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SIMSA Audit Software

About

SIMSA is an integrated Audit Management Platform based on the PDCA (Plan-Do-Check-Act) framework of operational excellence. It cuts out the bureaucratic layers of reviewers & approvers, therefore quick to deploy and intuitive to use. Its simplicity and mobility feature is the key factor for the buy-in from the operational staff. It can be used for self-assessments and tracking of corrective actions.

Tag: Audit Technology

Sales Channel Audit – Key to Customer Success

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Sales Channel Audit - Key to Customer Success

The network of sales channel partners not only provides a conduit for the flow of products to the end customers but also enables implementation of various sales programs. Imagine if the conduit is leaky or damaged, do you think your end customers would be satisfied? Which option is better - repair the reported leakages or proactively prevent the leakages?

Often the channel partners are treated as the money making machine. The sales is pushed through the network, irrespective of its capacity and capability. Sooner or later the cracks in the channel network start to appear resulting in leakage of revenue, efficiency and even compliance risks in many cases. A company needs to pay as much attention to the health of the sales channel as to its own business.

Role of Sales Channel Audit

A well structured sales channel audit provides a basis for the health check of the channel. It functions as a documented record of all your sales channels processes, operations, assets and compliances. It helps to identify the bottlenecks and roadblocks for increasing your sales, improving efficiencies and maximising the ROI for the channel partners. The channel audit highlights what you do well and areas where you can improve. By focusing on those areas of improvement, you gain a significant advantage over your competitors.

The key benefit of the sales channel audits are:

  • Growing your market by identifying unaddressed geographies & segments
  • Benchmarking your sales processes, programs and strategies with competitors
  • Improving the processes & capabilities of the channel partners to grow the sales faster
  • Ensuring compliances to the regulatory requirements and company's policies
  • Providing a better ROI to the channel partners as compared to the competitors
Approach and Scope of Sales Channels Audit

It is very important to define the scope of sales channel audit. There are various approaches for defining the scope:

  1. Comprehensive: This approach requires covering all processes and operations of the channel partners. It provides a thorough and in depth understanding of the effectiveness of the process, gaps and potential improvements. However, these audits are resource and time intensive. It may also lead to interruptions in the operations impacting the sales. This approach is useful if a company does the channel audit first time or once in 2-3 years.
  2. Risk-based: This approach priorities the processes based on the risk assessment or based on the reported issues from the sales team or customers. It helps to focus on the areas that are of prime concern to the company and therefore has a better return on the investment in resources used for the audit. It also allows to conduct the audit more frequently and better attention from all the stakeholders for taking the corrective actions.
  3. Differentiated Approach: This approach requires segmenting your channel partners based on the value or geography. Each segment of channel partners may have a different set of processes and therefore the risks involved. A differentiated approach leads to even sharper focus and better insights.

The right approach would depend on the maturity level of a company in the channel partners management. At the low level of maturity, a comprehensive approach is preferred and as the understanding of the channel improves, one can move to the risk-based or differentiated approach.

Operational Audit Software

The next most important aspect of the channel audit is to identify the scope, based on the approach adopted. Typically, the areas that are included are:

