Do tough-times demand closer supplier audits?

Posted on 19-03-2012

By Kristofer Whitfield

Supplier auditIt is at times of economic stress that buyers need to be particularly alert to the risk suppliers present. Cuts in corporate budgets erode the resources that are available to supplier companies and in some instances critical risk factors may be exposed. It may be that the supplier itself is unaware of the holes that have appeared in its own compliance concerning, perhaps, important aspects of its Health & Safety processes, insurance cover or its Corporate Social Responsibility (CSR) practices. Staff cuts in the business can easily result in a breakdown in compliance if those within the business with the specialist skills, knowledge or responsibility for important processes are removed.

For supplier organisations, as much as for buyers, it is important to ensure that the auditing of these high risk elements of the business is carried out correctly, thoroughly and on a regular basis. Exposure to risks, such as a Health & Safety processes being neglected, can have very serious consequences in the event of an accident, for both the supplier and the buyer. The supplier faces the possibility of being sued by staff, or in the case of a fatality, even worse, it may lead to litigation or may leave directors exposed to prosecution. And for the buyer, on whose site the accident may have taken place, the damage to reputation may be considerable.

A supplier’s non compliance to CSR policies can also have a hugely damaging effect on a buying organisation’s brand. There are plenty of examples that have hit the media in recent years. In these stringent times, are buyer’s more exposed to supplier digressions to CSR policies and practices?

For buyers, the auditing of high risk suppliers allows the validation of pre-qualification information offered by the supplier. But for the supplier, an audit conducted by a fully trained and experienced auditor with relevant industry experience should offer the supplier a little more than simply a ‘tick in the box’. It should also deliver added value to the supplier in the form of formal feedback based on in-depth analysis of evidence and observations on the integrity of the supplier’s business systems and processes. This may be valuable feedback for companies, particularly if suppliers are concerned about the integrity of their processes following budgetary cut backs.

Auditing of high risk suppliers is an important step to mitigating risk. In tight economic times, perhaps the need for audits is even higher.


Kristofer Whitfield is head of audit for UK and Ireland at Achilles www.achilles.com

About Achilles: Achilles helps companies to improve their supplier information management. Our services onboard suppliers and validate their information throughout the life of the business relationship so that buyers are better informed and can make better procurement decisions. Achilles has offices in 23 locations around the world and actively support over 750 of the world’s largest buying organisations to manage their supplier data. With a global view of the supplier base, buyers have access to accurate and up-to-date information on their suppliers, they can streamline their supplier engagement, standardise their policies and reduce the risk of non-compliance (in areas such as health and safety, quality and environment); and confidently assess the total impact of their procurement decisions.

Bringing supplier audits on track

Posted on 12-03-2012

Annette Poehl, Director of Rail and Transport at Achilles A tremendous opportunity exists for the Rail sector to realign and enhance the auditing processes for its suppliers – an opportunity that will deliver greater value to suppliers and buyers alike. By Annette Poehl

For many years the Rail industry has audited its suppliers in accordance to a supplier’s potential for risk. And, of course, this is an essential process for every buyer and ensures that the important safety requirements are met. However, the way the industry approaches supplier audits is fragmented and in need of change. Firstly, there is a significant level of confusion in the industry over the boundaries between the three key tiers of auditing that exist.

On one level, there is the qualification of a supplier to certified standards, such as the ISO standards for health & safety, quality and environment. On another tier, there are technical and buyer/contract specific audits, such as RISAS, and on-track plant that relate to specific risks. But in the middle, there is a critical tier which concerns the pre-qualification and auditing of a supplier’s management processes and systems relating to the way a supplier deals with health & safety, quality and other important policies within the organisation. This audit is offered through the Link-up scheme run by Achilles.

Unfortunately, a number of industry members wrongly assume that the Link-up audit is a technical one, evaluating the technical and contract specific capabilities of an organisation. This is just one aspect of the rail industry’s auditing structure that needs to be made clearer. There are further areas that can be improved and upgraded to provide greater value.

Link-up, the industry’s supplier qualification scheme, is a collaborative community of 3500 suppliers of which some 1300 undergo a pre-qualification audit on an annual basis. The assessments are undertaken by a team of highly skilled and fully qualified auditors who are conducting the in-depth analysis of management processes and systems at an organisational level. At present, this is an exercise which determines whether a supplier is compliant to the defined minimum standards or not, hence, if a supplier has passed or failed the audit. There is no grading of a supplier in terms of its maturity and approach to its management processes – offering little visibility to buyers of a supplier’s continuous improvement efforts and long-term performance in this regard.

For many suppliers this is doing them a disservice, as top performing companies are seen in a similar light to those merely attaining a pass. What is more, the auditing process, at present, offers little advice, guidance or feedback to suppliers on how that organisation might improve its processes.

