Checklist: Supplier audits in 8 steps

When working with suppliers, it is important to regularly check whether the services they are providing meet legal requirements, your own company standards, and contractually agreed conditions. To do so, you can carry out supplier audits.

Learn about the role that supplier audits can play in supplier management and make sure you follow these 8 important steps in an audit.

A supplier audit is a popular method in supplier management that is used to systematically check the quality and performance of suppliers. Audits can be used to ensure that the suppliers are meeting legal regulations and your own customer requirements. Audits can also be used to determine whether contractual agreements are being carried out as requested.

The aim is to use the supplier audit to identify any weaknesses and potential for improvement. It serves as a basis for improving supplier quality.

There are many good reasons to conduct a supplier audit. First, the Supply Chain Act makes you responsible for working with external partners, ensuring transparent processes in global supply chains, and checking whether your suppliers meet all human rights standards. For example, you have to regularly conduct risk analyses, develop preventive measures, and document violations.

It is also in your own best interest to form an accurate picture of the quality of your suppliers, because supplier performance can have a major impact on your production quality and on the success of your business.

Any of the following can be reasons to conduct a supplier audit:

• Supplier selection: A supplier audit can help you to select the best provider to meet your requirements.
• Supplier assessment: Supplier audits can help you evaluate, compare and further develop existing supplier relationships.
• Quality assurance: If you want to improve your product quality and streamline your production processes, a supplier audit can reveal potential for improvement.
• Certification: Supplier audits also help you prepare for related certifications, e.g. after ISO 9001.

Basically, however, supplier audits should not only be carried out on a specific occasion but should be conducted periodically. This gives you the opportunity to address any issues at an early stage, to continuously optimize the cooperation with your suppliers, and to understand their performance.

Benefits of supplier audits

You and your company can profit from the many benefits of carrying out regular supplier audits:

• Get accurate insights into the weaknesses and strengths of your supply partners.
• Evaluate the performance of your suppliers based on defined criteria.
• Find out where and how the quality provided by the supplier can be improved.
• Perform better risk management and minimize risks.
• Ensure compliance with your own company standards.
• Compare suppliers with each other so that you always make the best choice.
• Provide documentation and traceability of suppliers’ ongoing development.
• Strengthen supplier relationships by working together closely as part of audit process.
• Have a positive impact on the end product and make your customers even happier by optimizing supplier quality.

There are different types of suppler audits, based on who carries out the audit and the object of the audit.

Who is carrying out the audit?

• First-party audits: The supplier conducts the audit themselves in their own company.
• Second-party audits: The customer (in this case you, because you are requesting the audit) subjects the supplier to an audit.
• Third-party audits: You delegate the supplier audit to independent third parties, e.g. certifying body.

What is being audited?

• Product audit: In a product audit, the focus is on checking product quality.
• System audit: A system audit assesses the entire management system and looks at the general performance of the supplier.
• Procedure/process audit: If you mainly want to check operational procedures and processes, a process audit is the right choice.

What role does the ISO 9001 standard play?

If you assess and monitor your suppliers, it is a good idea to refer to the ISO 9001 standard. It provides clear requirements for quality management that are designed to be met not only by internal processes but also by procedures and products from third parties. This also applies to working with suppliers. For this reason, you should also make regular supplier audits part of your quality management system.

You should always be well prepared for a supplier audit, carry it out carefully and then evaluate and track it consistently at the end. To do so, follow these eight steps:

1. Define the framework conditions and set the schedule

Before starting your supplier audit, first take care of all the organizational matters:

• How often and at what intervals do you want to conduct supplier audits?
• Who is responsible for implementation – an internal or external auditor?
• Which supplier should be audited next and what is the purpose of the audit?
• Do you need access to certain documents or, for example, access to your supplier's site?

As a rule, audits are announced and are carried out on site at the supplier’s place of business. Be sure to agree early on to a specific date and communicate the scope and duration of the audit in advance.

In addition, it is also possible to conduct unannounced audits. Both options have their advantages and disadvantages. Unannounced audits can create awareness that suppliers are always prepared and deliver good quality – but can also damage the relationship of trust.

You can also conduct desktop audits. This type of audit is not held on site, instead you only check relevant papers, documents and certifications.

