Supplier Audits: Everything You Need to Know - HQTS (2022)

Within today’s globalised market, there are many choices as to whom organisations choose to work with – and this is often the case when finding suppliers.But finding the right supplier can be challenging, especially if the actual company is located thousands of miles away from you. Luckily, supplier audits can help businesses overcome these challenges.

In this article, we’ll go through the key information you need to know regarding supplier audits.

What Is a Supplier Audit?

A supplier audit inspects a supplier’s usage of industry regulation practices, including the health and safety and correct manufacturing processes.Generally, auditing a supplier covers a large area with several practices. Therefore they are usually bespoke to the client’s requirements. The supplier auditing process can differ for each industry, from food to electrical goods.

Who Conducts a Supplier Audit?

The supplier audit process is typically initiated by an internal team of the buyer organisation led by someone in charge of procurement or quality department as a part of their due diligence review or annual review. The internal team will then determine what information should be collected from suppliers and whether the actual auditing process should be done in-house or externally.

Typically the supplier audits are conducted by a neutral third-party inspection company, and this organisation evaluates the supplier’s compliance on behalf of the buyer related to specific quality standards and client’s requirements. The supplier audits should be conducted every two years to ensure the supplier is up to standard.

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What Are the 3 Types of Supplier Audits?

Supplier audits can be broken down into three broader categories, namely: announced audits, unannounced audits and desktop audits. We’ve summarised the key points of each three audits below.

Supplier Audits: Everything You Need to Know - HQTS (1)

1. Announced Supplier Audits

Announced supplier audits give the supplier a notice before they are conducted. Both parties agree on this before the inspection, allowing ample preparation time. Although this style is effective, it can somewhat lack transparency as the supplier have an opportunity to review their processes and improve them before they are audited.

2. Unannounced Supplier Audits

Unannounced audits are performed on a supplier without first discussing the audit with the supplier or giving them prior knowledge of the inspection date. This is a trending inspection method, as it gives the buyer an insight into the daily operations and practices used onsite while ensuring that nothing has been tampered with or prepared beforehand (which can occur under announced visits).

3. Desktop Supplier Audits

Desktop audits do not require an inspector to visit the supplier’s site in person. Instead, these audits are focused on verifying the supplier’s documentation and certificates are up to date. These can be things like the ISO 9001 certification, which certifies their quality management system to ensure they are up to the required and agreed level set out by the organisation collaborating with the supplier and governing bodies that regulate the industry.

How Do You Perform a Supplier Audit?

The procedure of performing a supplier audit typically involves examining the supplier’s business practices, financial history and product quality. But it is always bespoke to the buyers’ needs. Therefore, it can differ between supplier inspections.

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But in general, a standard guideline is used. Below is a typical supplier audit checklist:

1. Pre Audit Questionnaire and Pre-inspection Meeting

It typically starts with pre-audit questionnaires that collect information regarding the supplier and the procedures. Followed by a pre-inspection meeting, where both parties discuss the audit process and agree on any changes to be made, allowing for a clear purpose and list of objectives before the auditing process.

2. Team Selection

From here, a team will be formed to best match the audit type. These staff members are chosen based on their expertise and knowledge of the type of supplier audit.

3. Notification of Audit to Supplier

A notification is given to the supplier in writing (with several months’ notice) to allow them to prepare. Written notifications also contain:

  • The purpose of the audit
  • The schedule of the inspection
  • Names and details of the auditors
4. Pre-inspection Meeting

This involves a brief introduction to the auditors and finalising any changes to the inspection schedule.

5. Execution of Supplier Audit

After the meeting is adjourned, the inspection will begin in which the auditors will inspect each aspect of the brief using a supplier auditing checklist based on the original goals and objectives. This checklist comes in the form of an observation sheet (OS) which records the inspector’s findings.

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6. Reporting on Findings and Closure of Audit

Once the audit is completed, the auditors will compare and discuss the findings. After which, they’ll create a report based on the inspection. This report includes assessing whether the supplier conforms to specific requirements and feedback for improvements.

How to Audit a Supplier by Yourself?