  1. Market Coverage and Service: A channel partner who is interested in short term profit may not focus on the markets or customers that are growing but not yet profitable, leaving gaps for the competitors. Also, ensuring the complete assortment and placement of the products on the retail shelf may not adhere to the laid down norms or policies. The common gaps observed in this area are:
    • Missing out certain outlets or visit beats to the outlets
    • Improper placement of the products on the shelves
    • Not having assortment according to the norms for a category of outlet
    • Out of Stock products ordered by the retailers
    • Product damages in the outlet
    • Poor merchandising
  2. Incentives, Rebates and Claims: Lot of leakage and abuse of money budgeted for incentives & rebated may happen if proper controls are not in place. The key control gaps observed in this area are:
    • Claims and payments made on sales to ineligible end-customers
    • Products procured from unauthorised sources
    • Products claimed ineligible for volume rebates
    • Claims on products subsequently returned
    • Product claimed across multiple programs
    • Inappropriate use of Market Development Fund
    • Duplicate claims
  3. Internal Processes: The effectiveness of internal processes of the channel partners has a direct impact on the outcomes. However, the channel partners may not have the skilled resources, a great infrastructure to ensure or technology to enforce process and quality standards. It results in inefficiencies, wastage and losses, which in turn leads to lower ROI for the channel partner and bottlenecks for the sales growth. The common control gaps observed in this are:
    • Obsolete or expired stocks due to lack of adherence to FIFO or FEFO policies
    • Inventory losses on account of lack of cycle counting process
    • Poor hygiene and upkeep within the premises and surroundings
    • Poor handling and Product damages
    • Inadequate storage infrastructure
    • Inadequate record keeping, checks & controls
    • Lack of system for handling customer complaints
    • Improper record keeping, documentation and MIS
  4. Compliances: There are whole of compliances that are required for doing business in a country or a region. The compliances include the legality of place from which the channel partner is operating from, tax compliances, human resource compliances, storage compliances, regulatory compliances with respect to the specific products e.g. pharmaceuticals, food, hazardous goods etc. The problem is that many channel partners are either not aware or not updated on various compliances. It could not only have an impact on the continuity of the business of the channel partner but also the company's image & business continuity.
  5. People / Sales Force Management: A sales business is as successful as the quality of its sales resources. Due to various constrains, most channel partners don't have the most skilled resources. Also, the employee churn is also high leading to gaps created due to learning curve. Most channel partners do not have structured training programs or modules that can help to bridge these gaps. The key areas to be checked for people management are:
    • Process for selecting, onboarding and training new employees
    • Standard Training modules for training on product knowledge, systems & processes, selling skills, communication skills, IT skills etc.
    • Employee welfare and engagement programs
    • Handling of employee grievances & complaints
Structuring an Effective Channel Audit Program

Structuring a channel audit program requires strategising, planning and execution capabilities. A well thought through program delivers better outcomes as compared to the ad-hoc audits. It should not be merely a paper exercise. The key steps are:

  1. Classify your channel partners based on the revenue, sales region and product portfolio.
  2. Map the risk profile for each category of the channel partners.
  3. Based on the risk profile decide the scope and frequency of audits. Prepare a calendar of various audits.
  4. Communicate the audit plan with the stakeholders.
  5. Identify the audit resources required for conducting the audit and determine whether these have to be outsourced.
  6. Prepare checklists covering the specific areas as determined in the scope of each audit. Remember, each checklist has to be tailored to the risks identified for each category of channel partner.
  7. Get the channel partners' buy-in and integrate them in the audit program.
  8. Have a robust mechanism for planning corrective actions for the gaps identified in the audit and tracking of the deadlines for each action point.
  9. Use a technology platform to manage the end to end audit workflow and provide complete visibility on the gaps and corrective actions to both you as a customer and the suppliers. The technology helps you to save time, efforts in putting together and tracking the information and it at the same time it ensures consistency throughout.
  10. As the improvements are realised, review the audit program i.e. frequency, checklists etc.
SIMSA Operational Audits
Conclusion:

The channel partners' audit is a mean to de-bottleneck sales processes and prevent leakages of revenue & efficiency. A differentiated and risk based approach should be adopted for a sharp focus and targeted improvement. A structured process should be instituted for sustainable and continuous improvements. The use of modern technologies to automate the workflow along with analytics is highly recommended.

Internal Audit: Keeping Pace with Changing Time

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Optimism Bias towards Risks

Humans, by nature (at least a large percentage) are optimistic about future. But this optimism becomes dangerous when it leads to the belief that "it won't happen to me". That's why many people are under-insured, overspeed on the roads or walk freely without masks & precautions during Covid pandemic.

The same optimism bias translates into the approach towards managing risks in the business. Which parts of the business have the maximum exposure to the risks? No points for guessing right - Supply Chain and Finance. While a structured framework of identifying and controlling Financial risks exists in every business, the Supply Chain risks are left to the fait accompli. The reason is the optimism bias, "It never happened to us, why should we even bother", until one day it happens. The "long term" risks management loses the battle to the "short term" costs savings, when it comes to choosing one over another.

