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Will Digitization Kill Supply Chain Auditing?

August 4, 2016 by Kai Goerlich

Supply chain and logistics services are quickly expanding as global trade continues to demonstrate strong growth. With global trade making up nearly 25% of GDP, many industry experts and analysts recommend high-quality, modern supply chains to compete and continuously improve business processes and practices.

Companies should also focus on auditing their supply chains periodically to identify weaknesses and risks; however, the value of those audits is up for debate.

According to CEB, one of the biggest problems with auditing is the constant change and increasing complexity of supply chains. In fact, nearly 50% of supply-chain companies view this trend as a top risk, according to a survey by the Business Continuity Institute.

The number of processes and potential threats to be audited is rising in line with increasing supply-chain complexity. Also, focus on leaner operations increases risk as companies rely more on third parties and partners. All the while, new risks are emerging so quickly that they escape traditional auditing rules and methods.

Will Supply Chains of the Future Still Follow the Rules?

While moving into a culture of digital anytime and anywhere, considerations may change towards customer expectations and involvement, product customization, length of product life cycles, and security issues. The rising share of 3-D printing in the production process, for example, allows the operation to be distributed across the supply chain, leading to reorganization. Meanwhile, an increasing rate of product customization and personalization with added services will further change supply chains.

To what extent will auditing processes become an embedded feature of a digitized supply chain? It all depends if there is a real-time view of business operations to audit increasingly complex supply chains.

According to McKinsey, the era ahead will be dominated by data flows on top of physical trade. For the moment, it seems that supply chains are struggling to create a consistent view of their processes. Local processes are still diverse, and various IT applications result in inconsistent and redundant data.

In essence, the supply chain vision of the future is positioned to allow companies to collect more data and mine that information in real time to gain additional insights. A high growth of data sources will come from the Internet of Things and sensors, operating at the periphery of our current ERP systems. And production and distribution feeling the pressure of a high ratio of customization and value-added services will demand a much greater flexibility of supply and value chains.

Auditing on Another Level

Of course, when we discuss the notion of auditing, we are actually talking about a broad field that includes, at a minimum, financial, operational, quality, and compliance auditing. And even though we can only predict where it’s heading in general, one thing will likely be true: Auditing will not cease to exist, but will move to another level.

Most benchmarks and key performance indicators will eventually become embedded and real-time features of digital supply chains within the next five years. And as various suppliers create standards around those features, auditing algorithms will be handled like an antivirus update.

A larger and more creative part of auditing will include the identification of potential disruptions – digital and analog – and generating new perspectives to find opportunities beyond a defined set of benchmarks and indicators. This new functions will become more important as digitization increases, requiring assessment of the risks of digital business models.

For more real-time supply chain strategies, see How To Lay The Groundwork For Real-Time Supply Chain Collaboration.

Kai Goerlich is the Idea Director of Thought Leadership at SAP.

This story originally appeared on The Digitalist Magazine as part of the 10 Weeks of Live Business series.

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