Business Magazine

10 Essentials of Factory Audit Checklist

Posted on the 05 August 2020 by Gaurav Kumar @vhowtodo

No matter how experienced an importer you are, it is always beneficial for you to conduct a thorough supplier audit before you finalize any dealing with him.

Countless examples of importers all over the world have shown the detrimental consequences of hiring a supplier without proper investigation; these consequences range from delays in orders due to lack of equipment with the supplier to meet with customer demand, to much more detrimental consequences such as loss of revenue and possible penalty in the court of law due to selling substandard goods.

This is why it is highly recommended for importers to conduct an adequate factory audit before hiring.

Not only is your supplier responsible for the ultimate user experience that your consumers experience, but a bad supplier also has the power to completely shatter the image your business or brand might have earned with utmost hard work over the years.

While you may have a number of different reasons why you wish to conduct a supplier audit, here are the top 10 reasons why importers all over the world do not wish to ignore supplier audit prior to hiring a new supplier:

1. Zero tolerance for serious violations by the supplier

The first reason is perhaps the most grave; in addition to being a profit-seeking entity, looking to enter new markets and expand all over the world, one concern that perhaps all business share in essence all over the world is a zero-tolerance for extremely grave social and legal violations.

While you may be willing to give your supplier a certain margin of error when it comes to certain matters, such as accepted number of defects in the fabric stitching, there are certain non-compliances that require immediate action and result in a for-sure 'fail' in a quality audit.

  • The supplier using forced labor, including child labor: if your supplier is suspected of making use of some sort of forced labor, it becomes your immediate responsibility to forfeit relations with him. Not only is the act extremely unethical, but in most developed countries illegal and subject to a heavy penalty. If authorities find out that you sourced products from a supplier that uses child labor, even if you did not approve it, it becomes a serious setback for your business, which may result as far as termination of your license to sell or trade.
  • Making sure that your supplier has the appropriate paperwork to proceed with exports, such as an export license. It may very well be possible that you find out once you have hired the supplier and he has produced a significant amount of your order that he is in fact not allowed the license to export by his native country, for any reason. This, again, would be a serious drawback to your business and is beneficial for you to sort out these matters in the early stages of your deal.
  • A social compliance audit would be extremely helpful for you at this point, to make sure that your supplier is in-line with local and international social compliances. It is recommended, as a rule, to avoid working with any supplier that is suspected of being involved in any activity towards which you or your country show zero tolerance.
  • Making sure the factory environment, equipment and basic facilities meet your requirements
  • In addition to making sure that your supplier is not in violation of any major law or social compliance, it is also necessary for you to ensure that he is fully equipped to produce the goods that you require of him, in the quantity and quality that you have asked for- within the time frame promised to you. There is no point of producing great-quality products six months over the deadline. It is, thus, important that you audit the supplier to make sure that the supplier is in a position to produce for you.

Two very mainstream examples of such violations are as follows:

  • Customs-Trade Partnership Against Terrorism (C-TPAT) or Global Security Verification (GSV) certification
  • Sufficient lighting in production, QC, packaging and storage areas
  • Proper production conditions, including properly maintained and undamaged windows, walls and roofs
  • Routine equipment cleaning and maintenance, including a dedicated maintenance team
  • Proper storage conditions and procedures for dies and molds
  • Routine testing equipment calibration
One of the foremost reasons for substandard quality products is the use of inept machinery or procedures, which results in defected products. How can you expect the supplier to check for accurate measurements when his equipment is incorrectly calibrated?

To ensure this, your quality audit checklist would most likely include the following points:

This is only one example of how defected equipment can result in defected products, even if the supplier is in fact working with utmost care to follow your instructions.

Hence, it is vital for you to check the factory environment to make sure it meets with your requirements.

A thorough and effective quality audit would comprise a checklist that covers the section of supplier's quality management system.

3. Quality management system

This section is essentially critical to ensuring that the supplier is able to comply with your quality standards, as demanded of him.

  • Top management personnel in charge of QMS development
  • Relevant quality policy documentation and familiarity with such policies among production staff
  • ISO 9001 certification
  • QC teams independent from production staff
In addition to these, there are certain international standards that the supplier must conform to in order to qualify for producing goods for your business.

Although quality management, in essence, is a rather broad topic encompassing a large number of matters, it is typical for the quality audit process to check for the following things:

One such example is the ISO 9001, which is a globally recognized set of rules and requirements that are necessary to ensure quality management systems.

  • The ability to consistently provide products and services that meet customer and regulatory requirements
  • Procedures and policies to identify and implement quality improvements

A supplier must demonstrate the following in order to legitimately obtain ISO 9001 certification:

What essentially sets apart strong quality management from a poor one is the system's ability to actively seek out and correct for any quality issues found within the manufacturing process or products, without having to rely on outside input such as from buyers or third-parties.

If your supplier has effective quality management in place, it is likely that you will come across a very minimal number of defects, as compared to a supplier who has no such system in place.

Verifying a supplier has an independent 3rd Party Inspection team ( ATIHongKong) that is clearly separate and distinguishable from production staff-whether by uniform, name-tags or another method-is part of the quality audit process.

4. Quality control for incoming materials

One of the things that importers fear the most is for your supplier to use inferior quality materials to produce goods in an attempt to cut costs for themselves and offer an edge in the prices offered.

