How to Conduct a Supplier Audit
Supplier audits play a vital role in ensuring quality assurance (QA) and compliance throughout your supply chain. By bringing oversight and visibility to your supply chain, they help detect and rectify mistakes at an early stage, preventing them from causing issues down the line. In this article, we will provide an overview of the basics of supplier auditing, define the types of audits, and discuss the auditing process from scheduling to delivering the final report.
Key Takeaways
Supplier audits improve your product quality, ensure compliance with in-house standards and international regulations, prevent future issues, and help maintain communication between companies and their suppliers.
There are four categories of supplier audits: system, process, product, and compliance.
A trusted third party can customize an audit program for you to cover any vulnerabilities your company might have, including ethical, manufacturing, structural, and environmental issues.
What Is a Supplier Audit?
A supplier audit is an independent and objective assessment of a supplier’s processes or products against benchmarked criteria, whether that’s international regulations or in-house standards. They are meant to uncover opportunities to improve a product, process, or system and can range from an organization-wide audit to a specific step in your production. While audits have a reputation as being dry and nerve-wracking, in reality, they are collaborative, transparent, and fundamentally beneficial exercises.
Audits evaluate parts of a supply chain and address any issues found with corrective measures. Audits work both to preemptively identify potential areas of risk before issues arise and to identify existing problems that require correction. As such, audits are an important tool used in quality assurance and it is recommended they be conducted on a regular basis.
Why Is It Important to Conduct Supplier Audits?
Supplier audits help you maintain quality, understand vulnerabilities and areas of noncompliance within your supply chain, and improve visibility and communication with your suppliers. A supplier audit can also help you monitor production to ensure ethical practices, on-time production, and compliance with the standards of your destination market.
For example, if you have a manufacturing facility in China that is producing goods for your company in Europe, an audit will verify that your products are being made with ethical practices and safe raw materials in accordance with the EU’s market standards. If an audit identifies an unsafe chemical in your product, you can act to replace that chemical instead of reacting to a reputationally damaging recall.
Ensure Regulatory Compliance
Supplier audits can build trust by increasing visibility within your factories. These audits involve a comprehensive evaluation of suppliers' practices, processes, and documentation to verify their adherence to applicable regulations and standards. By conducting these audits, manufacturers gain insights into their suppliers' quality management systems, manufacturing practices, and product safety protocols. This enables them to assess whether their suppliers are meeting the necessary regulatory requirements and following industry best practices. Supplier audits help manufacturers identify any potential risks or non-compliance issues in the supply chain, allowing them to take corrective actions promptly. Ultimately, supplier audits are a critical tool for manufacturers to ensure their products will meet the requirements of their destination market.
Maintain Quality
Supplier audits are an essential tool for manufacturers to maintain consistent quality in their products. By conducting regular checks on their suppliers, manufacturers can detect and address issues before they become significant problems. This allows manufacturers to ensure that their products meet in-house and regulatory quality standards and prevent any potential quality issues from impacting their end customers.
Understand Vulnerabilities
As we discussed above, supplier audits can be preventative as well as correctiveremedial. For example, between 2015 and 2018, Chipotle had a series of food safety issues in the US, resulting in a $25 million fine they had to pay out in 2022. Their sales slouched for the following few years after the incidents were published and consumer trust was eroded. If they had performed regular audits on their processes, it’s possible they could have avoided the penalty, and more importantly, the reputational damages.
Boost Visibility and Communication with Your Suppliers
Supplier audits can build trust by increasing visibility within your factories. Without boots on the ground, it’s hard to know that a product, process, or system is adhering to your benchmarked expectations. For suppliers, even the knowledge that an audit is forthcoming can increase their quality and compliance checks.
More importantly, supplier audits offer an opportunity for a conversation. When used regularly, they create close ties between manufacturer and supplier, increasing productivity, customer satisfaction, adherence to regulatory standards, and a manufacturer, retailer, or importer’s bottom line.
What Are the Four Categories of Supplier Audits?
There are four key categories of supplier audits, each with a specific focus. In this section, we will explore each of these categories in detail, explaining how they help ensure high standards of quality and performance across the supply chain.
System Audits
A system audit involves evaluating the effectiveness and efficiency of a management system as a whole, rather than focusing on individual components or processes. They are meant to examine the processes, personnel, function, timing, and location of tasks within the supply chain in accordance with specified criteria. These types of audits provide a high-level view of your operations in order to help you understand any areas of your supply chain system that require improvement.
