The Only Supply Chain Audit Checklist You’ll Ever Need

Article Highlights:

• A supply chain audit is a comprehensive analysis of every facet of an organization’s supply chain, including but not limited to direct and subtier suppliers, factory operations, logistics, and warehousing. Supply chain audits can help businesses address many of these problems through identifying them, assessing their overall impact, and developing strategies for mitigating them. 
• For many companies, carrying out a supply chain audit is a daunting proposal. Using a supply chain audit checklist can help team members break all the disparate tasks into manageable steps and create a legible framework.
• Key steps in a supply chain audit checklist include establishing the scope; determining data requirements; conducting stakeholders interviews; collecting data; and identifying key findings and developing mitigation strategies around them.

Given the complexity and global scale of modern supply chains, it should come as no surprise that many companies don’t have a full understanding of their manufacturing networks. While most original equipment manufacturers (OEMs) are aware of their direct (tier one) suppliers, visibility drops sharply once you venture into the subtiers. This lack of transparency and traceability might not have a clear everyday impact on the organizations sourcing from these supply chains, but they can create significant long-term issues. Problems that can arise from supply chains not mapped and assessed by OEMs include:

• Inefficiencies
• Bottlenecks
• ESG and sustainability issues
• Noncompliance
• Contractual violations

Supply chain audits can help businesses address many of these problems through identifying them, assessing their overall impact, and developing strategies for mitigating them. 

What Is a Supply Chain Audit?

A supply chain audit is a comprehensive analysis of every facet of an organization’s supply chain, including but not limited to direct and subtier suppliers, factory operations, logistics, and warehousing. When companies carry out a supply chain audit, their objectives are typically twofold. First, they want to gain greater visibility into the inner workings of their value chain. Second, they want to shine a light on weaknesses and deficiencies that could be negatively impacting their costs, quality control, product delivery, and compliance. 

Because of just how many stakeholders play a role in producing modern goods—especially in sophisticated industries like technology, automotive, and aerospace and defense—there are a vast range of possible risks and inefficiencies. A supply chain audit can illuminate these issues—and a supply chain audit checklist is the ideal place to begin that undertaking. 

The Supply Chain Audit Checklist

For many companies, carrying out a supply chain audit is a daunting proposal. Using a supply chain audit checklist can help team members break all the disparate tasks and responsibilities down into manageable steps, creating a legible framework that can lead to a more organized, effective process. 

Establish the Scope of the Audit

An effective supply chain audit does not begin with reaching out to suppliers and other stakeholders in an unstructured, ad-hoc fashion. In order to execute an audit as strategically as possible, organizations need to establish a clear scope. Defining the scope entails answering several key questions:

• How many tiers deep into the supply chain do we want to go?
• Will our audit cover manufacturers only, or also encompass distributors, logistics companies, and other supply chain stakeholders?
• Do we want to complete a more focused supply chain audit first, and then carry out something more comprehensive later—after we’ve developed more experience with the process and its requirements?

Determine Data Requirements

One of the most important steps a company can take prior to the audit itself, deciding on the data that will be collected plays a critical role in determining just how successful the project is. Businesses need to establish a clear performance baseline in order to identify weaknesses to target for improvement, and the data framework created here is how that performance will ultimately be assessed. Firms may want to obtain both quantitative data, including financial information and key performance indicators (KPIs), as well as qualitative data, such as interviews with suppliers and their personnel. 

While companies can collect a myriad of different data and intelligence during a supply chain audit, here are some well-known examples:

• Product quality, consistency, and reliability
• Pricing competitiveness
• Price volatility
• Order accuracy
• On-time delivery
• Lead times
• Regulatory compliance
• Production shutdowns and other disruptions 
• Risk management framework
• ESG and sustainability

One of the most important steps a company can take prior to the audit itself, deciding on the data that will be collected plays a critical role in determining just how successful the project is.

Standardize the Audit Process 

In order to create a structured process that can be repeated over time, organizations should standardize the way they audit the businesses that fall within the scope of the project. This means deciding on the kind of data and intelligence they’re seeking to obtain from suppliers, and the methods for obtaining it, as well as practicing consistency with those requirements across the full lifetime of the audit. Standardizing data requirements and methodology facilitates a more streamlined execution, minimizing the errors and variability that can muddle the analysis that comes later. 

Decide Where Audit Data Will Be Stored

It’s always better to head off the threat of data fragmentation before it becomes a larger, more unwieldy problem. A successful supply chain audit will yield a great deal of information, and businesses need to have a clearly defined plan for how all that information is going to be stored. 

For projects of this scale, a supply chain risk management (SCRM) platform can serve as an effective data repository. SCRM software provides team members with a unified location to store files, figures, and documentation, and reference it during the later stages of the audit process. A single platform reduces the risks of data silos and discrepancies, too, establishing a “single source of truth” that all stakeholders can draw from.

Stakeholder Interviews

While there is an understandably strong emphasis on collecting objective data during an audit, structured interviews with key actors in the supply chain can often be just as valuable. Interviews give the business carrying out the audit the opportunity to learn directly from personnel at manufacturers, transportation firms, and subtier suppliers in a way that’s not possible during day-to-day operations. Auditors can gain a deeper understanding of their suppliers’ daily responsibilities, frequent sources of disruption, and chronic inefficiencies that may not be fully apparent to the suppliers themselves.

