rejected products? (Auditing the procurement and supply chain processes, 2009).

Some specific areas that should be targeted during the short-duration supply chain audit include those areas that are described further in Table 1 below, together with their corresponding indicators of performance by the targeted manufacturing company. As noted at the conclusion, these metrics and measures would be qualitatively analyzed by the consultant and quantitative values assigned for each of the questions which would correspond to the five general dimensions under consideration in the short-duration supply chain audit; high attribute examples would be assigned a "1," in this analysis, and a low-attribute example would receive a "7."

Table 1

Short-Duration Supply Chain Audit Questions and Corresponding Performance Indicators

Question

High Attribute Example = 1

Low Attribute Example = 7

Does formal product/service profiling and rationalization occur routinely to minimize the risk of obsolete inventory and other costs? What is the reservation capacity?

There are extensive programs in place to minimize the risk of obsolete inventory and other costs.

There are no programs in place to minimize the risk of obsolete inventory and other costs.

How well integrated are the company customer facing processes to the enterprise information systems?

Real-time integration is achieved, not only within the organization, but also across our value chain partners

There is little integration

Does the system interface with other company functions and suppliers?

Yes.

No.

Are logistics parameters (leadtimes, inventory carrying costs, etc.) taken into account when leads are negotiated with clients ?

Impacts of negotiated sales conditions are clearly understood and taken into account during the negotiation phases.

No.

Did the company tailor the products and services to different customers?

The company offers unique solutions to individual customers

The company offers the same range of products to all customers

Through which channels does the company offer products and services to the customers?

The company utilizes multiple channels, depending on the needs of the individual customer and their value to the organization

Primarily through one or two key channels (e.g. branch network and a field sales team)

Does the company monitor the external environment?

The company has a formal proactive process for gathering and disseminating information about the external environment and uses this information in the development of sales and marketing strategies.

The company does not proactively gather information about the external environment (e.g., industry trends and benchmarks, economic factors, competitors).

Is there a current documented strategy & business plan including supply chain targets and goals?

Strategies are aligned with the business plan. Goals and targets are reviewed methodically.

No strategies are developed.

How well are customer service's goals aligned with manufacturing and production?

Very much so.

Not at all.

How well are customer service's goals aligned with inventory management and distribution?

Very much so.

Not at all.

To what extent do clients participate in the demand forecasting process?

Client information is integrated into the sales and order entry systems for both forecasts and demand.

Client information is un-related to the internal demand information.

Is forecasting process in place and documented and do forecasts relate to meaningful product or service families, groups or items from an operations perspective?

Forecasting is developed and aggregated to appropriate levels.

Forecasting is segmented by product or operational site or location.

What types of forecasting analysis does the company use for medium and short-term forecasts?

For short-term forecasting, time series analysis modified by any special events is used. For tactical-range forecasting, the analysis is an equal blend of all the three types of analysis (time series, regression, and qualitative).

We use the same types of analysis for all requirements.

What is the organizational approach to the demand forecasting process?

Forecasting is a collaborative process. Marketing feeds information on market events. Finance may give an indication to the general direction of the economy. Purchase may indicate competitor activity. All these pieces of information are shared simultaneously (not sequentially) through online exchange of information. Final forecast is a consensus forecast.

An individual from one of the functional areas develops a forecast. Sometimes, each individual functional area makes its adjustments.

Do sales forecasts permit resource and capacity planning beyond the cumulative product / service lead-times?

Planning can integrate products and services times across products and groups.

Planning is at the item level.

How extensive is the data collection for demand forecasting?

Systems are utilized for collecting and maintaining historical sales and transactions.

Past sales history is used where available.

What are the levels of accuracy that the Order Entry and Fulfillment data show?

Order Entry and Fulfillment allow for accurate Available to Promise and customer service decisions.

Accuracy levels are too low to be reliant for customer care responses.

Source: Based on supply chain phase questionnaire (Excel spreadsheet) by KnowledgeLeader, 2009.

C.

Supply Chain Issues Related to Five General Dimensions. Other issues to be considered in the short-duration supply chain audit of the manufacturing company in question would involve analysis of various measures and metrics that are directly tied to the five general dimensions being developed by the short-duration supply chain audit. These aforementioned five general dimensions and their corresponding questions are presented in Table 2 below.

Table 2

Five General Dimensions of Supply Chain Management

Dimension

Questions're Measures & Metrics

Does the company have a clear strategy in place for the entire supply chain that is linked to market opportunities and focused on customer service needs?