Adapting Your Auditing Strategy to Account for Leaner Operations
Introducing our guest blogger, John Paul (JP) Gutierrez, Vice President of Client Solutions and head of solution engineering at FoodLogiQ. Pulling from his 20+ years of experience in delivering SaaS-based solutions in the supply chain and supplier management space across a variety of industries, JP shares insights on recent auditing trends and recommendations for food organizations looking to adapt their auditing practices while faced with reduced operations.
Throughout 2020, organizations within the food industry have been dealt many an unexpected obstacle. One of the most popular challenges for enterprise Consumer Packaged Goods (CPG) and retail grocer brands, in particular, has been maintaining a high level of output in the face of shifting demand, lean operations and fewer resources. An important method for understanding process efficiency, identifying production trends and variances, maintaining compliance and upholding trust has been auditing. Learn how food companies have shifted their auditing practice by format, frequency and execution, and how the adoption of digitized audits has counteracted many of the challenges brought on by a reduction in resources.
Q: What do food safety and supplier compliance auditing practices currently look like, and how are they shifting?
A: I’ve worked on business process transformation projects in several areas of supply chain and operations across industries ranging from financial services, manufacturing and pharmaceutical, to oil and gas, energy and government, as well as retail, food and beverage. One trend that has been consistent across these industries has been the wave of technology adoption and the subsequent automation of different business functions.
In many cases, these projects have first focused on financial processes, followed by volume transactions. For example, many enterprise organizations have begun process automation by implementing an ERP to automate payroll, accounts payable and accounts receivable, and then shifted their focus to manufacturing, logistics and/or inventory management. From there, next steps have often included sales automation, procurement and sourcing, or other areas related to supplier onboarding.
For decades, auditing has been highly manual, with little to no focus on technology or automation. This is outside of homegrown spreadsheets created by individuals vying to streamline the collection and organization of massive amounts of data within siloed departments. In my experience, auditing, although massive in scope of data, has not always been a prioritized area of focus in business process improvement projects. However, over time, and especially given recent events, that has begun to change.
For many, today’s auditing processes still look like a paper and clipboard, or a desktop computer with a “static” spreadsheet. However, the wave of automation I spoke of earlier has finally reached the world of auditing. I am seeing a shift toward implementing technology into auditing practices, as well as a shift in the software industry toward solutions that are built to handle the complexity of food safety, supplier compliance and quality assurance audits.
Q: How have organizations faced with leaner operations adjusted their auditing practices?
A: The term “leaner operations” is one that really strikes a chord with me and with those with whom I’ve spoken throughout the food industry. Supplier management, food safety and quality assurance are all areas of the business that have traditionally been lean without the additional pressures and restrictions that the recent business climate has brought. The reality, however, is that recent events have not brought about a lessening in workload for these business functions, but instead have triggered an increase due to the need to: find new sources of supply, diversify the supply base to reduce risk and ensure the continuity of production quantities.
I’ve noted several adjustments that organizations have been making in response. The first adjustment is one that we’ve discussed in recent FoodLogiQ webinars: an uptick in “desk audits.” A desk audit consists of requesting and reviewing compliance documentation from suppliers, and then going a step further in the information collection process with suppliers. The latter often involves deploying survey-like forms or questionnaires to get additional insight into supplier operations. I’ve recently seen many FoodLogiQ customers perform these processes virtually through FoodLogiQ’s Manage + Monitor solution, for example. Having a centralized space for data collection and supplier correspondence has allowed for increased visibility and transparency while reducing time – at a time when efficiency is essential.
Organizations throughout the food industry have also worked to extend the reach of their core teams by distributing auditing and data collection responsibilities. I’ve chiefly noticed this distribution occur by department, to key supplier relationship managers, and geographically for regional efficiency, especially given limited travel conditions.
It’s important to mention that, alone, these adjustments do not translate into a seamless process. The customers and additional organizations with which I’ve spoken that have invested in technology have been ahead of the curve in realizing efficiencies as a result. For example, their technological investments have allowed them to digitize their auditing forms, which have eased training processes, as well as the process of distributing work across departments and regions.