These stakeholder interviews can also be viewed as opportunities to strengthen communication channels between a company and its suppliers. By establishing a sense of partnership and collaboration through the audit process, companies can cultivate trust with other supply chain stakeholders—a critical prerequisite for advancing supply chain transparency in the future. 

Interviews give the business carrying out the audit the opportunity to learn directly from personnel at manufacturers, transportation firms, and subtier suppliers in a way that’s not possible during day-to-day operations.

Data Collection

In addition to the qualitative information collected through stakeholder interviews, data collection provides businesses with the quantitative information critical to identifying the bottlenecks that are eroding supply chain efficiency. While it sounds straightforward, several key decisions related to methodology need to be made before team members can start collecting data from suppliers and other in-scope organizations. 

• Digital Data Collection: How will the data be collected? Businesses may want to provide suppliers with an online platform for uploading data digitally. This allows businesses time and flexibility as they collect all the requested information.

• In-Person Data Collection: For key documents like shipping manifests, declarations of conformity, and warehousing records, team members may need to travel in person to retrieve the requisite documentation.

• Announced or Unannounced: Businesses need to decide whether the in-person audits they’re carrying out are going to be announced or unannounced. Most supply chain audits are more effective when they’re announced, as suppliers need time to obtain data, documentation, and other customer requirements. But if an audit is focused specifically on regulatory compliance or ESG performance, carrying out an unannounced visit provides its own value. OEMs may want to see how a factory or other facility is operating when there is no oversight—that is, in its natural, day-to-day environment. For a clear, accurate picture of this, a spontaneous audit can be more insightful and revealing than a scheduled one.

Analysis and Assessment

After the interviews are completed and all the data has been collected, organizations need to carry out the crucial step of analyzing all the information their efforts yielded. Quantitative data should never be assessed in a vacuum, and companies will want to use industry benchmarks, historical figures, and their own internal records to evaluate the performance of their suppliers. 

Teams should also review the qualitative data obtained from their interviews with suppliers and other relevant stakeholders, parsing the conversations for opportunities to address vulnerabilities, enhance transparency, and bolster overall efficiency. It’s important to remember, finally, that the results of this assessment will be the ultimate legacy of the entire supply chain audit. If any permanent modifications are made to suppliers, operations, logistics, or other supply chain variables, they need to start here.

Identify Key Findings and Develop Strategies for Improvement

Following the assessment, auditors should make a final determination as to what the most important findings are from the audit. For example, an automotive manufacturer might have discovered during a supply chain audit that a direct supplier was charging them well above the market average for certain electronic components, and one of their high-use manufacturing sites suffered multiple production shutdowns in recent years. Or a subtier supplier might have been revealed to be out of compliance with a crucial environmental regulation. 

If a supply chain audit is done effectively, identifying issues like these will not be particularly difficult. The greater challenge is determining what to do about it. First, companies may want to rank the issues according to their urgency and importance. Once the issues have been classified appropriately, team members can start to develop mitigation strategies. There are a wide range of corrective actions available to OEMs in this step—including but not limited to:

• Reaching out to suppliers to discuss challenges and see if a resolution can be reached collaboratively.
• Reducing dependencies on proven chokepoints, including manufacturing sites with a high risk of disruption.
• Spreading risk through strategies like multisourcing, splitting, and supply chain diversification.
• Negotiating for new prices with suppliers based on market data.
• If other strategies fail, swapping out high-risk or noncompliant suppliers for more reliable sourcing options.

If a supply chain audit is done effectively, identifying issues like these will not be particularly difficult. The greater challenge is determining what to do about it.

Gain Industry-Leading Supply Chain Visibility With Z2 

Auditing and supply chain visibility are inextricably intertwined with one another. Effectively auditing your supply chain requires robust visibility, while supply chain visibility can be strengthened considerably through a comprehensive audit. No matter how you think about the relationship, it’s indisputable that visibility is essential to carrying out supply chain audits—and to resilience more broadly. 

Organizations interested in carefully evaluating their supply chain processes—and the stakeholders who play a crucial role in those steps—can achieve stronger results with the data intelligence offered by a supply chain risk management (SCRM) platform. Z2 offers businesses multitier visibility that starts with a proven three-step approach:

• Scoping and Normalizing Customer Data: Using BOMs, parts data, and the company’s own proprietary database, Z2 is able to help customers reduce data discrepancies and other inconsistencies and create highly accurate visibility into their supply chain. 
• Mapping the Supply Chain: Z2 maps customers’ supply chains by drawing from three chief sources of data—proprietary intelligence gleaned through public information, verified supplier relationships, and taxonomies, customer data, and supplier campaigning to collect missing information and fill in gaps. By using all this customized data to create multitier supply chain visibility, Z2 is also able to surface risk events, emerging disruptions, and other actionable insights unique to individual customers. 
• Ongoing Monitoring: Z2’s internal research teams are continuously updating their maps using high-credibility data, including product change notifications (PCNs), supplier websites, trade intel, and direct research. By monitoring suppliers, events, and manufacturing relationships on an ongoing basis, Z2 is able to identify both current and emerging risks—transcending the onetime “snapshots” offered by less continuous risk monitoring tools—allowing customers to maintain resilience in a dynamic supply chain landscape.

To learn more about Z2 and how its supply chain visibility, mapping, and subtier intelligence can drive an effective audit, schedule a free trial with one of our product experts.