Why Supply Chain is a major source of business risks?

What percentage of end to end supply chain is controlled by one company? Hardly much!

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With increasing outsourcing of Supply Chain including the manufacturing operations, the extent of direct control of the focused firms is continuously reducing. There have been number of instances of violation of compliances and norms by the contract manufacturers and outsourcing partners, leading to both loss of business and reputation.

The reasons why Supply Chain is becoming a major source of business risks, are:

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According to a study done by Supply Chain Insights LLC, the factors contributing to the. supply chain risks have changed over last 5 years. According to the study, in 2013, 80% of the supply chain leaders accepted to have been impacted by, on an average, 3 material disruptions. The source of most critical risks in the near future will be from Operations Complexity, Regulatory Compliance and Geo-politics events.

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How should one prepare for disruptions?

1. Shed Optimism Bias: This step requires a "foresight" into the changing environment and its potential impact on the entire value chain. The value chain includes your tier 2, tier 3 suppliers if these can't be easily and quickly switched-over to the alternative sources. These risks may have profound impact on the strategic supply chain decisions e.g. how many and which suppliers, logistics partners you will have for a category, the design of distribution network, location of the supply chain facilities, the inventory holding etc.

2. Identify Risks in Operations: Map the processes so that you have visibility of what happens in your operations. Process mapping is a useful tool for risk assessment and continued risk management by enabling business owners to better understand the processes and controls associated with identified risks. Once the processes have been mapped, then assess what may go wrong, what could be impact on the business and what controls exist to prevent the short-cuts & leakages. Prepare a Risk Register and update it periodically.

3. Structure Audit Programs to check the effectiveness of Process Controls: Operational audit or Internal audit has been effective and a tested technique to test the effectiveness of the process controls and risks management. Higher the perceived risk, higher is the periodicity of audits required. However, most of the companies have a very rudimentary system of conducting the audits, using pen & paper or excel sheets that do not provide end to end visibility into the audit management program. Also, few companies use an integrated audit management system that assesses the gaps and tracks the linked corrective & preventive action plans to plug the gaps. Implementing such an integrated system may not cost much but may give multiple times ROI in preventing the process control failures.

Operational or Internal Audits in most of the companies are  riddled with long established manual processes, which results into high audit cost of in-house resource, lack of end-to-end audit visibility, and gaps in compliance.

Another gap in the audit process is that it is mostly focused on the internal operations. In the areas of outsourced logistics and sales channels, the audit means only inventory counting, as-if that is one and only risk that exist in the logistics operations. There are whole lot of risks in the categories of safety, security, legal and regulatory compliances, product quality, process adherence that are mostly ignored. What about the supplier audits? How many key suppliers are audited for a comprehensive risks assessment? A structured and automated audit workflow management e.g. SIMSA, based on the framework of operational excellence (Plan, Do, Check and Act) is a best practice to identify and mitigate risks in the operations.

4. Constitute a Risks Management Committee: A committee of senior management as well as independent board members should look into the overall effectiveness of the risks management, assess the risks associated with the gaps observed in various audits and monitor whether the gaps are being closed in a time bound manner. The committee also sets the risks management guidelines, policies, define the roles and responsibilities of the frontline and supporting roles in risks management and approves major decisions involved in the risks mitigation.

5. Build Agility and Resilience in Supply Chain: Despite taking all the possible measures internally, the external disruptions cannot be ruled out. Agility is about how quickly you can shift gears to counter the impact of any disruption. Resilience is the ability to bounce back to business as normal after encountering the disruptive event. Building agility and resilience requires proactive planning involving "what-if" scenarios and preparing a response for each scenario. Systemic use of predictive analytics and market intelligence involving weather data, port & transportation strikes, geo-political situation & impact on trade-policies / duties etc. go a long way in minimising the "time to recover" in the event of disruption.

Given that the frequency and impact of supply chain risks is increasing by the day, the risk management should be one of the top 3 priorities for any company. A structured risk management and business continuity planning is not just an option but a business imperative to survive and become more resilient to the shocks of disruptions.

