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Why on-site supplier audits every 12 months is not enough

Posted by Gary Plant on Mar 23, 2016 9:30:00 AM

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On-site supplier audits play a significant role in the management of a supply chain. Often viewed negatively by suppliers and contractors, audits can not only identify potential compliance issues, but they can also help to improve performance and efficiency.

Following the risk profiling of the suppliers in your supply chain, you will understand how valuable and how much risk a specific supplier can bring to your business. Using this information, you should proactively look to undertake supplier audits on a more regular basis than just every 12 months – and here’s a few reasons to support this argument.

The cost of poor supplier quality

Many businesses do not track or measure the cost of poor supplier quality (COPQ) that is attributed directly to their suppliers. In some cases, these costs could amount to over 10% of an organisations overall revenue.

By carrying out audits on a more regular basis than every 12 months, you will be able to discover whether equipment is being used that is constrained and, therefore, reduce the overall outputs of the production line. You’ll also be on top of any recall or warranty expenses due to poor quality of products – which in the long term could save you money and sustain your already high reputation.

Supplier performance monitoring

If you’re only auditing your suppliers every 12 months, how can you be sure that they are always performing to the standards that you require? In order to always be aware of how your suppliers are doing, it is recommended to keep supplier scorecards which will use KPIs (Key Performance Indicators) to rank a suppliers relative performance within the supply base.

Best Practice Guide to Supply Chain Compliance Now Available >

As an example, leading manufacturers use the following key operational metrics to track their supplier performance:

  • Number of corrective actions last quarter
  • Average response and resolution time for corrective actions
  • Number of customer complaints on product quality
  • Performance against benchmark
  • Any rework hours due to supplier components

Over time, by keeping an eye on these KPIs, you will no doubt see an improvement in the quality of a supplier and your supply chain as a whole.  By monitoring these indicators more often than every 12 months, your supply chain will become more efficient and more effective, which is of course what every supply chain manager wants.

Implementation of corrective action

Once problems have been identified through regular audits and monitoring, one of the first steps that you should be taken is to investigate and identify the cause of the problem, as well as suggested corrective actions. Once approved, the changes can be implemented and tracked using KPIs to monitor effect and performance.

Corrective actions can include anything from amendments to a documented procedure, the training of an employee, or even an update in manufacturing or production equipment.

Through the implementation of such corrective actions, you’re ensuring that your suppliers are always maintaining the highest standards of working and, in turn, you’ll be improving your business relationships with your suppliers too.

Supply chain best practice

Audits are not only a tool that can be used to keep an eye on the performance of your suppliers, but also how everything is working as a whole. Any findings resulting from an audit can highlight opportunities to make improvements, that may not be the responsibility of the supplier, but the client instead. Regular audits enable a business to iron out any potential issues and improve the outcomes from suppliers.

We know its sometimes a struggle to even carry out the bare minimum of auditing across your supply chain, but by implementing supply chain best practice, using a layered approach (a mixture of desktop and on-site audits) and completing smarter auditing, you can negate any potential risks and see supplier performances increase too.

To find out how you can be smarter in your supply chain auditing, download our free guide, An Introduction to Supply Chain Compliance Best Practice today.

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Photo Credit: Flickr

Topics: Assessment Focus