1. RELEVANCEEXCELLENCERESULTS Operational Auditing: Evaluating the Supply Chain

2. Supply Chain Overview The Supply Chain Concept Stages of a Supply Chain Excellence in Supply Chain Management Types of Supply Chain Configurations Supply Chain Operations Supply Chain Processes Supply Chain Trends and Management Challenges Supply Best Practices Supply Chain Uncertainty and Risk

3. Supply Chain Operational Auditing Planning -Objectives -Scoping -Potential Areas of Waste -Process Overview -Output/Performance Measures -Key Operational Risks/Controls Fieldwork -Analysis -Process Re-Engineering -Testing Questions?

4. What is a Supply Chain? “The term ‘supply chain’ is being used quite a bit, occasionally by someone who understands what it means”

5. A Supply Chain Is….. A sequence of material, information, product, service, and cash flows that take place within and between a network of organizations involved, directly or indirectly, in fulfilling a customer order or requirement

6. A Supply Chain Includes… The manufacturers, suppliers, distributors, retailers, and the end-customers themselves Within each organization, the supply chain includes all functions and processes involved in receiving and fulfilling a customer request

7. Stages of a Supply Chain UpstreamInternalDownstream 2 nd – Tier Suppliers 2 nd – Tier Suppliers 2 nd – Tier Suppliers 1 st – Tier Suppliers 1 st – Tier Suppliers Assembly/ Manufacturing And Packaging Flow of Information Flow of Material Distributo rs Retailer s Custome rs Cash flow Linear Supply Chain

8. Stages of a Supply Chain Requirements Information Flow Cash Flow Materials Flow

9. Excellence in Supply Chain Management Supply Chain Strategy Supply Chain Design Supply Chain Operations Supply Chain Relationships Technology Support and Information Supply Chain Performance Management

10. Types of Supply Chain Configurations Make-to-Stock Make-to-Order Assemble-to-Order Engineer-to-Order

11. Supply Chain Configuration: A Pictorial View Cash Flow Information Flow Material Flow Order Processing/Central Procurement/ Central Treasury Information Management Shared Service Center/ Call Center Suppliers Warehousing Finished Goods Regional Headquarters Distribution Network Delivery Instructions Production Scheduling Payment/Supplier Management Customers Orders Invoicing Sales Office Demand Plans/ Orders

12. Supply Chain Operations Source Produce Distribute Sell Consume Material FlowCash Flow Procurement Cycle Manufacturing Cycle Replenishment Cycle Customer Order Cycle

13. Supply Chain Processes: Hierarchical Structure Operating cycles -Key processes Work/sub-processes –Process steps

14. Supply Chain Processes: Push-Pull View PUSH PROCESSESPULL PROCESSES Procurement, Manufacturing & Replenishment Cycles Customer Order Cycle Customer Order

15. Supply Chain Trends and Management Challenges Supply chain volatility and uncertainty have permanently increased. Securing growth requires truly global and customer networks. Market dynamics demand regional, cost- optimized supply chain configurations. Risk and opportunity management should span the entire chain. Existing supply chain organizations are not truly integrated and empowered.

16. Supply Chain Best Practices Establishing an integrated supply chain organization. Improving the knowledge think-tank through acquisition of supply chain managers who are strategic thinkers. Leveraging technology as a tool to better manage supply chain operations. Improving internal cross-functional collaboration and integration to drive effective supply chain performance. Focusing on B2B collaborative synchronization between supply chain planning and supply chain execution across both demand and supply. Optimizing the entire supply chain through efficient supply chain processes to increase cash flow and working capital. Adopting risk management strategies to identify, assess, and manage end-to-end supply chain risks. Integrating environmental and social objectives into supply chain operations.

17. Supply Chain Uncertainty and Risk Driving Factors -Limited supply chain visibility. -Global optimization. -Imposed regulatory compliance. -Supplier issues. -Economic uncertainty. -Shorter product lifecycles. -Changing stakeholder demands or requirements. -Increased use of technology. -Dwindling of natural resources. -Natural disasters. -Critical supply chain functions.

18. Supply Chain Uncertainty and Risk Cause and Effect -Boeing -Toyota -Mattel -Procter & Gamble

19. RELEVANCEEXCELLENCERESULTS Planning

20. Objectives Efficiency and Effectiveness Responsibilities and Risks Opportunities for Improvement 20

21. Scoping Complaints High Costs Long Cycle Times Other -Impact on customers -Business impact -Current performance -Changeability -Constraints -Resource availability 21

22. Scoping continued Process Information -Process owners -Key customers of the process -The primary information systems that support the process 22

23. Potential Areas of Waste Transportation Inventory Motion Waiting Overproduction Over-processing Defects 23

24. Process Overview SIPOC, VSM, Spaghetti Diagrams, Flowcharts, and Process Maps Display how a process currently/ideally functions Can help -Identify illogical process steps -Uncover problems -Show miscommunications -Define boundaries of a process -Develop common base of knowledge 24

25. Process Overview continued Bring to light -Redundancies -Delays -Dead ends -Unnoticed indirect paths Must be accurate! 25

26. Output Measures Refer to the key outputs of the business unit or process Aligned with the business unit’s objectives Linked directly to organizational goals and objectives and to the organization’s mission statement 26

27. Performance Measures Refer to task-level measures that support the output measures Are important to efficient, effective operations but must underpin the output measures Support a range of stakeholder needs Focus on performance against customer requirements and value 27

28. Performance Measures continued Developing performance measures -Establish critical processes/customer requirements -Develop measures -Establish targets against which the results can be scored The more business units, the harder it may be to see all of the output measures Analysis should be performed using output measures, not just performance measures

29. Key Operational Risks/Controls Start with identifying the objectives management has for the operational area Relate the objectives of the audit to management’s objectives Assess the operational risks related to those objectives 29

30. Key Operational Risks/Controls cont’d Evaluate the controls related to those objectives that: -Help protect the organization from bad or undesirable things happening -Help reduce the chance of missing opportunities -Contribute to the improvement of risk management and control systems Select specific objectives or areas of the operation for detailed review based on risk 30

31. Risk Universe A risk universe ideally includes all risks that could affect an entity. For the supply chain, it should identify the key operational risks in the sub- process review areas selected. The below Operations Risk Universe can be used as a guide: 31 Operations Risk Universe ProcessPeopleFinancial Supply chainManpower supplyInterest rates CapacityLeadership/key employeesForeign currency exchange Process executionPerformance incentivesCapacity Health and human safetyEmpowermentDefault Business continuityChange readinessConcentration Cycle timeCommunicationCapital availability Catastrophic events Cash management Lack of product innovation Commodity pricing Duration

32. RELEVANCEEXCELLENCERESULTS Fieldwork

33. Analysis Goals -Risk management -Eliminate waste -Reduce time/costs 33

34. Process Re-engineering Improving processes through simplification and speed: -Parallel vs. Sequential -“Once and done” -Combine activities/jobs -Eliminate unnecessary reviews -Eliminate/Reduce exception handling -Influence frequency of business events -Off-load unnecessary work 34

35. Testing Test key operational internal controls to determine: -Appropriately in place -Operational effectiveness 35

36. Q&A What questions do you have?