Supplier Audit — What You Should Know?

Supplier audit allows businesses to ensure that the products or services provided by suppliers meet their standards. However, how do you set up a robust supplier audit?

In this article, we are going to discuss what a supplier audit is. We are going to tackle the methods used when conducting an audit and the process that it follows. Additionally, we are going to discuss the steps you can follow to set up a structured supplier audit and the benefits you can gain from it. 

After reading this article, you will have an in-depth knowledge of what supplier audit is. Thus, enabling you to conduct it effectively in your profession. 

I have created a free-to-download editable supplier relationship management scorecard template. It’s a PowerPoint file that can help you assess your supplier’s performance effectively. I even created a video where I’ll explain how you can use this template.

Supplier Audit: What is it?

A supplier audit is a systematic and objective evaluation of a supplier’s performance, capabilities, and adherence to specific criteria or standards. 

Almost all companies conduct supplier audits to ensure that suppliers meet their quality requirements. During these audits, the examiner checks if the supplier follows industry rules like safety and proper production methods.

Different types of supplier audits are done to ensure quality control. The main types are system audits, compliance audits, process audits, and product audits.

Usually, the supplier audit is started by the internal team of the company, particularly the procurement department or the quality department as a part of their diligence or annual review of the suppliers. 

The procurement team determines what details should be gathered from suppliers and whether to conduct the audit themselves or hire a third-party company that specializes in audits. 

The audit is commonly conducted by a neutral third-party company. They review if the supplier meets quality standards and the buyer’s needs. Audits should happen every two years to confirm the supplier’s quality.

Methods Used toConduct Supplier Audits

The following are the common methods used when conducting a supplier audit:

1. On-Site Visits

This method involves going to the supplier’s location to see how they operate. You can observe how they make things, check their quality control methods, how they store items, and if they follow rules and standards.

2. Interviews and Surveys

Talk to the supplier’s staff, like managers and workers, to learn about their practices, skills, and commitment to quality. Surveys can help gather specific information and compare different suppliers.

3. Document Examination

This method focuses on going through documents provided by the supplier, such as manuals, procedures, policies, certifications, and records. It helps assess if they follow the documented processes, meet standards, and have an effective quality management system.

4. Performance Analysis

By studying performance data, like delivery times, quality measures, complaints, and returns, you can get an objective view of how well the supplier performs. This involves collecting and analyzing relevant information to see if they consistently meet your requirements.

The Process of Supplier Audit

As we discussed earlier, a supplier audit is a systematic and objective evaluation of a supplier’s performance, capabilities, and adherence to specific criteria or standards. Thus, standard supplier audits generally follow a general process:

1. Audit Preparation

As you gear up for the audit, the first step involves setting the stage. You’ll define the audit’s objectives and scope, focusing on specific areas of the supplier’s operations that require evaluation. Consider making a questionnaire to collect important information upfront, which will serve as a foundation for your checklist. Additionally, ensure you have the right tools and methods in place to conduct a thorough evaluation.

2. Team Formation

Now, let’s build your dream team. Select members from different departments who possess the expertise needed for this audit journey. Think of it as creating a dynamic group, each member contributing their unique skills to deeply assess the supplier’s compliance and performance.

3. Supplier Notification

Transparency is key which is why you must ensure to notify the supplier well in advance about the upcoming audit. This proactive communication allows them to gather necessary documents, records, and personnel, fostering a smooth audit process. Keep your interactions clear and collaborative, emphasizing the joint effort in achieving a successful evaluation.

4. Audit Kickoff

For a flawless start, schedule a formal meeting with the supplier’s representatives. During this session, you’ll set the tone by introducing the audit’s purpose, objectives, and timeline. Use this opportunity to clarify expectations and roles, creating a strong foundation for a productive audit partnership.

5. Audit Execution

Now comes the heart of the process – the actual audit. Follow your well-defined plan as you systematically assess the supplier’s operations. Conduct on-site visits, reviews, and interviews to gain insights into their processes, equipment, and adherence to standards. This comprehensive review helps you evaluate their compliance and overall performance.

6. Closing Discussion

As the audit comes to an end, engage in a constructive discussion to share your findings and observations with the supplier’s team. This dialogue provides a platform for initial feedback, addressing immediate concerns, and resolving any potential discrepancies that may have arisen.