Auditing a supplier alone can be difficult if you don’t have the proper knowledge or experience. But there are certain factors to be aware of which can assist in producing a more robust audit. These things include:

Research Customer Complaints

Analysing customer complaints can be a great starting point to understanding the key danger points with a particular supplier. When you’re trying to decide if a new supplier or company is right for your business, asking previous customers of the provider or complaints which have been formally submitted can give insight into failures within the service. If there is repetitiveness within these complaints, it can indicate that the product or service is not up to standard.

Check if a Supplier Is Outsourcing

Suppliers can often outsource work to subcontractors to complete orders and provide for clients. Understanding if suppliers partake in this can help clarify their performance and, ultimately, their final product.

It is essential to ask whether or not they do use subcontractors and, if they do, whether there are valid quality agreements that align with your organisation’s requirements.As well as this understanding, the relationship between the supplier and its subcontractor can illuminate potential issues if the relationship is poor.

What Are the Benefits of Supplier Audits?

As companies grow the size of their supply chain, selecting the appropriate supplier is essential. A supplier’s reputation and quality will ensure that business runs smoothly and reduce potential issues or risks. Because of this, an audit of suppliers is essential to help in the decision-making process.

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Some of the benefits of implementing a supplier audit are:

1. The Audit Reveals Potential Risks

A supplier audit can review all production processes, including shipping, manufacturing, and quality. They may give insight into gaps and check if these will cause any issues with the delivery to a client. Therefore potentially mitigating delays or deformities in the product.

2. Improves Customer Satisfaction

An organisation relies on its reputation with customers. This is done through the quality of the products put forth to them. Implementing strong standards and ensuring a supplier follows them allows for customer satisfaction to be upheld. A supplier audit can assist in the quality control processes of a supplier to potentially mitigate any product quality or safety issues. It is also a way for an organisation to measure the supplier’s performance.

3. Helps Build Communication With Suppliers

A supplier audit is also a way to improve and maintain strong communication with a supplier. Clear visibility and understanding of suppliers’ activities can assist with improvements and the business relationship. Regularly scheduled audits ensure objectives are met and can be constantly developed depending on the organisation’s needs.

What Is a Supplier Audit Report?

Supplier Audits: Everything You Need to Know - HQTS (2)

When supplier audits are conducted, an organisation follows a procedure to consistently measure supplier quality and compliance. This is recorded in a supplier audit report. This report contains all the details of the audit, this includes:

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  • Details of the factory, including the key team and location.
  • A summary of the audit results.
  • Key attention points provide more details regarding faults and general comments.
  • A list of follow-up suggestions to improve the supplier.
  • A full audit list includes general information and all the detailed inspection findings that work on an ABC quality scale.
  • Finally, a section for images taken whilst on location provides evidence of any faults.

If you want to see an example of a supplier audit report, understand the format in more detail. Click below to download our free example.

Hqts Provides Supplier Audits Services in Greater Asia

We at HQTS provide a range of high-quality supply chain innovations and solutions, including supplier audits. With over 25 years of experience within the quality control industry. We understand the importance of clear information for organisations to make valuable choices. We can help with a range of services, from PSI inspection services to audits and testing. Contact us to learn more about our supplier audit services and how we can help your organisation with its supply chain needs.

FAQs

What is supplier audit checklist? ›

A supplier audit checklist is used to audit your supplier's facility, record if the supplier meets the criteria, and evaluate its suitability to be your supplier. The checklist can serve as a guide for the inspector to evaluate the following areas: Management Responsibility. Infrastructure, Sanitation, and Maintenance.

Is it important to audit supplier Why? ›

A supplier audit provides a comprehensive look at supply chain performance to identify winners and losers. Suppliers can have a significant effect on the cost of quality. Many of the factors that contribute to the Cost of Poor Quality (COPQ) stem from supplier-related activities.

How do you conduct a supplier audit? ›

Supplier audits will follow the following process:
  1. Pre-audit Questionnaire and visit. Collect information (including processes and procedures) and determine purpose and objectives.[1]
  2. Audit team selection. ...
  3. Audit notification. ...
  4. Opening (in-brief) meeting. ...
  5. Audit performance. ...
  6. Debriefing (out-brief) meeting. ...
  7. Report and follow-up.

