Factory-Audit

Factory Audit: A Definite Guide


The last step before placing an order is usually the factory audit.

You can carry out a factory audit by visiting the factory yourself or you can hire a third party to do it on your behalf. 

Factory audit will help to improve the quality of your supplier chain and also reduce risk of your sourcing process from China.

In this article, you will learn the following:

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    The difference between factory audit and quality inspection

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    What factory audit of social responsibility and security entails

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    Factory audit by big brands such as Walmart, Disney and Macy’s amongst others.

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    6 common social compliance audit standards in China.

What's Factory Audit?

Factory audit (FA) refers to an onsite factory inspection that is carried out on behalf of an importer at the premises of the manufacturer before placing an order to a new manufacturer. Factory Audit is aimed at avoiding getting involved in a bind working with the wrong factory.

During the Factory Audit, the auditor records data and takes pictures of all the essential aspects for the importer’s reference for them to have an in-depth feeling and sense about the factory before any contract is signed.

Factory Audit VS Quality Inspection

Factory Audit

Factory Audits are often the last step in the sourcing process. It usually takes place after screening a group of potential suppliers down to the serious ones. Not only is it the most expensive form of evaluating supplier, it is also the most in-depth.

 It is important to get to the factory to confirm if the key managers will be available on the desired date. Surprise audits can only be carried in certain situations.

A Factory Audit is compulsory before any order is locked in because it will (in the long run) save the importer from potential disaster, money loss, disappointment and business failure. Thus, accurate and concrete information are needed when selecting a supplier. These information will help you determine if they are the right supplier to do business with.

The Factory Audit process should not be rushed neither should it be based solely on price. There are quite a number of factors that should be put into consideration. Some factories are known for bad quality, not following directions, rough handling and signing off on products that they have not inspected.

Some are also known for child labor, degradation of the environment and poor working conditions. Thus, you need to research your manufacturer, pay a visit to their premises and ensure that they are checked out before entering into any business agreement.

Quality Inspection

Quality inspection refers to the measures that are targeted at checking, measuring and testing the various product characteristics and then relating the results to the requirements to comply with laid down regulations.

The process is usually conducted by specialized personnel and cannot be handled by production workers. Products that are not in line with the specifications (as revealed by the Quality Inspection) are rejected or returned for improvement.

The three major purposes of quality inspection include:

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    Identification of the problem with the quality

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    Provision of information to managers

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    Removal of the problem by managers

There are two forms of quality inspection namely final inspection and intermediate inspection. Final inspection is carried out at the end of the production process while intermediate inspection is carried out at several stages of the production.

Factory Audit of Social Responsibility

The news of corporate corruption flying around the business world have made companies to pay more attention to enacting policies that reflect corporate social responsibility.

The fall of recognizable businesses has cautioned companies that do not pay attention to conducting their operations ethically. 

This has made such companies to develop a checklist that will ensure that their actions are in line with high standards of business etiquettes.

1.Strategy and Vision

The corporate social responsibility checklist must comprise all aspects of the company’s vision statement as well as strategic goals that will make it effective. You need to understand the social responsibility issues that are specific to your industry and the world at large.

2.Accountability and Oversight

The compliance with social responsibility checklist must bring the bad behaviors of company leaders into oversight and ensure that the leaders are held accountable.

The checklist should determine if the factory in question has any department that’s in charge of tracking CSR behaviors and reporting all violations to the authorities concerned.

3.Risk Identification

Although all businesses encounter different kinds of risks, the compliance with social responsibility checklist will go a long way in helping the factories to determine if the level of risk encountered while making a decision aligns with the traditional business ethics.

The checklist must pinpoint risks to the factory’s ethical practices in its policies as well as actions. The factory audit of social responsibility must be factored into a factory’s decisions on business risks. It must also get rid of potential ethical problems.

Factory Audit of Security

1.Global Security Verification (GSV Audit)

After the occurrence of the events on September 11, 2001, both governments and customs organizations around the globe have come up with supply chain security measures aimed at securing trade, protecting against terrorist acts and combating illegal trafficking.

Governments and customs organizations have embraced and implemented the enhanced supply chain security standards and criteria, including PIP, AEO and C-TPAT. In order to enforce and adhere to the international supply chain security standards, factories need to access their supply chain so that they can identify, mitigate and get rid of potential risks to security.

The Global Security Verification Audit must involve the use of a cutting-edge methodology that promotes best practices in the global trade industry. This will enable importers and suppliers to reduce risks that are connected to cross-border movement of goods and also expediting their arrival at their respective destinations.

The effective use of resources, structured processes and innovation will go a long way in ensuring that the best GSV Audit is achieved.

The integration of multiple global chain security initiatives such as C-TPAT, PIP and AEO will help in propelling the development of the global security verification process, which results in more developed safety assurance, efficiency, risk control and increased cost savings.

Other benefits of Global Security Verification Audit include the following:

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    It helps importers and suppliers to combine efforts via the same industry platform and collaboration.

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    It gives room for effective gathering of data, analysis and reporting capabilities. These help in reducing risk and give room for more informed decision making for all parties involved.

