Impact of Process audit on Retail supply chain management

Introduction :

In the fast-paced world of retail, efficiency in the supply chain is paramount. A well-structured supply chain not only ensures that products reach customers in a timely manner but also optimizes operational costs and enhances overall customer satisfaction. This is where process audits come into play as a vital tool for identifying inefficiencies and streamlining operations.

What is a Supply Chain Management?

Supply Chain Management (SCM) refers to the integrated process of planning, implementing, and controlling the efficient flow of goods from the point of origin to delivery of products to the point of consumption. This process involves coordinating and integrating activities across various functions, including procurement, production, logistics, and distribution, to ensure that products are delivered to customers in the right quantity, at right time and the low cost.

For example, SCM strategy of Zudio is one of the critical factors in its ability to provide affordable, trendy fashion while maintaining high standards of quality and customer satisfaction. By its centralized procurement strategies to source materials, Zudio have tight control over supply chain costs thereby can offer competitive pricing to consumers and by sophisticated inventory management techniques, including demand forecasting and real-time tracking, it is able to reduce costs and overstocking of items.

Why is SCM important?

Cost reduction :

Streamlined processes reduce waste, minimize delays, and lower operational costs and effective inventory management reduces carrying costs and minimizes the risks associated with overstocking or stock outs.

Improved Customer satisfaction :

Efficient logistics and order fulfilment processes ensure that products are delivered to customers on time. Effective SCM ensures consistent product quality, reducing returns and increasing customer trust.

Increasing the profitability :

Reduced operational and inventory costs contribute to higher profit margins. Satisfied customers are more likely to become repeat buyers, driving sales growth.

Having to know the importance of Supply chain management in the retail industry, auditing of these SCM process is very important as it ensures the effectiveness and efficiency of the processes being set. This is where process audit comes in handy to help the owners of the business to track whether the SCM processes which have been implemented are really helping to achieve the desired objectives.

What is a Process Audit?

A process audit in retail involves systematically reviewing and evaluating the procedures and workflows within a retail organization to ensure they are efficient, effective, and aligned with the company’s objectives and industry standards. The primary goal of a process audit is to identify areas for improvement, mitigate risks, ensure compliance with regulations, and enhance overall operational performance.

Key Benefits of Process Audits :

1. Identifying Bottlenecks :

Process audits help in pinpointing areas where delays or inefficiencies occur, whether in procurement, transportation, or inventory management. By addressing these bottlenecks, companies can improve the overall performance.

2. Optimizing Resource Utilization :

By examining the allocation and usage of resources, audits can reveal opportunities for better resource management, such as optimizing warehouse space or adjusting staffing levels based on demand patterns.

3. Improving the internal controls :

Audits help in establishing and reinforcing internal controls, which are crucial for preventing fraud, errors, and other operational risks. This strengthens the organization’s governance framework and enhances overall security.

4. Data driven decision making :

By collecting and analysing data during the audit, companies can gain better visibility into their supply chain operations. This information is crucial for making informed decisions and improving strategic planning. Establishing key performance indicators (KPIs) and metrics allows for ongoing monitoring and continuous improvement of supply chain processes.

How Process audits helps in mitigating risks?

1. Identifying Weaknesses and Gaps :

Audits identify discrepancies between the current processes and the desired standards. These gaps can be potential risk areas. By assessing internal controls, audits reveal weaknesses that could be exploited, leading to financial loss or data breaches

2. Preventing Fraud and Mismanagement :

Regular audits can detect signs of fraud or mismanagement early, preventing significant damage.

3. Continuous Improvement :

Provides feedback on existing processes, highlighting areas for improvement and helping to refine risk management strategies, ensuring that the organization stays updated with the most effective risk mitigation techniques.

For example, price and quantity as per PO and invoice is compared in order to ensure that excess payments is not being done.

What does PKC do in a Process audit?

In the process audit, PKC reviews the processes being set and the deliverables given earlier and ensures those processes are being followed as intended by the organization. By doing this, we understand the level of compliance of the processes and identify reasons for non compliance and inefficiencies in the system thereby tweaking those processes in such a way that the overall objective is being achieved by suggesting improvements.

At the end of this process audit, PKC gives the overall compliance report and key MIS reports to facilitate the management to take data driven decisions.

For example, In the procurement module we set end to end processes to ensure flow of goods is being done efficiently starting from deciding which items to be bought to receiving those goods in our warehouse to enhance the overall efficiency of the supply chain management.

In the procurement module, PKC suggested standard practices. Some of them are:

In order to identify which items to be bought, Item wanted register is implemented to know what items to be bought and in what quantity which would be updated by the salesmen. This ensures that unwanted items are not being purchased. Process audit is done in such a way that, Items and its quantity that have been actually purchased is matching with those listed in the item wanted register. By doing this, we are optimizing our inventory by mitigating the risks of over purchases or under purchases.

Another initiative is implementation of a data sheet, where it is being ensured that the number of items that have been actually received is the same as per the purchase invoice and as per the purchase order. So the payment is done only for the items received and not for the whole invoice.

For example, the quantity as per invoice is 100 but the actual received quantity is only 80 means subsequently debit note is being raised and paying only for the received quantity thereby reducing cost. At the same time, if the quantity as per invoice and actual received quantity is 120 where the PO is only for 100 means those extra 20 items are returned and thereby optimizing inventory not overstocking. Process audit is done in such a way that a data sheet is followed for all the invoices and thereby ensuring optimization and accurate measurement of inventory for the business. This helps to mitigate risks of over purchases or under purchases.

More than the auditing of the processes set, PKC gives insightful MIS reports based on the observations during the process audit. For example, if it is being observed that there is a case of overstocking and a lot of dead stock in the store MIS reports are drafted in such a way that dead stock is identified in the various sections and the liquidation plan is given where targets are being set to liquidate those stocks.

Conclusion :

Process audits are crucial in maintaining the efficiency and effectiveness of supply chain management in the retail industry. By identifying and addressing inefficiencies, audits help optimize resource utilization, improve internal controls, and support data-driven decision-making. Ultimately, this leads to cost savings, enhanced customer satisfaction, and increased profitability. Regular process audits ensure that SCM processes continue to meet the evolving needs of the business and its customers.