Supplier Audit: Do It Well or Not at All

Do you have your yearly planning already for 2018? And supplier audits are part of it? Well, read this before you make unnecessary visits.

But first, just to be on the same page: What are supplier audits and what are they for?

Supplier Audit: Do It Well or Not at All

A supplier audit, also known as a 2nd party audit, is an instrument applied to develop business partners in the supply chain and ensure processes and products comply with customers’ requirements. This can be conducted for initial supplier qualification or regularly to monitor supplier performance. Additional ones can be necessary in case there is a change in the process, material, product specification, performance or even in the ownership or location of supplier. The main aim is to minimize risks, strengthen the partnership and maintain quality and delivery performance.

It sounds good, right? Why is this an issue in practice?

It is my contention that many customers do not keep the end in mind and that we could do away with 80% planned audits without compromising on quality delivered.

If your requirements as a customer coincide with or are even less than those of the common standards then determine your criteria, e.g. that you accept suppliers already audited and certified/accredited by an independent organization. The common standards are there to make business easier. If nonetheless you insist on unjustified auditing, you are wasting time and money. If the supplier is not certified you may align with the common standard and audit accordingly, but make sure you are trained on how to interpret the applicable standard. A no go is auditing according to an already replaced standard, like ISO 9001:2008, while the supplier is already certified according to ISO 9001:2015. If the supplier performance is acceptable and the supplier is financing all these external audits, an acknowledgment instead of various visits will do more to your business relationship.

More specific audits are definitely justified in case of more demanding and complex requirements (e.g. on critical parts, in the nuclear, medicine, chemical or automobile industry). In this case, make this a clear process in your organization and make the goals clear to the supplier as well.

In your process, you may define that exchange of documents is sufficient to get evidence that the supplier’s process are under control. This might sound less time consuming than a small visit. On a closer look at the paperwork and number of people involved, this can be unappealing as well. Here is a simple calculation: send 10 forms to 10 different suppliers, with 50% of obsolete questions in the form e.g. “give your URL-address”. In this assumption, you involve at least 2 people in both organizations. Say each has an internal hourly rate of 100 Euro (just to make calculation simple) and each taking 1 hour handling one form with 10 pages (creating, sending, filling in, collecting back), then we would waste a total of Euro 2,000. Dear customer, should you be surprised when your costs increase the following year?

What about the standards?

ISO 9001 and the ISO/IEC 170XX all talk about knowing your area of influence and having relevant supplier processes under control. This can be done also without supplier audits and without unnecessary supplier questionnaires. With Google and information flow nowadays, 80 % of the information required is already public and do not add quality.

All in name of quality management

Whether it is a visit or questionnaire, it should not be used to serve your own selfish ends and job creation purposes nor as an “audit-tourism”.

Many customers tend to justify their forms and audits by citing the norm in the introduction part. I would like to mention here again: the common standards do not say “how”, they just say “what”. Imagine the paperwork at your site, your supplier’s site and they continue to give this further and so on. Who is going to pay for it? Where is the lean management approach in supplier audit processes? This has nothing to do with quality management.

I once learned as a young and green quality manager, happy inheriting the paperwork, asking about the “critical” suppliers without checking when we last ordered from them. One of my contact persons at the supplier’s site asked: “Why should I leave customers who pay unattended just to do your paperwork which goes unpaid?” I did my homework, learned not to initiate any action without asking why. “Because the norm requires” is not satisfactory. It is all about interpreting the standard well and adding value with all measures put in place.

A vital criterion is therefore dealing only with active suppliers. If you have not ordered in the last one year for instance, then be fair. In case you say you need a standby supplier, then pay for their time.

If supplier on standby, pay your supplier for the hours occupied

Depending on the determined scope of quality management, the suppliers can be part of a regular program and monitored. In case of equipment failure or breakdown at own production site for instance, you have a plan B. However, clear communication and agreement, preferably in written form, should be in place so that independent of who is representing both parties (supplier and customer) this can be reviewed more efficiently. And it is just fair enough to pay the supplier for the time allocated for standby.

To summarize: always ensure a supplier audit is justified, not forgetting to consider the hidden costs on both sides. Here is a short guideline:

  • Always understand and communicate the purpose of the audit. It should add value to both parties
  • Define your critical suppliers and define qualifying and performance criteria other than setting up a lot of paperwork and audits. I am sure 80% of the planned supplier audits are unnecessary.
  • In case of qualification audits, let the supplier know the outcome in good time: approved or not? If approved, are orders expected soon?
  • Involve the management. If for example price plays the most important role for your top management and the bargaining power of procurements team is being rewarded, then checking on quality aspects by the Quality Manager will hardly make a difference. On the supplier’s side, keep in mind that quality management is a management issue. If you do not get quality commitment from the top management then the audit visits will hardly bear fruit.
  • Internal communication is vital. There is nothing as frustrating for suppliers as the quality manager not involving procurement or vice versa on the customer’s side.
  • It is not about creating jobs and “audit-tourism”. Whoever is pursuing his own interests or that of a few is the wrong one for supplier audits
  • If auditing suppliers serves as making sure supply is constant in case of a breakdown then pay the standby supplier for the time invested.
  • Keep the number of auditors low. More than 2 people are always just a burden for the supplier and waste of resources on the customer’s part. Depending on complexity and expertise required, determine the right team size.
  • Respond to major complaints. This is a real learning effect for all involved at supplier site on the critical process. Use this as a follow-up in case of a systematic error. The supplier will appreciate
  • Trust the independent certification and accreditation organizations and work on your time to market instead. Acknowledge and appreciate the various accreditation, certifications and approvals audits your supplier has already invested in. In so doing you will have more time on your hands to increase your profit margins and innovate.
  • Last but not least, make sure you are a trained auditor and understand your role.

If anything, there are nowadays more risks on customer’s side (loss on receivables, payment terms conditions of up to 120 days) than on supplier’s sides. Right?

Printable version: 6_SupplierAudits_DoItWellOrNotAtAll_2018-01-31

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4 thoughts on “Supplier Audit: Do It Well or Not at All

  1. Know it to get it right! From understanding and communicating the purpose of the audit, questioning whether it adds value to the basics of responding to complaints, keeping number of auditors low, etc, this blog on supplier audits is insightful!

  2. Auditing suppliers does not necessarily translate to improvement of quality! Great insight on understanding whether the process adds value or not.

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