This is where a robust supplier audit process comes into its own. Using this, a business can carry out checks on both existing suppliers and potential new ones to make sure that using them is not going to introduce a whole new set of problems.
The process can also be used to encourage suppliers, even the satisfactory ones, to adopt a philosophy of continuous improvement, refining their processes and practices to make using them even more cost-effective.
So what kind of supplier audits can a business use to achieve its aims?
System audits
These examine the effectiveness of the supplier as a whole – management, processes, policies, etc. This type of audit is best if you need a high-level overview of a supplier.
Process audits
These examine the supply chain step by step, including how efficient and effective a supplier’s production process is, and highlighting any areas that could be improved.
Compliance audits
Many businesses are required to follow certain legal and regulatory requirements, either in terms of the product they’re producing or the way they go about sourcing that product or its components. For some producers, compliance is necessary to maintain industry accreditation which can mean a great deal to their brand identity and customer relations.
A compliance audit will examine all suppliers and check to ensure that they are meeting standards relating to:
- ethical trading
- environmental considerations
- industry regulators
- industry bodies to which the supplier is signed up
When should you carry out a supplier audit?
In an ideal world, you should carry out one before you start your business relationship with the supplier. However, not all businesses may have recognised the value of a supplier audit process, so if you are only just discovering the concept of audits, both new and existing suppliers should be subject to the process.
If it looks like the contract is going to be an ongoing one, then it’s a good idea to schedule regular reviews to make sure that things are still going well. If something happens, like an incident or a near miss that gives cause for concern, a special audit will serve to ensure that the supplier or their practices/procedures were not the cause and that a similar incident won’t happen again in the future.
How to carry out supplier audits
This process can be used with any type of audit mentioned above.
Step 1. Meet the supplier
This can be done either face to face, online or on the phone. The initial meeting will help to set out the objectives, criteria and expectations for the audit as well as its timeframe and how everyone will be advised about its findings.
Step 2. Look at evidence
The type of evidence needed for the audit will depend on the type of audit and the supplier in question. The evidence may well include:
- policies, documents and data
- samples to send to experts
- site visits
- interviews with key personnel
- the supplier’s safety logs and accident books
It is important to remember that if the supply chain includes a subcontractor, then the audit will need to gather evidence about them on the same basis as the main supplier.
Step 3. Review and share findings
The audit report will show both the findings from the evidence gathering process and the recommendations. If any corrective actions have been identified, the report will need to set out a timescale for them to happen. It may also be the case that performance or expectations of the supplier need to be revised; this should also be outlined in the report. To conclude, the report should highlight the date that the next audit will be carried out.
The findings of the report should be discussed with the supplier – unless there is a good reason not to do so – and at this point the audit process can be closed – till the next time.
Who should carry out an audit?
This is best done by someone who has the expertise to know what to look for and the issues relevant to that particular supplier and their industry sector. They also need to be senior enough to have their conclusions listened to by management.
While an audit can be carried out by a team of people, there should be one person in overall charge of the process and taking ownership of its findings.
Conclusion
As can be seen, there’s a lot to remember when it comes to setting up a supplier audit process, although once it is up and running, it should be a lot easier to maintain. However, the results of a supplier audit may affect the performance of a contract, and therefore, you should get legal advice before taking any steps that may change or end a contract you’ve signed.