Why many supplier audits fail their purpose?
In a post at the end of last year, I addressed the question of sustainable Procurement being a myth. Although Procurement can have a critical role in ensuring that companies walk the talk with regards to sustainability, the reality of it can be a bit different.
As I mentioned in that post, more and more companies care about sustainability. It is because they understood their customers’ expectations and/or because they realized that they have a responsibility in creating a better future for humanity and want to reduce/offset the potential negative impacts of their activities.
“The obligation and the self‑interest of every company is to build a robust society.” –Tim O’Reilly
Ensuring that supply chains are sustainable is a challenge for businesses who want to embed sustainability in their activities. Audits are an essential tool to verify that suppliers comply with laws, rules, guidelines, and use the best available techniques or the best available technologies (a.k.a. “BAT”).
Audits and their shortcomings…
“Audits are ineffective tools for detecting, reporting, or correcting environmental and labour problems in supply chains. They reinforce existing business models and preserve the global status quo”. Supply chain audits fail to detect abuses, says report, The Guardian, Jan 2016
In many industries, especially in B2C, supplier audits are becoming an industry. More and more large companies delegate these activities to private inspectors. That is particularly the case in the fashion industry that relies on a myriad of small and ad-hoc suppliers in many countries. Visiting each of them would be a daunting task if done only by internal resources.
Delegating to external auditors ensures that businesses comply with their duties of having performed inspections. But, it doesn’t always suppress the risks that the audits were supposed to mitigate. This is what the Guardian highlights in an article citing a report from the Sheffield Political Economy Research Institute:
“The report’s authors cite the collapse of the Rana Plaza garment factory in Bangladesh in 2013 and the Guardian investigation into human slavery in the Thai shrimp industry in 2014. While both have been extensively documented, the authors point out that what has been less well reported is the fact that both took place within certified, audited supply chains. Paul Lister, who is responsible for Primark’s ethical trading team, admitted that Primark had twice audited the Rana Plaza factory before it collapsed.” Supply chain audits fail to detect abuses, says report, The Guardian, Jan 2016
The fact that supplier audits are becoming a big business with enormous stakes for both parties (the organization mandating the audit and the audited one) can introduce fraudulent conducts. It is because there is usually a lack of transparency in what the inspectors actually do when on-site. Also, audits have to be broader than a sole focus on the quality of goods produced. So, organizations have to verify that the visits happened and that the inspectors have had an exhaustive approach (including Environment, Health, and Safety aspects).
The purpose of audits is to get a reliable and complete picture of suppliers’ activities; not to get a report.
Audits as a platform…
In a recent episode of her podcast (available here), Amber Christian, interviewed Fernando Moncayo, co-founder of Inspectorio, a mobile platform that guides supply chain inspectors through each step of the process and aims at making the process more transparent and reliable. The fact that Inspectorio was selected to be part of the Target + Techstars accelerator in 2016 proves the interest that companies in the retail industry (and more) have to improve their current practices.
Inspectorio represents another example of the platform/gig economy. It is some sort of Uber for audits as it offers organizations the possibility of requesting audits of their suppliers by selecting within a network of available inspectors.
It brings flexibility and agility to the process for industries like retail and fashion that need it because:
- they have thousands of small suppliers across the world,
- their products have a short lifecycle.
“There is a growing demand from consumers to know the source of the products they buy, in part so they can be assured workers or animals are not being exploited. “Customers want provenance like never before,” says Murray Sayce, a sustainability expert at Ramboll Environ.” Ensuring your supply chain is sustainable and ethical, Raconteur, Feb. 2017
In the interview, Moncayo gives the example of customers triggering audit requests at the time of placing orders. For industries using one-time suppliers a lot, it corresponds to a real need. Being able to verify quickly that all conditions are met is critical. As critical is to be effective and efficient in the process. So, Inspectorio’s users can see in the application if there are available inspectors in the area where their suppliers are. Then, inspectors use the application to log all of their activities (notes, pictures…).
“There is also a growing recognition that many issues are too big for single companies to tackle on their own, according to Dominic Regan, senior director, Europe, Middle East and Africa logistics applications, at Oracle. “The next level of savings will come from collaboration across supply chains,” he says.” Ensuring your supply chain is sustainable and ethical, Raconteur, Feb. 2017
Because it is a platform, it creates the conditions for a mutualization of results and resources across the network of users. As Moncayo says: “to build trust, you have to know who is who.” Organizations using the application can assess each inspector’s profile thanks to their past evaluations by mandating organizations. It ensures that they are confident about the auditor they select.
Also, it enables audited suppliers to promote their capabilities because users could see the results of their past inspections. Procurement organizations can also benefit from that aspect of the mutualization. They can trust and use audits done by other companies. It is possible because inspectors
- are vetted by the network (reliable resources)
- they follow a shared, traceable, and exhaustive process (reliable methodology)
It means that:
- it could suppress the need for them to conduct their own inspections
- they get more frequent audits of their suppliers as each visit done using the application benefits the whole network.
So, in companies taking sustainability seriously, Procurement has to play a vital role in ensuring that all partners in the supply chain follow the best available practices. And, to maximize effectiveness and efficiency in ensuring that suppliers continuously do so, Procurement can benefit from the digital transformation of their auditing process by using an application like Inspectorio.
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