Today it is easier than ever to find a Chinese supplier for just about any consumer or industrial product. Websites like Alibaba, MadeInChina, and GlobalSources connect buyers all over the world with factories in China and throughout Asia.
There is an obvious caveat to the online buyer-supplier matchmaking these websites offer: it’s far easier to maintain an impressive online profile than a legitimate and capable factory. It may seem that with little ability to verify any of a particular supplier’s claims, buyers are at a serious disadvantage.
This is not the case. Buyers can significantly reduce their risk by employing factory audit services, which are specifically designed to evaluate suppliers on a number of crucial dimensions. What kind of information can a thorough factory audit reveal, and why should they be a prerequisite for placing an order with any new supplier? Let’s start with number 5…
5. Social Compliance
First, a disclaimer: a factory audit should in no way be considered a substitute for a dedicated social compliance audit. A social compliance evaluation will include a thorough review of employee attendance and wage records, interviews, and age verification. However, factory audits will touch upon some basic tenants of social compliance.
During a factory audit, your supplier’s procedural documents pertaining to HR and recruitment will be reviewed. These documents should contain a very clear prohibition of child and forced labor under any circumstances. The lack of this verbiage can indicate the potential for serious social compliance issues which should be a major red flag for buyers everywhere.
4. Briefcase or Brick and Mortar?
The first and most basic question a factory audit will answer is “does the supplier actually exist?” Anyone can put together an online profile featuring images of an impressive manufacturing facility, when in fact the entire business could “fit into a briefcase” so to speak.
A factory audit will very quickly determine the actual square footage and condition of the manufacturer’s office, production, warehousing, and dormitory areas. This information is an excellent indication of the supplier’s output capacity.
3. Your Supplier’s Supply Chain
The use of subcontractors can be off putting for buyers who need to ensure compliance with certain standards and ethical supply chain frameworks – subcontractors are not exempt from these requirements. Subcontracting also raises questions about quality and general reliability. Manufacturers may not be able to influence the quality of their subcontractor’s components, and delivery schedules will suffer when your supplier faces delays from their subcontractors.
Verifying which manufacturing processes are completed on-site and which are outsourced is a standard part of any factory audit.
2. Zero Defects = Zero QC
Your supplier may have a comprehensive QC system on paper, but it takes a trained eye to determine if those QC procedures are actually being implemented. Indicators of the supplier’s commitment to QC can be found throughout the factory: Are there separate areas in the warehouse for non-conforming products and materials? Is there an independent and clearly identifiable quality team designated by the supplier? Are good visual aids (Reference Samples, Work Instruction Sheets, etc.) used in production?
While it may sound counter intuitive, an auditor should be able to find defective items somewhere in the factory with ease. If materials and products have not been separated and labeled in any meaningful way, it’s a safe bet that they have not been checked for quality at all. A factory may have a designated QC team but if they report directly to the production manager, a clear conflict of interest exists (meeting production quotas vs. pulling defective products). A lack of visual aids like reference samples, combined with the typical employee turnover rate, could mean that the person making your products has never actually seen a finished item! A factory audit is specifically designed to identify these kinds of risk factors.
1. Trust Your (3rd party auditor’s) Gut
Employing a 3rd party to visit your supplier will provide valuable information beyond the various checkpoints associated with a standard factory audit. An auditor will note whether your contact person actually maintains a presence in the factory, request to photograph important documents, and gauge the factory’s overall attitude.
If an auditor is unable to meet with your contact or other management-level representatives, is refused access to business or export licenses, or encounters obstruction or hostility in the course of his duty, these are all major red flags. A supplier that is legally established and interested in doing legitimate business with you will offer a certain level of cooperation to reflect this.