What type of audit is done to a supplier? ›

What Is a Supplier Audit? A supplier audit inspects a supplier's usage of industry regulation practices, including the health and safety and correct manufacturing processes. Generally, auditing a supplier covers a large area with several practices. Therefore they are usually bespoke to the client's requirements.

What is a supplier quality audit? ›

Supplier quality audits are the process of verifying that each of your suppliers is adhering to both industry standards as set by the law and independent organizations, as well as your own company and brand standards. Audits are widely recognized as a pertinent part of doing business.

What is the objective of supplier audit? ›

Conducted successfully, a supplier audit will identify, address and prevent problems in a supplier's product quality or processes before the problems spread, ensuring the supplier consistently meets quality expectations.

How often should you audit a supplier? ›

For suppliers in your second-level risk category, perform audits every two years (more often, as needed), and do evaluations/assessments every two years for other suppliers who represent lower risk levels.

What is supply audit? ›

A supply chain audit reviews any or all of the activities and processes that an organization follows to deliver products or services to its customers.

How do customers benefit from audits? ›

Credibility

An audit provides independent verification that the financial statements are a true and fair representation of the entity's current situation. This provides invaluable credibility and confidence to your organisation's customers/clients, stakeholders, investors or lenders and even potential buyers.

What happens in supplier audit? ›

A supplier audit is a tailor-made programme that assesses a supplier's quality systems, as well as its workplace environment and ability to meet standards set by either the client or TÜV SÜD. A food supplier audit can ensure that your vendors and suppliers are able to undertake and act upon your specific requirements.

What is supplier development process? ›

A Definition. Supplier development is the process of working with certain suppliers on a one-to-one basis to improve their performance for the benefit of the buying organisation. It is closely associated with supplier relationship management and partnering - two separate subjects on which CIPS has similar documents.

What are 3 types of audits? ›

Key Takeaways. There are three main types of audits: external audits, internal audits, and Internal Revenue Service (IRS) audits.

What are the 3 types of quality audits? ›

The American Society for Quality identifies three types of audit: a process audit, a product audit, and a system audit.

What are the 4 types of audits? ›

Depending on the financial status of a company and its financial practices, an audit can yield four types of results.
...
The four types of audit reports
  • Clean report. ...
  • Qualified report. ...
  • Disclaimer report. ...
  • Adverse opinion report.
13 Apr 2021

What quality do you look for in a supplier? ›

Raw materials and finished product inventory. Incoming quality control, in-process quality control and pre-shipment quality control procedures. R&D capabilities (important if you plan to develop new products) Machine and equipment maintenance and calibration.

What are the responsibilities of a supplier? ›

A supplier is a person who supplies, sells, offers or exposes for sale, leases, distributes or installs any biological or chemical substance or any plant to be used at a place of employment.

What is the purpose of performance audit? ›

A performance audit is an independent assessment of an entity's operations, typically associated with government agencies. The goal is to evaluate the performance of stated programs to determine their effectiveness and make changes if needed.

What is supply appraisal? ›

Supplier appraisal: is the assessment of the potential supplier's capability of controlling. quality, delivery, quantity, price and all other factors to be embodied in a contract.

Why are supplier audits conducted periodically by the buyer? ›

Why are supplier audits conducted periodically by the buyer? To keep current on vendor capabilities, quality, performance, problems, and their resolutions.

How much does a supplier audit cost? ›

Producers or suppliers such as farms and factories pay for audits, which often last a day and cost $1,000 to $2,000.

When should auditing be done? ›

Audits should usually be scheduled at least once per year and should cover all of the activities you undertake – especially if they are relevant to your Management System. Depending on the process being audited, it may be necessary to change this frequency.

What is supplier certification? ›

Recognition of Supplier Performance: Certification

Certification is the recognition earned by a supplier who consistently demonstrates excellent levels of quality, productivity, and delivery performance. In addition, the supplier has systems in place to assure continued quality, reliability, delivery and productivity.