2. Set the criteria for the audit

As the next step, define the binding audit criteria that you will communicate to your suppliers. The criteria can depend on the industry and your own requirements among other things. It makes sense to set up a standard catalog of criteria in order to compare inspection results.

Here are a few examples of potential criteria:

• On-time delivery: Are deliveries made on time?
• Complaints management: How are complaints handled?
• Site conditions: How are the infrastructure and work conditions at the supplier site?
• Information security: Is data processed securely?
• Technical equipment: How are the systems and machines equipped, what about maintenance schedules?
• Production planning: How well planned are the production processes?
• Employee qualification: How competent and motivated are the employees of the supplier company?
• Sustainability: Are all environmental standards are being met?

3. Create an audit plan and checklists

To prepare for an audit, you have to collect all the relevant documents. These can include, for example, relevant contracts and other written instructions and agreements.

Next it’s time to create an audit plan, in which you record the exact procedure, the individual audit steps, and the main points of the audit. If, for example, you want to check the requirements for occupational safety or the logistics area, make a note of this at this step.

Additionally, write an audit checklist, or catalog of assessments, which you can record all the important questions you want to ask during the audit.

4. Hold a kick-off meeting

Before you start the actual audit, take time to have a short introductory meeting with the supplier. In this meeting, you can explain exactly what will happen during the audit. Let the supplier know why you are conducting the audit and describe the benefits it will have for both parties. After this kick-off meeting, everyone involved should be well prepared for the audit.

5. Conduct the audit

In short, in a supplier audit you record the current state and compare it to the target state. To do this, go through the audit checklist you created initially in a step-by-step manner, and check the supplier's performance against your criteria. To get answers to your questions, you can conduct surveys, look through relevant documents, or write down your own observations.

Document everything you do and all of your findings. Above all, write down every deficiency and non-conformance.

6. Create an audit report

The audit report is the certificate of inspection, so to speak. It is a place for you to keep all the results from your audit review and provide a grade at the end. In principle, you can design the assessment key yourself, but it should always be logical, understandable and consistent – this is the only way to ensure that you will be able to compare the findings.

The audit report should contain the following information:

• General information about the company audited
• Key details about the audit appointment (date, name of the auditor, etc.)
• Audit results with overall grade
• Detailed description of the deviations and non-conformances detected
• Ideally, evidence of the deficiencies, e.g. photos
• Concrete suggestions for improvement

7. Hold a post-mortem

After the audit, meet with the supplier again and discuss the audit results. The meeting should serve primarily to identify potential for improvement and define the next steps. Be sure to set binding deadlines for your supplier to correct any deficiencies identified.

8. Develop measures

Following on agreements made in the post-mortem meeting, the supplier is required to develop and implement suitable activities to improve their performance. If necessary, it can make sense to work together on a catalog of measures designed to align processes.

In this step, also ask yourself what conclusions you can draw from the audit findings. Should you adapt processes in your own company to improve cooperation with the supplier? Are the deficiencies identified so serious that you should look for a new supply partner?

Always include in your supplier assessment how the supplier behaves during the audit, how they respond to the audit results, and to what extent they are willing to eliminate deficiencies and improve processes.

Supplier audits are very document-intensive undertakings. On the one hand, you have to collect all the relevant information from the suppliers before carrying out the audit. On the other hand, you create many important documents during the audit, including audit plans, checklists, reports and documentation.

To keep an overview, it is a good idea to use a professional solution for Enterprise Content Management (ECM) such as Doxis. In addition, you can digitize documents for your suppliers and store them efficiently. The system automatically assigns your documents to the correct digital supplier file and archives them in an audit-proof manner.

With the Doxis® iRoom®, we also provide you with a smart add-on for the electronic supplier file that takes the collaboration with your suppliers to a new level. Easily exchange documents and manage deadlines and agreements using the virtual project room. For example, share your supplier ratings and get notified once the supplier has read them. Or ask your suppliers to upload photo credits themselves. Your partners can also easily submit certificates – the system even reminds them automatically about deadlines.

All in all, Doxis enables you to bring more transparency and efficiency to your supplier audits, accelerate processes and concentrate fully on using the results of the audit to further develop your supplier relationships.

Frequently asked questions about supplier audits