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    GSV Audit reduces audit fatigue by allowing suppliers to share their verification reports with different importers. This enables them to prioritize the available resources towards learning and improvement against repeat auditing.

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    It improves the efficiency of the audit process and also ensures consistency and better reporting capabilities.

2.Customs-Trade Partnership Against Terrorism (C-TPAT) Audit

This form of audit is a voluntary government-business initiative that is aimed at building cooperative relationships that improve the security of the international supply chain as well as U.S. border.

According to Customs-Trade Partnership Against Terrorism, U.S. Customs and Border Protection are able to provide the highest form of cargo security via close cooperation with those that own the international supply chain (such as carriers, importers, licensed customs brokers, consolidators and manufacturers).

Businesses must ensure the integrity of their security practices. They must also communicate and verify the security guidelines of their partners within the supply chain. Highlighted below are the benefits of C-TPAT audit:

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    It ensures the security of the supply chain

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    It verifies the manufacturer’s compliance

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    It also improves the security of the U.S. border.

The following conditions must be audited during C-TPAT audit:

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    Vital Items
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    Conveyance Security
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    Container Security
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    Physical Access Controls
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    Personnel Security
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    Procedural Security
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    Physical Security
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    Security Training and Threat Awareness
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    Information Technology
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    Awareness
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    Security

Companies with C-TPAT certification must ensure that they have a documented process that will help them in determining and reducing risk in their international supply chain. This enables factories to have low risk, thereby leading to expedited processing of their cargo and Customs examinations.

Factory Audit by Big Brands

Factory Aduit of Walmart

Big brands like Walmart, Disney, Macy’s, Target, Costco and Sears are known for the highest standard of the supply chain management in the world because they have their factory audit system. Your supply chain quality will be improved if your suppliers pass one of these brands’ audits. 

Although their audit systems are slightly different, they include 3 common parts namely:

1.Social Compliance Audit

Social compliance audits are increasingly becoming an important part of all global supply chains. They are carried out to in such a way that suppliers are able to evaluate in line with local laws. Social compliance audits are mostly practiced in China. These forms of audits are carried out to ensure that business partners abide by their organization’s commitment to commercial social responsibility.

Social compliance audits are conducted by professionals that are well versed in social responsibility audits and adhere to SA8000 international standard. Compliance reduces the risk of contributing to environmental and social harm, and it’s thus best that the supply chain conforms to this form of audit.

The social compliance audits that are carried out in China involve engagement with the stakeholders, systematic long-term approach and transparency. It helps to validate integrity, transparency and consistency.

2.Quality Control Audit

Quality control audit involves the systematic examination of a quality system. It is carried out by an audit team or by an internal or external quality auditor. It constitutes an important part of a factory’s quality management system. It’s also an essential element in the ISO quality system standard of a factory.

3.Security Audit

Security Audit is an extensive form of audit that involves the formal overview of a factory’s security systems and processes. This form of audit is an all-encompassing and in-depth review of physical attributes, policy and standard operating procedures. It consists of the technical and conceptual overview of the factory’s security systems and processes.

The 6 Common Social Compliance Audit Standards In China

BSCI refers to a comprehensive, European platform for companies that is linked to the BSCI code of conduct. It helps to monitor and enhance the global standards in supplier countries.

The provisions for this platform are based on the standards of the International Labor Organization (ILO), the UN Charter on Human Rights and national laws and regulations.


This is a worldwide platform that caters for the exchange of information on ethically sustainable production in the supply chain. It enables members to effectively manage their suppliers and mitigate risks through the exchange of information on ethical performance.

This helps to make improvements that have to do with ethically sustainable business practices throughout the chain of production.

SEDEX

ICTI (International Council of Toy Industries) is committed to the promotion of toy safety standards, reduction of hindrances to trade as well as advancement of social responsibility in the toy industry. 

It helps to address environmental concerns, lawful employment practices and safety at the workplace.


Developed in 1997 by Social Accountability International, SA8000 refers to an auditable certification standard that helps organizations to develop, maintain and apply socially acceptable practices in the workplace.

It helps to create a common language and standard for gauging social compliance.

SA8000

    SA8000


EICC

EICC was founded in 2004 by a group of leading electronics companies. It is a nonprofit group of electronics, retail, auto and toy companies that are focused on supporting the rights and welfare of workers (around the globe) that are affected by the electronics supply chain.

EICC members are accountable to a common Code of Conduct and they use different EICC training and assessment tools to support improvement in the social, environmental and ethical responsibility of their chains of supply.


WRAP (Worldwide Responsible Accredited Production) refers to an independent, objective, non-profit group of global social compliance experts that help to promote safe, lawful, humane and ethical manufacturing practices around the globe.

WRAP

Conclusion

Factory Audit is a compulsory process that saves time and money through the improvement of the efficiency and productivity of importers and suppliers; minimizes risk by ensuring that suppliers can deliver products and services that align with the client’s needs and requirements and guarantees quality of products sourced from the supply chain.

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