7. Official Report

Capture the audit journey in a formal report, which you’ll compile within a reasonable timeframe after the auditor’s conclusion. Your report will encapsulate the entire process, from objectives to insights. Present your findings objectively, backed by evidence, and offer recommendations for improvement where applicable.

8. Follow-up and Corrective Actions

You must stay engaged even after the audit is complete. Collaborate with the supplier to address any identified areas for improvement. Create and implement corrective actions, and establish a follow-up plan to check the effectiveness of these measures. This ongoing partnership ensures a comprehensive audit cycle.

Steps For Setting up a Structured Supplier Audit

The following are the steps you can take in creating your own structured supplier audit:

1. Establish audit criteria

By clearly defining the objectives of the supplier audit. Determine the specific areas you want to assess, such as quality control, compliance with regulations, delivery performance, or ethical practices.

Once your objectives are clear, it is time for you to establish audit criteria. In this step, you create a set of criteria or standards against which you will evaluate your suppliers. 

Although there are no specific ISO standards solely dedicated to supplier audits, there are ISO standards that provide guidance related to supplier management and audits. These standards can be useful in establishing a framework for conducting supplier audits effectively. Here are a few ISO standards relevant to supplier audits:

• ISO 9001
• ISO 14001
• ISO 19011

2. Develop an audit plan

In this step, you must first identify a team of qualified auditors who have expertise in the areas that you want to audit. Once you have found the right people for your team, you must now create a detailed audit plan that outlines the scope, objectives, criteria, and timeline for the supplier audit. 

3. Conduct the audit

On the date you have scheduled the audit, conduct the supplier audit following the established plan. Perform on-site visits, interviews with key personnel, document reviews, and physical inspections as needed. Use standardized checklists or questionnaires to ensure consistency in the evaluation process.

4. Communicate results and follow-up actions

Share the audit results with the supplier clearly and objectively. Highlight strengths and areas that need improvement. Provide specific recommendations for corrective actions if any non-compliances are identified.  

Additionally, collaborate with your supplier to develop an action plan for addressing any identified issues or deficiencies. Establish timelines for corrective actions and request regular progress updates.

Benefits of Supplier Audit

The following are the benefits that you can gain by conducting a supplier audit:

1. Recover the damages you incur from poor quality

Through supplier audits, you can see which suppliers are doing well and which ones might be causing problems. Poor supplier performance can lead to higher costs. Sometimes, mistakes can be expensive. If a supplier messes up, you can work with them to improve or ask them to cover the costs of their mistakes.

2. Identify potential risk

Knowing where each part comes from helps things run smoothly. When you check suppliers, you can find any gaps in their processes, like how they make things, change processes, or send out products. This helps you create a plan to address these issues.

3. Setting quality standards

Making sure your products turn out well relies heavily on your supplier’s compliance. Thus, it’s smart to use the same rules for everyone in the supply chain to maintain uniformity.

When suppliers match up with what customers and the industry expect, it’s easier to keep track using a computer system. Checking things through an audit helps find any mistakes and makes a plan to fix them.

4. Enhance supplier communication

Supplier audits build strong collaboration between manufacturers and their suppliers. A window into supplier-driven operations facilitates a transparent exchange of information and insights on both ends. 

Routine audits ensure that the supplier’s performance aligns with objectives and remains mutually advantageous. When objectives are in sync, the potential for manufacturing success increases.

5. Customer satisfaction

Through supplier audits, you can see which suppliers are doing well and which ones might be causing problems. Poor supplier performance can lead to higher costs. Sometimes, mistakes can be expensive. If a supplier messes up, you can work with them to improve or ask them to cover the costs of their mistakes.

Conclusion

In a nutshell, successful procurement requires a vigilant eye on potential risks. Risk management in procurement safeguards its processes from any disruptions. By efficiently following the steps of risk identification, assessment, mitigation planning, monitoring, and response planning, you can ensure a smooth and seamless procurement journey.

The importance of risk management also relies more on strong supplier relationships because they can help you save money, guarantee your business continuity, and keep your reputation good.

Remember: precaution is better than cure. So, you should be vigilant about common procurement risks and employ strategies to avoid them. That way, you can ensure that your procurement processes remain effective to keep your business afloat and top of the line.