SUPPLIER AUDIT BEST PRACTICES STEPS FOR SUPPLY CHAIN RESILIENCY

There are numerous reasons why supplier audits are crucial in the current manufacturing environment. A supplier audit is a practical business approach for manufacturers to evaluate new suppliers and drive accountability within the existing supply base to ensure early identification and mitigation of supply risks.

With the onset of multiple supply disruptions in the last few years and the focus on domestic manufacturing, on-site audits can be an effective supplier development strategy to determine the capabilities and competencies of potential sources in new markets. Assessments are also critical to demonstrate due diligence and ensure supplier regulatory compliance in different markets. The regulatory compliance risks can be related to ethical, trade, and environmental standards that could impact the organization’s brand value and reputation.

Traditionally, global organizations have adopted standard frameworks for overseeing audits, such as ISO9001 and SA8000, based on organizational objectives such as quality control, supply chain security, safety, and compliance to determine the reliability of suppliers and identify corrective actions for improvement.

Here are six best practices for organizations to follow while conducting supplier audits to maintain a resilient supply chain:

Review Supplier Business Leadership Approach

A critical section of the supplier audit that is often overlooked is the supplier’s management structure and policies to ensure that the business is flexible and has the appropriate resources and capabilities to manage supply chain disruptions and variability in customer demand. Does the leadership team have the experience to handle contingency situations? Does the company make investments in new technologies and processes to improve productivity? Determining how the supplier leadership team evaluates its performance and prioritizes its customers is also essential. This could be with respect to how business performance metrics are tracked and measured. How many larger preferred customers does the supplier have? How is interaction with global customers handled? The supplier leadership team’s attitudes and strategies can also provide insights into unanticipated business events related to mergers and acquisitions and whether the supplier’s competencies, vision, and values align with the organization’s business. How are the employee skills assessed and developed? Does the management participate in regular quality control reviews? Does the management have a formal strategic plan with goals that are shared with employees?

FOCUS ON SUB-TIER SUPPLIER MANAGEMENT SYSTEMS

To mitigate the supply chain impact of geo-political events and manage compliance-related risks, it is crucial for organizations to assess the entire value chain of their suppliers and determine whether these suppliers have formal purchasing, quality, and compliance control processes in place to manage sub-tier suppliers for raw materials, components, packaging, and freight.

Some examples of these controls are:

Selection, evaluation, and approval

Product qualification and acceptance

Performance measurement and monitoring, including sub-tier auditing programs

Product quality defects and corrective actions

Process change management procedures

With respect to traceability, does the supplier clearly understand where the materials are coming from? Are these multi-sourced or single-sourced? Does the sub-tier supplier have a certified quality management system? Are there metrics in place to track the performance of sub-tier suppliers? Can the finished product be traced to its original material and subcomponents?

EVALUATE RISK MANAGEMENT PLANS, INCLUDING SAFETY POLICIES AND RESOURCES

Suppliers must be evaluated on their risk response plans for business continuity related to multiple factors, including demand management, forecasting, manufacturing, quality, technology, compliance, and disaster management. Is there a detailed plan to limit production interruption due to unforeseen extreme circumstances? Does the company have vendor managed inventory or Kanban/ consignment programs with its suppliers? The other factors to be considered in the supplier’s risk response plan are labour standards and environment, health and safety (EHS) metrics. What are the current environmental, health and safety practices in place?

How does the company set safety targets and periodically evaluate them? How are internal and external resources managed?

Investigate Process Control Plans And Tooling Protocols

Special attention must be given to internal quality controls for materials and components, documentation controls, and production controls for early detection and mitigation of quality and process issues. What methods are used to document and control critical processes such as receiving inspection and design validation testing? How are both internal and external issues managed? How are continuous improvement projects handled?

There also needs to be an emphasis on preventative maintenance procedures, including equipment maintenance protocols and tooling validation methods to minimize product nonconformances. For example, how are fixtures and spare parts maintained? How are gages calibration scheduled and monitored? How is the tooling inventory tracked and maintained?

VERIFY IMPORT/EXPORT AND OTHER COMPLIANCE PROCEDURES

Global organizations must require suppliers to be familiar with trade and environmental compliance protocols to facilitate the smooth flow of goods and services between countries. This includes and is not limited to:

Port customs regulations

P roduct shipping requirements, including markings, safety labels, country of origin identification, and other special requirements

Shipment documentation control

Import and export packaging and labelling specifications

Labour and import-export control laws based on country

Environmental, social, and governance (ESG) initiatives

Additional factors to consider – does the supplier have a dedicated employee or legal function that directs all import-export compliance activity? Can the supplier share appropriate documentation of compliance? Are these appropriate requirements extended to sub-tier suppliers?

Communication And Frequency Of Audits

The success of an assessment depends primarily on the transparency in communication between both parties and the supplier’s willingness to collaborate and share information for process control and corrective actions to mitigate risks.

The frequency of conducting audits depends on the type of business relationship – strategic or transactional, priority classification of the supplier based on the criticality of the parts in the supply chain, and supplier performance based on key performance indicators, including quality and service. This should never be only at the start of the business relationship.

Preferred strategic suppliers must be audited at least once or twice yearly. Suppliers who have consistently maintained high quality and service need not be audited as often as those identified as having repeated cases of late shipments or delivering non-conforming products. Other reasons for performing audits could be new product introductions or changes in equipment and production methods and sources of supply.

Therefore, audits can serve as opportunities for organizations to learn and enhance their suppliers’ capabilities and competencies, increasing their brand value and customer satisfaction. Finally, the above recommendations can help organizations fulfill the primary purpose of an audit: to take a closer look at their supplier’s systems, processes, and policies to identify compliance gaps and implement continuous improvement plans to maintain a resilient supply chain. SP

BY JEFF RUSSELL