Clearly, there is a great opportunity to change for the better and this is exactly what Link-up is in the process of doing. Under the new Steering Group for Link-up, a Working Group on auditing has been established to find a more ‘value adding’ means of conducting supplier audits. Discussions are underway to put in place a ‘star’ system that will rate suppliers on the maturity of their management systems in regard to supplier risk. In addition, suppliers will receive valuable feedback on ways of improving their systems. This will promote ‘best practice’ and raise standards across the industry. After all, if you only ask for minimum requirements, what is the incentive to go the extra mile?

These proposals are similar in many respects to auditing schemes run by Achilles in the Utilities and Construction industries, where they have been successfully proven to deliver significant benefits for both suppliers and buyers. If the proposals are accepted Link-up will follow suit, delivering a more graded approach to auditing and, in the process, will offer more value added advice in return.

It is also proposed that Link-up will offer a central repository for information relating to the various audit schemes. Users of Link-up will be able to access the results of supplier audits undertaken by other schemes making compliance far more visible to buyers.

Ultimately, the aim is to further align the pre-qualification audit programmes across the industry and to closer integrate the requirements of London Underground/TfL. This would bring huge advantages for many suppliers, reducing the burden of duplicate audits, taking out complexity and reducing costs for the industry.

Link-up has embarked on a process of change that will deliver far greater levels of efficiency to the rail industry, making procurement and its vital auditing methods easier to engage with, more responsive and, above all else, more integrated, visible and intelligible.

Annette Poehl is Director Rail and Transport at Achilles. www.achilles.com

About Achilles: Achilles helps companies to improve their supplier information management. Our services collect and validate supplier information throughout the life of the business relationship so that buyers are better informed and can make better procurement decisions. Achilles has offices in 23 locations around the world and actively support over 750 of the world’s largest buying organisations to manage their supplier data. With a global view of the supplier base, buyers have access to accurate and up-to-date information on their suppliers, they can streamline their supplier engagement, standardise their policies and reduce the risk of non-compliance in areas such as health and safety, quality and environment; and confidently assess the total impact of their procurement decisions.

Audits should unlock hidden value for suppliers

  • Author: Mike Ford
Posted on 22-10-2010

Supplier AuditAudits are quite an emotive subject within the procurement community; whether they are focused on the domestic or international market. From a supplier’s perspective, the buyer derives the benefit from an audit and yet the supplier picks up the bill. Very often an audit is seen as just one of those things you have to go through in order to get a ‘tick in the box’ – a necessary first step to even being considered by a buyer.

This may be the case with some auditing programmes where the audit may be conducted as purely a mechanical check on compliance. But an audit conducted by a fully trained and experienced auditor with relevant industry experience should offer the supplier a little more than simply a ‘tick in the box’. It should also deliver added value to the supplier in the form of formal feedback based on in-depth analysis of evidence and observations on the integrity of the supplier’s business systems and processes. This may be valuable information to a supplier for a number of reasons.

An independent view on the integrity of a company’s business systems and processes can highlight a number of failings in procedure that could impact a buyer’s perception of a supplier – aspects of their business processes that could be seen by a buyer as a potential for importing risk into their organisation and in extreme cases impact upon the brand equity of the company. A fresh pair of eyes may identify issues that have not been spotted before or that may have not been identified by the supplier as a possible point of concern for potential or even long-term buyers.

As an example, recently I identified an issue within a multi-national supplier’s quality management system. There were two manuals, one in Chinese and the other in English. However, there were three revisions difference between the two; the company were using the outdated quality control procedures in their manufacturing department and the upgrade to the manual were as a result of quality issues experienced in the field. In another instance, I came across a business continuity plan written in Chinese, but the senior management team who were accountable for its implementation could only read English. These failings were brought to the attention of the management in the companies concerned, enabling them to make appropriate changes.

Other observations have been with issues around competency of key personnel, especially in countries where training and assessment is afforded little, if any, attention. There may also be aspects of business process that can deeply impact a buyer’s perception of the risk associated with a supplier, such as use of child labour, poor workplace safety, or an inability to gain insurance.

The supplier should view the whole auditing process as one of helping the supplier to appeal more strongly to buyers – increasing potential to sell products and services to a much wider market – by removing inconsistencies and broken processes that may be regarded as risk factors. It is essential that the programmes used to make the assessments are specific to the industrial sector being audited.

An auditor may find issues within the business, however, they are not there to tell a supplier how to make things right. An auditor can make observations which are a recommendation on how things could be done better, but these points need to be communicated in a way that is not seen as a criticism – more as something, that if adopted, would add value to the system and that would also improve the perception of that company to prospective buyers. In a move away from the traditional style of audit of “let’s find something wrong approach” it is essential that we also report where the company is doing things well, this should be reported as part of the overall assessment of the company.

Having a well trained and highly experienced auditor conduct the audit will help the supplier to drive increased value from the process. It is essential that auditors don’t just possess the basic skill sets of “doing an audit” but they also understand the bigger picture in terms of addressing and assessing corporate risk. They must also know how that can be translated and communicated to a procurement community who may not possess the relevant technical skills to understand the true nature of the findings.

For buyers and suppliers, the whole notion of adding value to the audit has to be embedded in the training, working practices and procedures of the auditing organisation – only then will the true ‘value add’ of an audit be seen.