Can Internal Audit drive Efficiency in Supply Chain?

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The Internal audit of the supply chain operations is one of the most powerful and fastest ways to reduce operational costs and provide the company competitive advantages in the global market in times of disruptions and economic crisis. The aim of internal audit is to make recommendations for improving the efficiency and effectiveness of operations and to help management in achieving the projected business goals. The key areas of internal audit help in assessing risk and analyzing the optimal functioning of the supply chain.

As a result of the economic crisis, companies are forced to analyze their business processes in order to reduce operating costs of business. Old cost impact strategies do not have the same effect as they once had. Traditional approaches based on improvement are also no longer adequate. Today under the influence of changes on a global level and under pressure to reduce costs the company diverts its attention to risk assessment, process management and environmental risks. Supply chain should not be viewed as a function that supports other functions, but as a separate activity which is involved in all functions of the company.

It is necessary to make a difference between cost savings and risk reduction, actually to regard them as different strategies that are often considered at the expense of one another. If a company wants seriously to dedicate itself to cost reduction, it must have access to contemporary ways and plan its actions and effects in the long term. Although internal audit bears certain costs in the short term as well as the risk management processes it encourages, in the long term its effects and actions may permanently lower the cost of doing business primarily through identifying risks.

The main objective of internal audit is to depict the types and effects of risks that affect the functioning of the supply chain, evaluate them and act before they occur in order to reduce future costs. Unlike financial statements audit which focuses on testing and assessing of the reality and objectivity of financial reports which is traditionally done by external auditors, internal audit focuses on testing and assessing of business and increasing the success of the organization as a whole. The internal audit should include:

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The key supply chain management processes for internal audit include Customer Relationship Management, Supplier Relationship Management, Customer Service Management, Demand Management, Order Fulfilment, Manufacturing Flow Management, Product Development and Returns Management. All these processes cut across multiple functions in any business, and offers the opportunity to capture the synergy of intra- and inter-company integration and management. In that sense, SCM deals with total business process excellence and represents a new way of managing the business and relationships with other members of the supply chain.

Value Added Role of Internal Audit

In response to the financial crisis, organizations are also charging their internal audit function with value-added roles to assist in formulating and achieving strategic objectives and sustainable growth. Internal audit of supply chain is to help company in finding answers to crucial questions about managing success factors of supply chain excellence, which can be divided into five main sections:

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Supply Chain Risk Management

The big challenge for managers is to mitigate risks by intelligently positioning and sizing supply chain reserves without decreasing profits. Internal Audit can work with business leaders to develop an appropriate supply chain risk management program to provide assessments of the supply chain risk management program through continuous monitoring and auditing. Before companies can devise effective means of reducing supply-chain risks, managers must first understand the universe of risk categories as well as the events and conditions that drive them (Table below). Then, armed with clear, specific knowledge about these crucial risks, companies can proceed to select and tailor mitigation strategies, which are likely to be most effective.

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Internal audit can be used for improving supply chain process in terms of efficiency and effectiveness, by providing insight and recommendations based on analyses and assessments of available data from the company. Supply chain management is a very complex structure of activities with cross-functional processes, and it presents one of the most important functions in the company since it is directly linked to all functions of the company. Internal auditors have changed their roles of merely providing a check over accounting transactions into helping and providing support for companies in supply chain risk management. The supply chain internal audit aims to support managers in process optimization and above all in cost reduction which result from an uncertain environment by evaluating and directing management towards approaches which will prevent or reduce negative effects.

A structured and automated audit workflow management e.g. SIMSA Audit Management Platform, based on the framework of operational excellence (Plan, Do, Check and Act) is a best practice and helps to manage End-to-end audit more effectively. It’s a cloud-based web and mobile application which completely eliminates the huge paper work requirements by digitizing internal audits. The SIMSA framework maps all the stakeholders in the process, creates complete visibility to the risks, gives auto notification to the managers on the corrective actions and tracks actions with auto reminders and escalation. It also facilitates shared accountability across the organization for risks management.