Process Audits
Process audits evaluate discrete steps within the supply chain in detail. Each step of the process is evaluated with attention to performance and outcomes related to the preceding step. All of the components required to create the finished product including machinery, personnel, and raw materials are evaluated and compared to a set of guidelines, principles, performance measures, or instructions.
Product Audits
Product audits examine a finished product against specifications before it’s shipped to an end user or retail market. Specifications include functional performance, aesthetic appearance, and dimensional consistency. A product audit might determine that a step in the production process is misaligned and needs retooling, or that the quality system as a whole needs adjustment.
Compliance Audits
Compliance audits are a bit different in nature from the previous three types of audits. System, process, and product audits provide feedback to each other and are based on internally defined specifications. In contrast, compliance audits aim to align process and product specifications with written documentation by either verifying or disqualifying. It is a process that determines unequivocally whether or not specifications are met.
This type of audit can also require conformity to an external specification (for example government-issued standards) that might require larger changes to the supply chain. Common compliance audits include ethical audits, environmental audits, C-TPAT audits and food safety audits.
Types of Supplier Audits
Within these four categories, there are a wide range of supplier audit programs. Each type helps you evaluate your suppliers’ adherence to different metrics or standards, whether that’s product quality standards, international regulations, or ethical standards.
Manufacturing Audits: Manufacturing audits are conducted to make sure suppliers are manufacturing your products to your specifications and following processes correctly.
Ethical Audits (SMETA, amfori BSCI): Ethical audits are a type of compliance audit that makes sure appropriate work conditions are being applied. These audits can be guided by regulatory standards or internally-mandated policies.
Living Wage Audits: Living wage audits are a type of compliance audit that certify whether or not your employees are receiving enough remuneration (base pay, cost of living adjustments, in-kind benefits, etc.) to afford a decent standard of living. Audits can help clarify potential issues before they become serious problems.
Structural Audits: Structural audits are conducted on your supplier’s buildings to ensure structural integrity, fire safety measures, and general building codes are being maintained.
Environmental Audits: Environmental audits ensure compliance with local, regional, and national, and international environmental standards. Environmental audits can help with both mitigation and remediation issues.
Chemical Safety Audits: Chemical safety audits assess potential chemical hazards against the controls your company has put in place to mitigate risk. These types of audits can be conducted periodically as a preventative measure, after an incident, or following a change in process, personnel, location, or equipment.
Food Supplier Audits: Food supplier audits evaluate your supplier’s food handling quality and safety measures for good manufacturing practice (GMP) and regulatory compliance.
C-TPAT Audits: C-TPAT audits are designed to protect your company, suppliers, and customers from security threats. The program aligns with U.S. Customs and Border Protection's requirements. This service evaluates your current risk exposure and makes recommendations on how to secure your physical and digital assets.
How to Conduct a Supplier Audit: The Process
The process for conducting a supplier audit is fairly straightforward, but there are critical steps involved, especially in the planning process. An experienced third-party auditor will provide you with expectations for the audit, give context, and share knowledge during your initial meeting. Auditors should have a local presence in your manufacturing location and global expertise to help contextualize the implications of your audit. When choosing a third party, pick a trusted auditor with a proven track record.
The Audit Process
There are four main stages of the audit process. It’s important to note that certain audits include additional data gathering steps.
Opening Meeting
Discuss the objectives of audit between the client, the auditor(s), audit program manager
Establish clear objectives, criteria, and expectations for the audit
Ensure objectives align with auditor capabilities and timeframe
Determine if any regulatory audit conditions are appropriate to include
Factory Tour
Conduct the audit
Onsite inspection
Overview of facility and equipment conditions
Create factory profile
Information gathering
Detailed description of products/processes examined
Production capacities
Workflow and organization charts
Evaluation of QA systems
Health and Safety Evaluation (for Social Compliance Audits only)
Inspection of health and safety hazards, PPE accessibility, compliant information posting, etc.
Employee Data Gathering (for Social Compliance Audits only)
Employee documentation review
Closing Meeting
Comprehensive report submitted
Overview of objectives
Findings
Discussion and recommendations
Conclude audit
How QIMA Can Help
Supplier audits are designed to protect your supply chain and your customers from harm. It is recommended they be conducted regularly to guarantee your product is consistent and complies with the law. QIMA has helped over 17,000 brands ensure the highest degree of quality excellence. Leverage our expertise to keep your production line moving.
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