What do you audit in logistics? ›

A logistics audit consists of an external and impartial analysis of a company's operational efficiency, goods transportation flows, completeness of inventory control, and the capacity utilization of its warehouses, among other points.

What are the needs for auditing in supply chain? ›

There are many benefits of running a supply chain audit, including: Creating better and stronger business relationships with suppliers. Finding room for improvement in health & safety, environmental sustainability, anti-corruption, working conditions, finance, and other areas of concern.

What is supply chain in simple words? ›

A supply chain is the network of all the individuals, organizations, resources, activities and technology involved in the creation and sale of a product. A supply chain encompasses everything from the delivery of source materials from the supplier to the manufacturer through to its eventual delivery to the end user.

How can audits improve performance? ›

Performance audits and operational reviews can improve the efficiency and effectiveness of operations. This allows you to identify and seize opportunities for increasing customer quality, improve service and even increase positive cash flow.

What are the principles of auditing? ›

Fundamental Principles Governing an Audit:
  • A] Integrity, Independence, and Objectivity: ...
  • B] Confidentiality: ...
  • C] Skill and Competence: ...
  • D] Work Performed by Others: ...
  • E] Documentation: ...
  • F] Planning: ...
  • G] Audit Evidence: ...
  • H] Accounting Systems and Internal Controls:

What are the objectives and advantages of auditing? ›

The main objectives of auditing are (1) verification of accounts and statements, (2) detection of frauds and errors, and (3) prevention of frauds and errors. Auditing enables us to detect frauds and errors with suggestions for the prevention of the same. The accounts audited stand authenticated.

How do you prepare a supplier audit plan? ›

An audit plan should be created that addresses the audit purpose, scope and criteria.
  1. Audit Purpose. The audit purpose may be to determine the extent of conformity to the supplier agreement or to evaluate the supplier's ability to meet the organization's requirements. ...
  2. Audit Scope. ...
  3. Audit Criteria.
7 Jul 2022

What is a first party audit? ›

A first-party audit is an internal audit conducted by auditors who are employed by the organization being audited but who have no vested interest in the audit results of the area being audited.

What is a consumer audit? ›

A Customer Experience (CX) audit is a comprehensive assessment of your target customers' interactions with - and perceptions of - your brand. In general, it considers all of the key 'touchpoints' during your customer's shopping journey, from finding and choosing your brand or product, to interactions after the sale.

How do you measure KPI for supplier performance? ›

To measure this KPI, calculate the ratio of orders shipped on or before the requested delivery dates to the total number of orders placed. The value is expressed as a percentage and can be calculated monthly, quarterly, or annually.

What are two ways to evaluate supplier performance? ›

There are common techniques for rating a supplier's performance including evaluation forms, surveys, system metrics, and software applications. Marlin Steel tracks vendor performance using a customized program he created in QuickBooks Enterprise Solutions accounting software, the Manufacturing & Wholesale edition.

What is supplier quality? ›

Supplier quality is a supplier's ability to deliver goods or services that will satisfy customers' needs. Supplier quality management is defined as the system in which supplier quality is managed by using a proactive and collaborative approach.

What is the first step for supplier development? ›

Reason: The initial step in the process of supplier development is to identify and select the suppliers. The business firm makes sure that suppliers must be selected based on their capabilities to meet all its requirements and a supplier must be able to meet the expectation of a business firm.

What is supplier quality development? ›

Supplier Development is a proactive & reactive business process that aims to increase the performance. and/or capabilities of the supplier and meet companies' short- and/or long-term supply needs. You can read the detailed technical definition here.

What is audit in simple words? ›

An audit is the examination of the financial report of an organisation - as presented in the annual report - by someone independent of that organisation.

WHAT is audit process? ›

The audit process is the series of steps followed by an auditor in order to conduct an audit engagement with a client.

What is the most important part of an audit? ›

Evaluating internal controls

This is arguably the most important part of an audit and where many organizations can find a significant amount of value from having an audit conducted.

What is quality audit example? ›

Quality audits can be an integral part of compliance or regulatory requirements. One example is the US Food and Drug Administration, which requires quality auditing to be performed as part of its Quality System Regulation (QSR) for medical devices (Title 21 of the US Code of Federal Regulations part 820).

