Spotlight on Supplier Audits

Are you wondering why should I audit my suppliers? If you are wondering what the benefits are, read on.

Should one of your suppliers fail, your company pays the cost. This cost is not just financial, it could be lost time, reputation, increased risk on a project, reduced quality, and loss of human resources.

Your client might terminate a contract due to the poor supplier management, this loss of a contract may lead to reputation damage and additional lost work. This loss in revenue in turn may result in your company having to make head count reductions, all because of a failure on the part of your supplier.

In addition to the above, disruption to your supply chain is similarly costly. Coming out of the Covid-19 pandemic many businesses will be operating on a reduced capacity and some may not have made it through these challenging times. As a result, you may face production or service downtime and your company might not be able to fulfil your client’s requirements, leading to further lost business or reputation damage.

Managing your supplier’s performance, their ability to deliver and support your business is crucial to your business’ future success and ability to retain talent.

If the above does not make you consider a supplier audit program, the below benefits might.

1.      Auditing suppliers will save your company money

Regular audits of your suppliers mitigate supply chain risk

·        You can assess how your suppliers perform against service level agreements

·        You can identify problems early and seek to remedy them

·        You can improve inefficiencies on both supplier and company interfaces

·        You can identify any non-compliance with the commercial contract

2.      An Audit of your suppliers will ensure that they are complying with your standards

If you do not regularly audit your suppliers, how can you know that they are complying with your company’s standards? Be those Health and Safety, Quality, Standard Operating Procedures, Employee management standards. Your suppliers maybe in breach of their contract with you for not complying, how would you know?  Your client may expect your suppliers to comply with their standards, how do you check that this is happening?

·        Auditing to quality management standards

·        Auditing to the commercial conditions outlined in your contract

·        Auditing the adoption of the required health and safety practices

·        Auditing the implementation of client’s requirements, environment, culture and safety

3.      Auditing your suppliers ensures that you achieve continuous improvement

Frequently auditing your suppliers will help you understand if you are receiving a consistent product or services. Product delivery suppliers should be producing consistent products, using the required standard of materials, to your specifications, without defects. The only way to know if this is happening, is to audit your suppliers. For service providers, maybe outsourced finance services, how do you know that they are representing your company to your clients in the way you require them to, providing a high quality service, without periodically checking your 3rd party provider?

If you are committed to continuous improvement, it is exceedingly difficult to achieve without auditing suppliers. You need to have a in depth understanding of your supplier performance, to put in place the improvement for both your company, the suppliers’ company and the output to your clients.

Undertaking regular audits of your suppliers, strengthens your relationship with them. If you leave your suppliers to just get on with it, you are missing an opportunity to enhance the relationship, further develop partnerships, improve processes, reduce costs and share knowledge across companies.

Auditing your suppliers is a ‘win win’ process for both your company and your suppliers company, as the output provides improvement for both parties and strengthens your relationship with them. If you leave your suppliers to just get on with it, you are missing an opportunity to enhance the relationship, further develop partnerships, improve processes, reduce costs, and share knowledge across companies.

Your 3rd line of defence Internal Audit team may not have the capacity to undertake these audits. Your 2nd line of defence business assurance auditors may be focussed on your compliance with standards and may not have the capacity to undertake these audits. Your procurement team maybe not have an audit skill set to enable them undertaking these audits.

If any of the above applies to your company, but you would like to perform a health check audit on your suppliers, Audit Ink has the experience and resources available to assist, please get in touch to discuss further.