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Before a doctor prescribes treatment, they order tests. Without a diagnosis, all they can do is guess at the cause. An operational audit works on the same principle. It is not a formality or a compulsory stage of a project. It is the starting point for making informed decisions based on facts.
Among small and medium-sized manufacturers in Poland, awareness of what an operational audit is and when it is worth commissioning one remains low. Large companies have worked with specialist consultancies for years. They have the budgets, and in many sectors – automotive above all – customer audits are a standing part of supply-chain relationships.
In the SME sector things look different. Many companies only notice problems once they start showing up in the financial results. Others assume they will manage on their own, even when the organisation has been running below its potential for some time.
Conversations with experts and our own project experience point to the same conclusion. An operational diagnosis carried out at the right moment makes it possible to stop damaging trends before they become permanent. Often the first effects of changes that would otherwise have been put off for years are visible within months, sometimes weeks.
When does a company need an audit?
Operational problems rarely have a single source. They usually come from overlapping issues: inconsistencies between departments, an overstretched organisation, outdated processes or poor planning. That is why the first symptoms can be misleading – they point to an effect rather than a cause.
The most common signs of operational trouble that prompt boards to commission an audit are:
- falling profitability despite stable revenue,
- low OEE and frequent downtime,
- operational chaos and unpredictable processes,
- problems delivering on time,
- an overloaded operational management team,
- conflict between departments,
- a growing share of work done in firefighting mode,
- excess stock and working capital tied up,
- no clear KPIs or data to support decisions,
- high costs of quality and complaints,
- difficulty scaling the organisation,
- excessive reliance on individual employees.
One of our projects began with a short conversation on the shop floor. The consultant asked the plant director what the warehouse was worth: around PLN 6 million, against annual sales of PLN 20 million.
Those figures meant stock turnover of roughly 100 days. In this type of manufacturing the right level is 30–35 days. The cost of the capital tied up alone came to about PLN 60,000 a year. The company had no management accounting function, so nobody had ever looked at the cost of holding stock. Only once the numbers were set side by side did the board see the scale of the problem – and the room for improvement.
That is what an operational audit does. It replaces intuition with data and separates symptoms from real causes.
Four types of audit, one shared logic
An operational audit of a manufacturing business can vary in scope and starting point. Four situations come up most often:
- Customer audit – where a customer checks whether a supplier can deliver the required quality, the right level of output and compliance with the applicable standards. This is standard practice in sectors such as automotive.
- Pre-sale audit – where an owner wants to identify what needs improving before starting a sale process, in order to increase the value of the business.
- Pre-acquisition audit – where an investor assesses the health of the organisation and checks whether it justifies the expected valuation.
- Targeted audit – where a company deliberately commissions analysis of one specific area, because it wants to establish the causes of a problem or test the scope for improvement. In the SME sector this is the least common type of audit. It is also the one that most often follows a board decision to make changes, rather than a demand from a customer or an investor.
The circumstances differ, but the purpose is the same. An operational audit offers a view of the organisation that is hard to gain from inside it.
What does not having an audit cost?
It is worth turning the question around: not what an audit costs, but what the lack of one costs. Examples from projects in manufacturing companies answer that best.
One automotive supplier underwent a VDA compliance audit commissioned by its customer. Before the audit, scrap was running at 30%, and the customer was dissatisfied enough to have blocked the award of any new projects.
After a recovery plan was put in place and tracked daily, scrap fell below 1% within fifteen months. The block was lifted, and new projects and further production volumes began coming back to the company.
Another example concerns an investment of almost PLN 300,000 in specialist manufacturing software, a direct recommendation from a production analysis. The supervisory board initially questioned whether the spend was justified. In the end the data settled the matter. Thanks to improved production processes and shorter changeover times, the investment paid for itself within nine months, and material scrap fell below 7%.
That is what operational cost improvement looks like in practice. It does not come down to general recommendations; it translates into measurable results – better profitability, higher EBITDA and a more stable financial position.
What does a well-run operational audit look like?
A well-planned process audit follows clearly defined stages.
1. 1. On-site work. The audit begins with conversations with the people responsible for each area, a review of documentation and observation of processes in their natural setting.
2. 2. Writing the report. The information gathered is organised and analysed. The conclusions rest on data, observation and fact; assertions are identified and set aside.
3. Presenting the findings to the owner or the board. The report is discussed point by point, with the reasoning behind every conclusion. This is the stage that often provokes the strongest reactions. Owners and boards compare their own reading of the situation with the picture that emerges from an outside team’s analysis.
4. The improvement plan. The final stage is a set of recommendations covering short-term actions (quick wins), a phased plan of change with a timetable and budget, and an implementation map with estimated costs and expected return.
What separates a good audit from a report that sits in a drawer?
One of the arguments most often raised against audits is that they end in a report that leads nowhere. It is not hard to see why that view persists. Some consultancies and independent consultants do produce work that is difficult to turn into action.
A report of general observations, without priorities or a route to implementation, will indeed be useless. Good operational consulting takes a different approach. It identifies the source of the problem first, and only then proposes solutions matched to the size of the business, what the organisation can realistically absorb and the budget available. The answer need not be the most elaborate change programme, but the actions that deliver the greatest effect for a sensible use of the resources at hand.
For the same reason, an operational audit for a small or medium-sized company does not have to cover the whole organisation. In many cases there is more value in examining the single area with the greatest bearing on results.
Scope: from a full diagnosis to a single module
Not every organisation needs every area diagnosed at once. An operational audit of a manufacturing business can therefore be designed in modules – a set of independent blocks that can be combined according to the challenges of the moment.
Finance – cost structure, liquidity, profitability (ROI, ROE, ROS), capacity to invest and payment bottlenecks.
Procurement – the structure of supply, the supplier panel and risks in the supply chain.
Logistics – transport costs, warehouse structure and supply chains.
Sales – forecasting, market trends, enquiry conversion and pricing policy.
HR – organisational structure, capacity to scale the workforce, incentive schemes and pay grading.
Production – value stream mapping, OEE, TPM, lean manufacturing and visual management.
Maintenance and engineering – machine failure rates, CMMS systems and planned technology investment.
Quality – the pattern of complaints, quality management processes and the quality culture within the organisation.
A modular design makes it possible to match the scope, timetable and team involvement to the size of the problem and the needs of the business. Instead of running a sprawling project across the whole organisation, you can concentrate on the areas with the greatest bearing on results.
Operational audit and interim management
The relationship between an operational audit and interim management usually follows from the natural order of events. The audit diagnoses the problems, establishes their causes and sets the direction of change. The next step is to carry it through. Not every organisation has the resources or the expertise to implement the recommendations on its own. In those cases an interim manager can take responsibility for delivering the plan and run the project until the intended results are achieved.
That is the difference between a report containing recommendations and operational restructuring that produces a lasting change in how the business works.
The trigger for good decisions
No company runs flawlessly. The decision to commission an audit usually comes either when the organisation starts sending out early warning signals, or when the board wants to prepare it deliberately for the next stage of growth.
You do not need to have all the answers. That is what specialists are for – people who can look at the company from a distance, test how its processes actually work and point to what needs to change. An outside team’s perspective reveals connections that day-to-day management tends to obscure.
That is why an operational audit is better treated not as a cost, but as a sound diagnosis – the point at which good business decisions begin.
