PurchTips - Edition # 267

 

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Surprise Supplier Audits: Pros, Cons, Ideas

By Charles Dominick, SPSM, SPSM2, SPSM3

Should You Be Doing Surprise Supplier Audits?

A very controversial procurement practice is the surprise supplier audit. A surprise supplier audit is when a buying organization's team shows up at a supplier's facility, without notice, to evaluate the supplier's degree of compliance with contractual requirements such as safety practices, non-use of child labor, etc.

This practice is controversial because it has advantages (pros) as well as disadvantages (cons). Here are some of those pros and cons as well as some ideas for you if you are considering conducting surprise supplier audits.

Pros:

  • Audits can mitigate risks because you are there to ensure that the supplier is performing as required. Lax oversight too often leads to lax compliance.
  • Scheduled audits give suppliers the time to hide evidence of non-compliance, giving you the false perception that everything is being done properly.
  • If there was a scandal about a supplier's practices, the public and the media would look for evidence that your organization "turned a blind eye" towards supplier violations. With a history of conducting surprise supplier audits, your organization has the defense that it worked to prevent such violations.

Cons:

  • Suppliers subjected to surprise audits may feel untrusted and, in certain cultures, this may stand in the way of your organization having collaborative relationships that could lead to more success.
  • Suppliers who easily accept surprise audits from multiple customers may be forced into behavior that renders their security practices vulnerable, which should concern you if that supplier possesses any of your organization's proprietary information.

Ideas:

  • In contracts, include language that permits you to conduct audits without notice. Because the ultimate goal is not to catch your supplier doing something wrong - it is to persuade your supplier to do the right thing... even when you're not watching!
  • More on my blog at: http://tinyurl.com/b8os4p9

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