Manufacturers and retailers worldwide are increasingly importing products and materials from Asia, but this endeavor requires efficient and diligent risk management approaches.
Dealing with an unqualified and uncredible supplier can trigger numerous disruptions to the supply chain, compromising the reputation of a brand, inviting negative publicity, compromising quality, triggering factory disasters, and even creating legal challenges.
As an importer, it is crucial to prioritize the significance of strict quality control inspections, so a product is keenly examined to establish its quality before shipment. It is crucial to undertake factory and supplier audits. However, this dynamic tool remains undervalued amongst importers.
Supplier Audits: Verifying Credibility
Supplier audits are an instrumental tool to evaluate the credibility and quality of suppliers to reduce risk and repercussions.
Most importers avoid supplier audits because of the upfront cost, but their long-term value outshines this meager cost, allowing factories and retailers to save millions of dollars. You see, a supplier audit will help you verify the credibility, trustworthiness, reliability, and legitimacy of your suppliers to curb risks and maintain a strong supply chain.
There are various types of supplier audits, and each type serves a distinctive purpose. These audits help importers ensure compliance with requirements, international labor, and environmental laws. Most importantly, they help evaluate your supplier’s quality controls and production capabilities.
This article will walk you through the most commonly used supplier audits across the international trading community.
1. Social Compliance Audit
Also known as social audits, social accountability audits, and ethical audits, the social compliance audit allows an importer to closely monitor the working conditions deployed by the supplier. This type of factory audit proves instrumental in verifying and monitoring the working conditions to ensure compliance with international labor standards.
Social compliance audits also prove instrumental in aiding brands and retailers effectively mitigate social compliance risks that threaten to dimmish their organization’s reputation and credibility.
For instance, brands garner negative publicity by associating with suppliers that undertake unethical labor practices and are involved in factory disasters, such as fires, explosions, collapses, and the use of harsh chemicals.
The early 21st century witnessed the advent of numerous social compliance challenges, prompting governments, global retailers, and international non-profit organizations to create various factory audit standards to examine social compliance.
During that time, all global retailers had their own frameworks for conducting social compliance audits. However, gradually, the retail industry began moving towards a unified and single compliance standard, which discouraged the adoption of retailer-specific frameworks.
Today, major retailers are working towards implementing international frameworks rather than implementing their specialized audits. For instance, Disney accepts eight different factory audit standards, including SMETA and SA8000, while Walmart also adopts the same policy.
Target accepts the audits by the International Labor Organization’s Better Work Program, but it also maintains its own social compliance framework.
2. SA8000 audit
Based on the UN Declaration of Human Rights and International Labor Organization (ILO) conventions, the SA8000 is a voluntary standard introduced in 1997. The SA8000 audit was created by Social Accountability International; a notable non-profit organization focused on human rights with a dynamic global presence.
Importers who are not required to meet specific retailer standards or requirements and are undertaking a social compliance audit for the first time will find SA8000 audits to be a favorable choice.
This factory audit standard ensures superior compliance by erecting a strong foundation and ensuring compliance with all local legal principles and international human rights standards.
The SA8000 audits examine supplier working conditions by focusing on nine major aspects. These include:
- Workplace discrimination
- Health and safety standards
- Freedom of association and collective bargaining
- Forced labor
- Disciplinary practices
- Child labor
- Working hours
- Management system
The auditor must interview factory workers and managerial staff to examine the working conditions, conduct walkthroughs of the facility to inspect hygiene and safety standards, and review documents.
This audit type offers a clear point system to evaluate the supplier’s credibility and labor compliance on each of the nine aspects mentioned above. It makes it incredibly straightforward to identify nonconformities and highlight the corrective measures required in each of the nine areas.
3. SMETA audit
The Sedex Members Ethical Trade Audit (SMETA) is the factory audit standard of the Supplier Ethical Data Exchange (Sedex). Sedex is a leading non-profit membership organization devoted to enhancing and promoting ethical business practices to strengthen international supply chains.
SMETA audits are the most commonly adopted factory audit standards across the globe. Presently, Sedex has more than 50,000 members, including prominent retailers and organizations. Sedex offers its members a robust online platform to access official audit reports and monitor the progress of corrective measures.
Auditors and imports can use the platform to upload any kind of social audit, including SA8000 audits. SEMTA offers two audit frameworks: a 4-pillar audit and a 2-pillar audit. All SMETA audits are focused on the following aspects:
- Management system
- Universal rights listed in the United Nations Guiding Principles (UNGP)
- Entitlement to work
- Subcontracting and homeworking
The 2-pillar audit also focuses on the following aspects:
- Health and safety standards
- Labor standards
The 4-pillar audit focuses on all of the aspects mentioned above, alongside the two modules listed below:
- Business ethics
- Environmental compliance
The 4-pillar SMETA audit is considered highly beneficial as it includes a detailed section to ensure environmental compliance. This allows organizations to assess their supplier’s social and environmental compliance without requiring an entirely separate audit for environmental elements.
As compared to the SA8000 audits, SMETA audits offer more detail and insight. They take into account various factors, such as the wages of workers in relation to their responsibilities. However, importers with little or no experience with social compliance find this type of social audit increasingly challenging.
It can be much harder to interpret and understand, so newcomers to this field are advised to start with the simpler framework of the SA8000 audit. Once they build a stronger understanding of social compliance, they can move towards adopting the SMETA audit.
4. Quality System Audit
A quality system audit ranks second after the social compliance audit, and importers rely on this metric to evaluate the quality controls and production capabilities of their suppliers. These are the most undervalued and unappreciated tools in the industry, yet their potential is immense.
Quality audits are instrumental in ensuring optimum quality and timely deliveries while choosing a new supplier. These audits are crucial to examine the performance and progress of your suppliers. There are various types of quality audits, such as the AS91000, ISO09001, and ISO 13485, which is commonly used for medical devices.
The ISO 9001 is the most common quality audit used for general consumer goods and manufacturing facilities. Most prominent global manufacturers carry an ISO 9001 certification to establish the credibility of their quality management systems.
Typically, an ISO 9001 quality system audit evaluates the following aspects:
- Quality management system
- Quality controls for materials and components
- The maintenance of facilities, environment, and equipment
- Product controls to identify quality issues
- Controls and inspections of finished goods
- Lab testing capabilities
- HR recruitment and training practices
- Research, design, and engineering practices
Supplier audits are a crucial tool that allows businesses to evaluate and establish the credibility, quality, and reliability of their suppliers. This tool allows businesses and brands to save their reputation from negative publicity and effectively mitigate risks to ensure their compliance with labor laws and international human rights norms.