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The perfect supplier audit: A Q&A with supply chain industry expert

Posted by Gary Plant on Apr 6, 2016 9:30:00 AM

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The development or use of audit systems ensures that your team can regularly check the compliance of suppliers, the provision of resources, and the ability to continue serving your company in the future. Reminders and records of previous audits are invaluable when dealing with a large supply chain.

Many companies implement auditing when a supplier is underperforming, by which time it is often too late. Additionally, this means suppliers see audits as a negative undertaking, carried out only to find problems in the process.

To find out more about creating the perfect supplier audit, Altius Managing Director Gary Plant answered your most commonly asked questions.

What is the current situation regarding auditing of suppliers and how effectively do organisations handle these?

The term audit, in a non-financial context, is used somewhat loosely to cover a multitude of supplier checks or interventions undertaken by a customer organisation, or their agent. The most commonly used meaning is where the checks are undertaken at the supplier's site and this is my focus.

There are many examples of large numbers of audits being undertaken in some sectors, particularly where there are safety risks. Why should this be the case? The audit is used as a tool to check the supplier is doing what he is supposed to be doing, i.e.meeting legal requirements, behaving how the customer expects him to, knows what he is doing, acting safely and, most importantly, not causing the customer any problems.

Is there room for improvement?

If the audit finds problems, and many do, what does this mean? A common conclusion is that the supplier is not good enough and he’s told to do better. Sometimes he’s replaced completely. It’s not uncommon for more audits to be commissioned, since the results show that there are problems and they need to be identified and dealt with. Could it be that what the audit is really telling us is:

  • The process that brought us to this point didn’t work?
  • Did we choose the right supplier in the first place?
  • Did they know what we wanted or didn’t want and how we expected them to behave?
  • Is the audit telling us that there is an opportunity for improvement?

Best Practice Guide to Supply Chain Compliance Now Available >

Most suppliers want to do a good job and keep their customers happy. We need to make sure we choose these suppliers, make sure they understand what we want (and don’t) and use audit processes to monitor whether or not both parties are getting this right. Once we do get supplier selection, wider assessment and communication right, we can do fewer rather than more audits, which will save both time and money.

What is the key to a successful audit of suppliers and supply chains?

The key to a successful audit is to clearly define its purpose. The famous Pablo Picasso quote "Computers are useless. They can only give you answers", could be adapted to audits, which could be described as only exposing problems and, therefore, not always constructive. While it’s convenient to blame the supplier's shortcomings, this is unlikely to make things better.

Where should organisations start, or what should they demand of their audit supplier?

The audit should be undertaken for a specific purpose, for example, to ascertain whether or not the supplier’s operatives are aware of the customers’ requirements with respect to safety. An audit of a contractor could be undertaken to check that their operatives know what the customer’s policies and procedures are with respect to contractors working on their premises.

Without this clarity of purpose, it is likely that the supplier, and indeed the audit provider, will fail to meet the customers’ expectations.

What kind of issues need to be examined?

Any audit should be limited to matters that pose risk to the client’s business, yet they are frequently used unnecessarily, e.g. to ensure effectiveness of a supplier's quality management system, despite the fact that the quality of the supplier’s products presents no risk to the customer. Audits are too often undertaken because it’s standard policy, without questioning the sense of that policy.

How can this be done effectively, without just relying on what suppliers themselves say?

Audits can confirm that there is evidence that the customer’s requirements have been met. Where that evidence cannot be found, we can’t know whether or not the requirement has been met. What the supplier tells us doesn’t really change that so we can’t be sure we’re safe from the original risk.The supply chain process needs to be adjusted to make sure the evidence is available in future. It could be as simple as making sure the supplier knows we want it.

How far down the supply chain should such audits go?

It could be argued that the ideal scenario is that no audits are done at all because the customer has total confidence in the supply chain process and supplier and doesn’t need to spend any money checking. In the real world, some monitoring is necessary, but it should be effectively targeted as part of a wider compliance framework. This will minimise cost and reduce timescales.

Audits are a valuable monitoring tool for suppliers, but they are expensive. Who should monitor your supplier’s suppliers? Surely they should. If you require them to have effective supplier management in order to fulfil their obligations to you, then they should be able to provide evidence they’ve done so.  Have you made them aware of your requirements?

Best Practice Guide to Supply Chain Compliance Now Available >

If, however, you decide to audit your supplier’s sub-suppliers, in doing so you take away your supplier’s responsibility to do it. If something goes wrong, they will rightfully point out that you audited them and said they were OK.

What are the limitations here, either due to practicalities around working with suppliers or the limitations of the audit providers themselves?

Audits are a tool that will help you understand if your processes for buying-in goods and services are working, that’s all.  They won’t help if you choose the wrong suppliers because of a poor selection process. They won’t help if you fail to enlighten the supplier as to what you do and don't want from them. They happen very late in your process and are a sample at a point in time and at a single location.  The very best audit service provider will add little value if they’re not given a clear idea of what you are looking for evidence of.

Is there more that can be done?

Audits are, however, invaluable when used in the right circumstances. Use them to find out if your processes have worked, particularly for processes that bring about specific outcomes or protect you from risks associated with purchasing goods and services. If the audit uncovers shortcomings, it may be an indication that your processes didn’t work, rather than a supplier failing. This is an opportunity to examine whether you need to fix the process, rather than doing more audits or blaming suppliers.  Do that and the audit is worth doing.

Is there a need for procurement to work together with other procurement organisations across sectors to put pressure on both auditing organisations and suppliers to improve the quality of audits?

There are nearly always benefits from working together to bring about improvements. I would suggest, however, that if things aren’t improving in your supply chains, it isn’t because you need better audits!  If your audits say everything is fine when it clearly isn’t then you need better audits, but if your audits are uncovering poor suppliers, then you either need better supplier selection procedures and supplier management processes, or you need to examine whether your auditors are asking the right questions.

How else could such audits be made more effective?

Audits are most effective when they are used for their intended purpose. If your freezer is keeping food at +10C, you don’t buy a better thermometer.Get a clear idea of the risks associated with buying in products and services and understand what you will require from suppliers to protect yourself from them. Choose suppliers that are capable of doing what you want.

Make sure they understand what you want, including what will be done or delivered, the behaviour you expect and the evidence you require.  Use audits to see if everything is as you asked. If it isn’t, make improvements for next time and use audits to see if things have improved.  Repeat as necessary!

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Topics: Assessment Focus

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