Procurement 101

How to Conduct Effective Supplier Audits

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8 minutes

Written by

Logan Price

Supplier audits play a pivotal role in ensuring smooth supply chain operations and a successful procurement process. Even though conducting supplier audits can be tiresome, it is crucial for the business. Nowadays, there are plenty of useful software solutions to ease the process.

This article will explore how to conduct effective supplier audits, their importance, and software solutions to optimize the processes. So, if you are ready, let’s start!

What is a Supplier Audit?

Supplier audit is a process of independent assessment of a supplier’s processes and products according to certain criteria defined by the business or international standards.

The audit can be conducted for existing and potential suppliers an organization wants to collaborate with. Essentially, the process is quite similar, with a few minor differences.

Importance of Supplier Audits

Supplier audits are extremely important as they help identify risks and areas for improvement. It will also help you ensure that you collaborate with reliable suppliers for smooth supply chain operations.

For instance, if you do not audit the suppliers on a regular basis, it can result in issues such as late or lost deliveries, overcharges, and wasted time. Other risks of not conducting audits include lost sales, business reputation damage, and inefficient buyer-supplier relationships.

Audits help organizations stay transparent, collaborate, and improve while mitigating risks associated with supply chain disruptions.

When Should You Conduct a Supplier Audit?

It is important to keep in mind that supplier audits are not conducted only before starting the collaboration. They should be a regular part of your procurement process.

Before starting the collaboration, supplier audits help identify the top suppliers on the market. Thus, you can choose high-quality and reliable vendors for further collaboration.

Current suppliers’ audits help organizations collaborate with vendors efficiently, ensuring compliance with the set standards. Also, regular audits allow buyers and suppliers to identify areas for improvement so that they can continue collaboration in the long run. The market keeps changing, and so does the demand. That is why it is vital to stay flexible and ensure that your vendors can still meet the changing business requirements.

Benefits of Supplier Audits

As far as we are clear on the necessity of conducting audits both before and during the collaboration, let’s understand the actual benefits of audits.

Ensure Compliance

Conducting regular supplier audits helps ensure suppliers comply with the set industry standards, negotiated contract terms, and other requirements. Ensuring compliance in all these areas is vital for maintaining partnerships, building customer loyalty, and avoiding facing various legal issues.

For instance, let’s say your vendors are not compliant with certain legally established safety standards. At some point, it will come to light, affecting not only their business but also your supply chain and business reputation. So, carefully assess the suppliers you plan or are already collaborating with.

Maintain High Quality

It is always critical to check whether or not the quality of the goods is up to the set standards (security, safety, quality). The main aim is to ensure that the quality of the materials from your suppliers will satisfy your end customers.

Regular audits will prevent risks such as receiving defective items or items that are dangerous for the end customers. For instance, if you specialize in wooden kitchen furniture, you need a supply of high-quality wood. Regular audits will help you ensure that you are always receiving good-quality raw materials. It means that your end product is also of high quality. As a result, your business thrives.

Understand Weaknesses

Audits provide actionable insights into supplier performance and their weaknesses. They allow you to create and implement actionable steps to improve areas that negatively affect your supply chain.

First of all, regular audits will allow you to identify suppliers’ process inefficiencies. These inefficiencies cause a variety of issues for your business, ranging from late deliveries to delays in production. So, it is crucial to address these in a timely manner.

When you are conducting a supplier process audit, pay attention to the manufacturing techniques they use and overall supply chain logistics. These are two key factors affecting the quality and speed of the process.

Also, do not forget to conduct a financial audit of your suppliers to identify their financial capabilities. If your vendors’ weak point is the financial aspect, it can result in regular supply chain disruptions that can negatively affect your business’s performance. So, carefully assess and evaluate the financial stability of your vendors before proceeding with the collaboration.

Improve Communication

Supplier audits also help to improve communication between your organization and suppliers. It contributes to higher visibility and transparency, which results in stronger business relationships.

Think about it: instead of complaining or terminating contracts about X fact, you audit the supplier, identify the issue, and communicate it. The suppliers then can fix or improve the identified area to continue efficient collaboration with your organization.

Identify Top-Performing Suppliers

One of the key benefits of audits is that they help you identify top-performing suppliers. If you want to improve the quality of your supply chain, you must collaborate with reliable vendors. The question is how to identify them without wasting hours on research and data analysis. Well, incorporate a digital solution.

‍Tradogram is a software solution that offers a variety of supplier audit tools, including supplier performance analytics tools. You can easily identify top-performing vendors and develop a reliable supply chain.

How to Conduct Effective Supplier Audits?

Whether you are planning to audit your current or potential suppliers, you must take several necessary steps. So, let’s briefly overview each of them.

Define Objectives

Before starting the supplier audits, clearly define your objectives. This is especially important if you are auditing a new supplier.

Essentially, your objectives should include the objective criteria and requirements that are important for your organization regarding delivery quantity, delivery times, and product quality.

You can move on to the next step when you are clear on the objectives.

Develop Audit Checklist

The next step is to develop a supplier audit checklist. Here are some points to include in the checklist for further assessment during the audit:

Product design processes
Purchasing practices
Supplier’s supply chain
Costs & pricing
Quality management practices
Safety and sustainability practices
Risk management and mitigation strategies
Financial stability of the supplier.

Auditing all the aspects of a supplier’s business, from manufacturing practices to financial stability, will allow you to gather the necessary information for improved decision-making.

Review the Supplier’s Reputation Online

Before auditing the suppliers’ processes and performance on-site, conduct online research. Look for information on the supplier’s website and social media pages. Carefully assess the review sections.

Afterward, move on to third-party platforms dedicated to reviews. The supplier does not manage or control the reviews on third-party platforms. Thus, you can find more honest stories. When skimming through the review section, carefully assess customer complaints.

Conduct On-Site Audits

When you are clear on objectives and checklists, you can move on to the next step: conducting on-site audits. For this step, you must first contact the supplier and schedule a convenient date for the audit. Before the date of the actual audit, prepare the pre-audit information such as report forms, performance data, and relevant documentation.

The audit process will start with an opening meeting that will be followed by a facility tour. During the tour, make sure the audit team is attentive. Have a person responsible for taking notes. Also, ask all the questions prepared beforehand to learn more about the supplier’s processes.

If you can, ask for samples of products or materials to conduct independent tests on quality and compliance.

Evaluate Supplier Compliance

After you gathered all the necessary data regarding the suppliers, it is time to evaluate their compliance with your requirements. During this stage, examine all the data gathered after the on-site audit and evaluate how the suppliers meet your expectations.

Analyze Supplier Performance

Finally, it is time to analyze supplier performance. This is the stage when you should measure the supplier performance metrics such as delivery times, quality of the goods, and so on.

After a while, you can also identify top-performing suppliers and continue collaboration with them. The best way to do so is by using an appropriate software solution. High-quality software will provide tools to analyze supplier performance and compliance efficiently.

Conduct Efficient Supplier Audits with Tradogram

Tradogram offers a variety of tools to enhance your business’s procurement process. Moreover, it offers various tools designed to successfully manage supplier audits.

Tradogram is a centralized supplier management system that allows you to communicate efficiently with your suppliers, keep track of supplier performance metrics, and generate comprehensive reports for informed decision-making.