Audits prove to be a heavy lift for many companies. Time is retracted from core operations due to suppliers juggling the task of repeatedly participating in them, which is a dragged-out process for all involved. Not to mention the cost. For companies, audits can be expensive, especially if they are your primary mechanism for understanding supplier business practices.
Of course, organizations are forever searching for new ways to streamline their processes, cut costs, and improve operational efficiency. They must consider ways to keep tabs on their suppliers to ensure they meet set sustainability standards, while also keeping business practices and day-to-day operations in mind. How can they do both?
No matter how much you’d like to see a detailed audit report for every supplier you do business with, the reality is you need to focus your efforts on the suppliers most likely to pose risk to your business. A great way to identify these priority suppliers is through risk filtering: decide which regions, product lines, or commodities pose the greatest risk to you, check them against a third-party risk database, and see what information you get back. The suppliers that surface with the highest inherent risk are where you’ll focus first.
From there, send initial assessments out to your suppliers to gauge their level of aptitude and maturity on issues like environmental sustainability, fair labor, anti-corruption policies, etc. The results of this activity will tell you which suppliers are “awake” on sustainability issues.
Using this information, you can iterate further, requesting more detailed data from suppliers to identify the most substantial compliance gaps in your supply chain. Like with any network, if you spot the weak points, you can address these to make the network stronger overall. We sum up these steps in more detail below.
The pandemic has been responsible for a variety of repercussions, but supply chains were one of the areas hit hardest. With travel limitations and strict health guidelines in-place, in-person audits were nearly impossible to conduct.
However, in working around restrictions, many businesses identified an opportunity to re-evaluate their “business as usual” in favor of more innovative audit solutions. As Product Quality Assurance Manager at PFSCM Manusika Rai points out, COVID-19 may have raised a number of challenges, but it also offered several solutions.
The pandemic awarded the opportunity for PFSCM to reevaluate its supplier pre-qualification audit program. They were able to iterate their remote audits and add tools such as video conferencing and sharing platforms. Reduction of travel time allowed more staff to participate, upping their level of expertise and expanding their pool of experienced auditors.
Organizations are discovering how to apply technology to remove unnecessary steps and create efficiencies in data collection and communication. The following three areas are good focus points to move through the remote audit process:
“Companies are now also looking to artificial intelligence tools to analyze data to do what they can without physical assessments,” said Sharon Chand, Principal at Deloitte Risk and Financial Advisory. And she’s not wrong.
Buyers now have the tools at their fingertips to analyze inflow data, labor, operations, supply outflows, and certified assessments and compliance standards before sending assessments. Effectively, this allows you to save time and hassle, going some way to also help you avoid unnecessary, expensive, and time-consuming on-site reviews.
“On-site assessment of risk is really only required for those vendors that are most critical. There’s a lot of layers to go through before that,” said Chand.
Whether it’s GHG emissions, labor rights, or deforestation, the majority of your suppliers should report that they measure those metrics and, as a result, implement the appropriate policies. Keep in mind that suppliers who turn over incomplete information, low-quality responses, and questionable data are more likely to fall short on your priority sustainability areas.
If they don’t have any policy information or documentation and struggle to provide adequate responses to your questionnaires, they are likely your high-risk suppliers.
As indicated above, remote audits tell you who your high-risk suppliers are. But once you’ve identified them, this is where you’d want to follow up with on-site audits. By honing in on the suppliers that are now on high-risk radar, companies can shave off valuable time and money on a process that can otherwise run the risk of being needlessly tedious, with minimal outcome to show for its stretched duration.
Why does all of this matter? Well, it’s simple. If you target your assessments and audits with more precision and efficiency, you’ll cut the costs of the audit process. Additionally, you’ll ease the burden on suppliers, who are already struggling to keep up with the wide variety of requests and on-site visits buyers send their way.
“Remote auditing has forced us to not only apply and integrate risk-based thinking across many levels and processes but also think outside the box in many other ways than the traditional audit approach,” explained Manusika Rai.
Partner at Kearney, Michael Zimmerman, sums its up well: “Because virtual audits are so much more efficient, auditors typically can spend more time on certificates of insurance, certifications, and business practices.”
Remote assessments can help companies ensure supplier compliance with efficient, targeted, and time-sensitive data. Companies can easily collect, store, calculate, validate, and share this data to increase operational efficiency and quickly identify high-risk suppliers for audit follow-ups, which is undeniably advantageous. The opportunity to identify high-risk suppliers for audit follow-ups saves time and effort in what would be an overcomplicated and unnecessarily layered process.
Yet keep in mind that a large portion of success can only be attributable to the engagement and collaboration with your company’s supplier network. Only then will you achieve the best possible outcome, not by working against them, but with them. Prioritize your efforts for the greatest impact, and this is what you’ll receive as a result.