Factory Audit – Getting It Right First Time
The global financial crisis has oriented business perspectives firmly towards delivering lower cost products whilst maintaining the high levels of quality and service that consumers demand. In the manufacturing sector this means that outsourcing to skilled established production centres in developing nations has become a key priority for many companies that are struggling to maintain margins and hold onto customers.
If you’re considering outsourcing your production or are already significantly down the path to doing so then you’ll need to make auditing your suppliers a priority.
Why conduct a factory audit?
There are several good reasons to keep on top of your outsourcing partners, to ensure both quality of finished goods and also to meet the ethical demands of an increasingly aware consumer base who don’t wish to support environmental damage or child/virtual slave labour.
You can break down the audit process into a series of stages, some of which should be continuous and others which can be performed as “one off” activities.
- Initial Supplier Evaluation – before you do business with any other party, it makes sense to verify that they are who they say they are, and as importantly that they can genuinely deliver on their promises. Many contacts in the developing world will advertise themselves as representing a factory, when in fact they are middle men. In itself being a middle man is not a bad thing, they often enable small factories to reach a wider market place than they could by themselves. The trouble for outsourcers is that middle men often have next to no control over the relationship with a producer and cannot resolve issues relating to quality or performance.
- Social Compliance Auditing – a vital component of delivering products to the wider market is ensuring that your suppliers can meet certain ethical and environmental standards. Even big companies with established policies of using ethical sourcing have fallen foul of failing to audit their supply chain for compliance to these policies, recently the British chain of retailers “Monsoon” were exposed in the national press for utilising child labour (unknowingly) through one of their Indian factories. Risking your hard won reputation is not worth it.
- Supply Chain Auditing – it’s not just your direct partners that you need to monitor, you also need to make sure that anyone supplying those partners meets certain standards too. As importantly you also need to ensure that any parts or materials supplied by this chain are as promised in any initial agreements, Chinese manufacturers have become notorious for substituting components for lower quality cheaper parts or for adding toxic chemicals to materials in order to up for production defects (including the local scandal of highly toxic Melamine being added to baby milk, resulting in the deaths of several children and severe illness in hundreds more).
- Production Inspections – the samples you received are perfect, but the products following those samples are not so good? It’s a familiar tale when working with developing nation outsourcers, build quality of prototypes is nearly perfect but lax standards in production mean that production runs simply don’t match that quality. You can save time and money by inspecting a small quantity of product during early manufacturing to ensure that at least the initial processes are correct, and also inspecting the finished products before they are shipped to take corrective action early. For large quantities it may also be sensible to conduct inspections throughout the run so that errors which creep into the process can be remedied quickly before they cause huge delays for delivery.
- You might also want to have someone check if rejects are being destroyed as per your contract. For high value brands this is an essential element of brand management and often neglected and taken on trust, the markets of Asia are full of rejects from all sorts of major names because of this. Auditing a factory’s compliance in this area can save your brand from being tarnished.
- Shipping and loading inspections – it doesn’t end at the factory either, if your goods are high value, fragile or need to meet certain legal requirements for packing, loading and labelling it’s a good idea to ensure that they don’t go missing, get broken or fail inspection on arrival by auditing the goods as they are being loaded and through to freighting.
Large companies may find that it is economic to place staff on the ground to cover all elements of factory auditing, but small to medium size businesses may struggle to provide the depth required at an affordable price. If you find yourself in this situation, don’t skimp on the auditing process which could result in recalls or worse severe damage to your brand and reputation, find a local partner to work with. Ideally a partner who specialises in factory audits with both Western and local staff, to ensure communication and cultural barriers are not an issue.
Whatever you do, don’t compromise on quality your customers won’t thank you for it.