Many FoodLogiQ customers have utilized Audits and Assessments within Manage + Monitor to deploy virtual self-assessments directly to suppliers. And while supplier self-assessments are not new to the industry, reliance on them has been heightened; I’ve seen them being leveraged more today than ever. On a related note, supplier self-assessments are an ideal component to fold into desk audits, mentioned above.
Q: How have organizations adapted to manage supplier risk?
A: Supplier risk no doubt plays a significant role in this conversation. I would point to supplier segmentation as a common risk management thread among world-class organizations.
Supplier segmentation consists of having a defined supplier classification process. The supplier is often categorized according to two main criteria: business impact (i.e. annual expenditure, risk associated with failure, impact on customers) and market complexity (i.e. type of product or service, size of supply base, barriers for new supplier entry).
In this industry, geographic considerations and inherent risk based on product type typically carry the largest weight in determining where the supplier falls in a segmentation matrix. The benefit of this exercise, especially when looking through the lens of lean operations, is that with segmentation, we now know where to focus the resources that are available. Most practitioners that I speak with are coincidentally using this supplier risk profile or segmentation to determine the necessary level and frequency of auditing practices.
A related risk management strategy involves supplier performance monitoring and scorecarding. For example, a spike in quality issues from a certain supplier might warrant closer monitoring of that supplier’s operations and an increased auditing frequency for a given time.
Q: Why is it important to execute audits in a variety of formats? Are there certain trends you’ve noticed in terms of format usage?
A: I think the answer to this one is simple. Regardless of the state of operations, it’s clear that performing an onsite audit for every supplier in an organization’s extensive supplier list is extremely resource-heavy.
As a result, having the flexibility to effectively execute a supplier self-assessment or a virtual audit is abundantly important to a team’s success in managing ongoing compliance. And let’s not forget that supplier facility audits are not the only item on this list; product compliance and product quality audits (often called “pallet samplings” or “cuttings evaluations”) are also at play. Product audits fall into the same bucket as supplier self-assessments, and often take the form of internal product audits driven by the FSQA team. The latter functionality is especially influential among enterprise Consumer Packaged Goods (CPG) and retail grocery organizations, and is one that I’m pleased to announce FoodLogiQ is introducing with our upcoming Fall Release.
Lastly, the reality of this question and subsequent conversation brings me back to the importance of automation and technology as a key driver of value. I have yet to have a conversation with an organization that is able to maintain a high level of confidence in their program visibility, supplier compliance and overall brand compliance without leveraging software.
Q: Do you have any additional recommendations for food companies whose operations have been impacted or reduced?
A: I like this question and how it ties into some of the initial challenges we’ve discussed above. And I believe the quote “if you’re not moving forward, you’re falling behind” sums up one of the greatest challenges brought on by leaner operations and fewer resources.
The reality is that, given the year’s events, many large food organizations have been forced to make very difficult business decisions while continuing to generate consistent output and meet supply demand. Some predict that this trend will continue and that organizations will have to run under these constraints for some time.
I’ve seen some amazing responses from FoodLogiQ customers and partnering organizations, many of which have utilized the tactics mentioned above: geographical distribution of workload, cross-departmental collaboration, supplier segmentation, virtual (or desk) auditing and supplier self-assessments. And I think their investment in technology is the differentiating factor.
Without adequate resources, it is extremely difficult for teams to adequately respond to new regulatory requirements, address important customer trends, or pursue new initiatives. The latter is very top-of-mind due to the FDA’s recently released proposed FSMA 204 rule, aimed at achieving farm-to-table traceability in the food system.
Another spreadsheet or clipboard can in no way meet these challenges. Those customers and organizations that have invested in technology are much better positioned to roll out new initiatives and to meet evolving regulatory requirements – even without increasing departmental headcount.
I truly believe a purpose-driven platform provides the best foundation and catalyst for success in this business climate.Those facing lean operations can leverage technological solutions, automation and the best practices shared above to move forward.
John Paul (JP) is VP of Client Solutions at FoodLogiQ and heads our Solution Engineering team. Over the last 20 years, JP has engaged in delivering SaaS-based solutions in the supply chain and supplier management space across many industry verticals including retail, pharma, food & beverage, tech, financial, energy, and oil & gas. JP welcomes the opportunity to work directly with customers and prospects, and attests that this interaction provides frontline insight into the pace of the industry, which he in turn shares with our product and engineering teams.