How do you answer audit questions? ›

You fundamentally have three ways of responding:
  1. Agreement and corrective action plan. If you agree with the audit finding, simply say so, then move on with a corrective plan of action. ...
  2. Disagreement. When you disagree with the finding, proceed with caution. ...
  3. No response.
19 May 2017

What are key reports in audit? ›

The financial auditor might use a key report from the information system (i.e., computer) as the key information or an important audit procedure. In this case, the reliance upon the information is critical to the conclusions about the assertion of the account balance, class of transactions or disclosure being tested.

What is the most common type of audit? ›

The first of the four types of tax audits are correspondence audits are the most common type of IRS audits. In fact, they comprise roughly 75% of all IRS audits.

Does ISO 9001 require supplier audit? ›

Supplier evaluation and approval may be based on previous performance. Supplier audits or questionnaires are not mandatory. There is an urban myth that you can only deal with other ISO 9001 approved companies. This is NOT an ISO 9001 requirement.

What is process audit checklist? ›

A process audit checklist is an itemized breakdown of a process to examine during routine audits. They list all areas that need periodic review and enable an auditor to log their observations.

What is ISO audit checklist? ›

An ISO 9001 audit checklist helps the auditor to gather documentation and information about quality objectives, corrective action, internal issues, and customer satisfaction.

What is supply chain audit? ›

A supply chain audit reviews any or all of the activities and processes that an organization follows to deliver products or services to its customers.

What is supplier audit in ISO? ›

A supplier audit is when an organisation audits a supplier to ensure that they are meeting requirements specified in a contract.

How will the ISO 9001 help you select your suppliers? ›

The objective of ISO 9001 is to provide a set of requirements that, if effectively implemented, will give you confidence that your supplier can consistently provide products and services that: Meet your needs and expectations. Comply with applicable regulations.

What are the key supplier evaluation criteria? ›

They are:
  • Competency.
  • Capacity.
  • Commitment.
  • Control.
  • Cash.
  • Cost.
  • Consistency.
  • Culture.

What are the 5 steps of an audit? ›

Internal audit conducts assurance audits through a five-phase process which includes selection, planning, conducting fieldwork, reporting results, and following up on corrective action plans.

What are audit questions? ›

What you should ask your auditor
  • In organisations like ours, which activities are most open to fraud? ...
  • What are the industry risks that may have an impact on our financial reporting? ...
  • What are our key information technology risks and how good are our controls? ...
  • How do our accounting policies compare to our peers?
25 Jul 2018

What is quality audit checklist? ›

A quality audit checklist is a quality record that tracks the questions and responses during a quality audit. The quality audit is a valuable tool for continuous improvement. Audits ensure your quality assurance system is sound. Audits are also necessary for ISO 9001 registration.

What are the 6 documents required by ISO 9001? ›

ISO 9001 Mandatory Requirements — Documents and Records
  • Monitoring and measuring equipment calibration records.
  • Records of training, skills, experience and qualifications.
  • Product/service requirements review records.
  • Record about design and development outputs review.
  • Record about design and development inputs.
3 Mar 2022

How do I prepare for an ISO audit? ›

Here are six tips to impress the auditor and obtain your ISO certification on the first try.
  1. Be well-prepared. ...
  2. Take internal audits seriously. ...
  3. Implement corrective actions. ...
  4. Don't forget your management review. ...
  5. Correctly monitor objectives. ...
  6. Ensure that everything is clean.

What are the 3 types of internal audits? ›

Types of Internal audits include compliance audits, operational audits, financial audits, and an information technology audits.

What do you audit in logistics? ›

A logistics audit consists of an external and impartial analysis of a company's operational efficiency, goods transportation flows, completeness of inventory control, and the capacity utilization of its warehouses, among other points.

What is supply chain in simple words? ›

A supply chain is the network of all the individuals, organizations, resources, activities and technology involved in the creation and sale of a product. A supply chain encompasses everything from the delivery of source materials from the supplier to the manufacturer through to its eventual delivery to the end user.

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