For example, where it is possible to fix the length of skirts that are a few cm too long, it is not possible to rework a skirt with the wrong density fabric; the only viable solution present in this situation is to dispose of the skirt and start again from scratch.

Using substandard quality raw materials is one of the foremost reasons amounting to defected products. Keep in mind that it is often very costly and time consuming for you to rework products that are defected due to poor quality raw material.

Checking your supplier's material control processes can give you insight into your factory's incoming quality control standards.

  • Systematically check the quality of incoming materials and components
  • Follow clear processing guidelines throughout the pre-production phase

Factory staff with a healthy quality control mindset will:

Your quality audit checklist should account for the following to verify materials and components controls at the factory:

  • Incoming material inspections
  • Clear materials labeling
  • Proper materials storage to avoid contamination, especially if there are chemicals involved
  • Clear, written procedures for selecting, maintaining and evaluating any sub-supplier quality performance
It is, therefore, vital for you to conduct an audit that assesses the quality of incoming and raw materials being used, so that you do not have to face expensive quality issues in your products that might possibly cost you your customers.
In addition to conducting a thorough inspection of the materials before they are used for production, it is also recommended for you to conduct an audit during the production stages in an attempt to identify any quality issues and fix them in time before a lot of damage is done.

5. Quality control during production

During production controls are often essential for products with many parts or those requiring several production processes, such as electronics.

A problem caught early on in the production stage is easier to fix.

An effective quality audit checklist should verify factory staff:

Before you sign-off for receiving the goods, it is always a good idea to conduct a finished-goods inspection.
  • Perform function and safety checks on 100 percent of production units
  • Clearly separate accepted and rejected goods, often indistinctly labeled bins or boxes
  • Apply a suitable sampling plan for in-process quality control inspection
It is very likely for you to witness a large number of defected products come your way when you decide to forgo during production quality control; hence, it is highly advisable to ensure that the supplier is working for you in a manner that does not induce any kind of defects in your products which will, later on, require rework or reproduction.
Regardless of you seeking the help of a third-party inspection help, your supplier should have a system in place to conduct this inspection on its own to identify and correct for any defects that may have gone unnoticed in the previous stages of inspection and audit.

6. Quality control and inspection of finished goods

Once the products have been shipped to you, it is almost always more costly to rework any defective products that you may find.

This is what would set apart a good supplier from the rest.

No matter how effective a quality system your supplier has in place, certain products require lab testing to make sure that they meet with the requirements and specifications set by you. One example would be an infant's crib: only a lab-verified crib should promise to provide adequate safety and stability to the infant, it is not enough for a quality inspector present on-site to visually inspect it and approve it for use by an infant.

The rests and checks conducted by the supplier are likely to include:

7. Adequate lab testing and coordination with third parties as required

However, it is common for suppliers all over the world to not have their own labs present for testing products.

  • Testing equipment
  • Testing capabilities, including which specific tests and following which international standards
  • Training of lab personnel

But, in case your supplier does have a lab, then it becomes your responsibility to thoroughly inspect the lab to verify that it is credible and will provide unbiased and accurate results.

If your supplier claims to have an effective quality system in place, it is important for you to verify the credibility of this place.

If such a lab is available on site, the quality audit process should verify:

8. Human resource management

Not only does it take time and effort to hire and train new quality inspectors, but they may also require time to familiarize themselves with your products and your quality requirements.

Is your supplier facing a very high labor turnover, particularly in the quality control and assurance department?

If so, then this may raise a red flag for you.

It is also a very valid concern as to the expertise of the inspectors themselves. Several suppliers hire untrained inspectors in an attempt to cut costs, which then approve products that would otherwise be tagged as faulty and rejected.

  • Structured training programs for new and current employees
  • New employee orientation and qualification testing
  • Formal training records

Hence, it is important for you to make sure that the inspection staff is credible and trained.

Importers may seriously appreciate the presence of an engineering and design department which is related to their products, present on-site.

That's why a good quality audit checklist should include checks for:

9. Innovative capabilities

  • Any patents the factory holds
  • Demonstrated ability to develop a product similar to yours from concept to production
  • Lead times on creating any tooling for products like yours

These departments come into use if you wish to develop a new product in collaboration with the supplier.

A related section of your quality audit checklist should include points for reviewing a supplier's own on-site R&D capabilities, including:

10. The approach towards business development

  • Are staff professional, respectful and interested in doing business with the customer?
  • Is the factory properly structured to communicate with customers, process orders and conduct other business functions (do they have dedicated sales, customer support and finance teams, etc.)?
  • Does the factory's operation appear stable?Are staff cooperative with the third-party auditor during the audit?

Last, but not the least, a supplier's organizational structure and overall work environment is a big sign regarding whether or not they will be able to conduct their affairs in an effective and professional manner.

As explained above, the consequences of not conducting an audit before hiring a new supplier may be immense.

To help you decide with this, these are some of the questions that your audit should attempt to answer:

Although manufacturing and importing as a business is bound to come with risks of all degrees.

Conclusion


These risks may be mitigated by selecting appropriate suppliers who are able to effectively deliver you with the goods that you require, without compromising on legal or social compliance.

If you still have any question, do share via comments.

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