Should Supply Chain Managers Audit Their Auditors?
Many companies, especially those with far-flung global supply chains, count on third-party auditors to assure compliance with laws, standards and customer requirements. As environmental, social, and governance (ESG) issues increase in importance, social auditors are being brought in to assure that suppliers are complying with codes of conduct. While a report from your auditing firm may appear to be thorough and objective—satisfying your requirements and those of your customer—it may hide serious omissions and mistakes, even from the auditing firm.
A team of Harvard Business School researchers, Jodi L. Short, Michael W. Toffel, and Andrea R. Hugill, analyzed nearly 17,000 code-of-conduct audits conducted at close to 6,000 suppliers around the world, using a pool of standardized data. Patterns began to emerge from their analysis. Some audits they studied turned up fewer violations than would be expected, suggesting that auditors overlooked problems or were especially lenient toward the company they audited. Three types of audit teams showed such patterns: those that had been to the same supplier site before, those with team members with less experience or training, or those that included only male auditors.
Why might auditors overlook problems within certain companies?
The study’s scope did not include finding out why these audit teams were different, but other research studies have suggested some reasons. For instance:
- A team that has visited a company in the past has formed relationships with management. Whether on purpose or unconsciously, they may choose to go easy on the company.
- Auditors with little experience cite more violations that are often less significant than those reported by more seasoned individuals who use more discretion. Knowing less about what they are seeing, newer auditors go by the book and cite everything.
- Could gender influence an audit team’s performance? Are women really more picky than men? Do they also have less experience? It has also been suggested that female employees at audited firms are more likely to reveal infractions to women auditors than to men. As all good scientists do, the authors of this study say more research is needed.
What does this mean to supply chain managers?
It’s easy to assume that the auditors are professional and objective, especially after the selection of the auditing firm is carefully conducted. However, the auditing firm’s general performance and reputation doesn’t mean that all of their auditing teams are created equal. Even after selecting the best firm, supply chain managers should:
- Vet the auditors assigned to the on-the-ground assessments.
- Ask about auditor rotation, so it’s clear that the same people are not visiting the same place twice.
- Request information on how much training and experience each auditor has. Information should also include gender composition of audit teams.
Auditing firms may be surprised at these questions. The researchers found that auditor assignments are typically based on things like availability, language and meeting minimum training requirements. Many firms like to reassign auditors to familiar sites because it tends to speed up the audit.
For maximum control, supply chain managers should consider whether outsourcing auditing is a good idea at all. They may need to develop in-house auditing teams. That means they need to ensure they have the right talent with enough training, experience, language skills and ability to travel. Companies may also find that the cost and difficulty of supporting the global auditing process outweighs the apparent cost advantages of offshore production.
Auditing firms are no different from other suppliers. Supply chain managers can’t just assume they meet specifications. Their processes and products need to be monitored to ensure they meet quality standards. If you are not already monitoring and auditing your auditors, it may be time to start.
Karen Wilhelm has worked in the manufacturing industry for 25 years, and blogs at Lean Reflections, which has been named as one of the top ten lean blogs on the web.