Supply Chain Audit Case Study
Benefiting from a Supply Chain Audit
A multinational corporation based in the United States and specializes in cosmetics and healthcare/beauty products was facing major supply chain issues. New products were constantly delayed beyond scheduled launch dates, global transportation costs were skyrocketing, in addition to increasing inventory costs. Customer service levels were declining and inventory costs were increasing as a direct result of poor inventory management systems in place. The company’s performance metrics were indicating that things had to change for the company to function at its optimum levels. In such cases one of the first things that need to be done to right the ship is to conduct a supply chain audit.
A supply chain audit is a process of examining the company’s extended supply chain along several dimensions. Part of the supply chain audit process is to benchmark those processes to best practices in the company’s same industry as well as best practices in other industries. The supply chain audit is a critical component of improving a company’s supply chain performance as it helps identify the root causes of the problems. These problems could vary in nature from being strategic, operational, internal to the company, or external (suppliers or customers), or multiple of those issues combined. In addition to identifying causes of current problems, the supply chain audit may identify other potential areas for improving customer service levels and/or reducing operational costs, inventory levels, and waste in the supply chain.
The Audit Process
The data collection methodology for this supply chain audit consisted of examination of relevant company documents and semi-structured, in-depth interviews with key employees. Over a period of three days, thirty six interviews were conducted at the company’s facilities (headquarters as well as a production facility nearby). In addition, several telephone interviews (initial as well as follow-up) were conducted in the two weeks following the site visit. Altogether, forty four individuals were interviewed. The interviews included employees at various levels and functions in the organization as well as some of its key suppliers and customers. The interviews were conducted in teams of two and a team debrief was done after every interview. Once all of the data was compiled the team met to discuss the findings and analyze the data. A final report was delivered to senior management with an on-site detailed presentation of the findings, areas for improvements, and short and long-term actions.
One of the major findings in this supply chain audit was a mismatch in alignment between the company’s strategy and their global supply chain structure. The company was positioning itself to be very responsive to market and customer needs yet following a dedicated manufacturing set-up rather than a regional one. Other recommendations for improvement included changes to the S&OP process, re-configuration of inter-functional and inter-firm processes to reduce lead time, integrating logistics into the stage-gate sign off process, re-structuring the supply base, and adopting more advanced performance metrics.
The results of the recommendations reduced transportation costs by more than $16.8 million/year. Meeting launch dates, a major issue that the company was facing increased from 68% to 93% in 18 months. The restructuring of inventory management processes increased the in-stock probability of items to 96% (up from 82%) and reduced the slow moving items. Overall the audit process was able to identify the root causes of the problems in the company’s global supply chain network as well as areas that represent opportunities for cost reduction and increased profitability.
Who can benefit from a Supply Chain Audit?
- Technology firms
- Bioscience firms
- Manufacturing Firms
- Wholesale Operations
- Retail Firms
- Import/Export Firms