Have you considered the risk of a formal audit from one of the retailers or brands you supply? If you are a manufacturer that supplies a global retailer, such as Walmart, CVS, Target or others, you may have wondered what a formal audit might look like. You may even have already experienced such an audit that determines if your suppliers meet the retailer’s standards.
Professional buyers that have been in the importing game for some time don’t fear a formal audit from their retailers. They prepare for the day they might be audited by making sure their suppliers are compliant with retailer requirements. They do this by carrying out a professional pre-audit to confirm whether or not their suppliers are able to meet the requirements of the retailers they supply.
To help you get in shape and minimize your own risk, we thought we’d give you a heads up on three of the most common types of factory audits that retailers might require. In this article, you’ll learn a bit about each type of factory audit and what areas of manufacturing they concern.
Social Compliance Audit
Social compliance audits are sometimes also called social and ethical audits, ethical audits or social accountability audits. This type of factory audit refers to monitoring the supply chain of retailers to verify requirements for working conditions. Social compliance requirements set by retailers frequently include areas concerning fire exits, protective gear for workers, workers’ insurance and the storage of hazardous materials. Social compliance audits also help these retailers and brands to manage social compliance risks that could impact the companies’ financially. Negative publicity resulting from poor working conditions or unethical labor practices could do significant damage to a brand’s global reputation.
For example, the Target social compliance audit has been widely conducted in factories that produce Target-brand products. In this program, there are two types of non-compliant facilities: one-year non-compliant and zero tolerance. For one-year non-compliant, Target allows the facility three more opportunities to correct issues and pass a subsequent audit. If a facility fails the audit because of violations in child labor, forced labor, corporal punishment or conflict of interest, retailers will refuse products manufactured in these facilities for up to 3 years. To learn more about social compliance audits from an expert, be sure to check out What is a Social Compliance Audit?
Quality System Audit
A second common type of factory audit is a quality system audit. A quality system audit is a type of factory audit used to understand if the supplier is producing products in a way that will ensure quality and on-time delivery. Typically, a quality system audit will be performed at a time interval and includes evaluating quality systems, management techniques, machinery maintenance and various other factors. A facility that can pass this type of audit should normally have a clearly defined internal system monitoring procedures that can ensure effective actions. There are several regulations and standards for quality system audits, such as ISO 9000, AS9100, ISO 13485 or the FDA’s QSR.
Standards for ISO 9000 concern the quality management system for institutions that have the ability to provide products and services that can meet the needs of their customers. There are eight quality management principles that are defined in this system, including customer focus, leadership, involvement of people, process approach, system approach to management, continual improvement, factual approach to decision making and mutually beneficial supplier relationships.
Security audits are the least common among these three types of factory audits that a retailer might require. Certain retailers and brands require this audit in order to remain compliant with Customs-Trade Partnership Against Terrorism (C-TPAT) regulations in the U.S. The focus of this audit is to determine if the manufacturing site is secure and what risks there are for acts of terrorism associated with the facility. C-TPAT is set by U.S. customs and Border Protection and focuses on protecting the supply chain, identifying security gaps and implementing specific security measures and best practices related to preventing terrorism.
You can see there are currently three common types of factory audits that may be required by a retailer or brand, including:
- Social compliance audits – those that verify working conditions and labor practices
- Quality system audits – those that look for quality management
- Security audits – those that look for risk of terrorism and confirm adherence to C-TPAT standards
Take a close look at the requirements of the retailers you supply and the relationship you have with your own suppliers. If you haven’t conducted a pre-audit of your suppliers in preparation of a formal audit, join the ranks of those prudent buyers that have.