Are Supply Chain Audits Bad for Good Business?

Jan 18 2016, 10:29 AM5 min read

The line, “Quis custodiet ipsos custodes?”, first appeared in Satires by the Roman poet Juvenal, and literally means “Who will guard the guards themselves?”. The question now being asked is, “Who audits the auditors?”, and the answers don’t look good.

Modern-Day-Slavery

Research from the University of Sheffield released last week claims that supply chain auditors are actually “‘working’ for the corporations”, and ultimately failing both the supply chain workers and the environment they are supposed to be protecting.

“Ineffective Tools”

SPERI, the Sheffield Political Economic Research Institute, conducted 25 interviews over a 2-year period with auditors, business executives, NGOs and suppliers around the world, as well as visiting factories in China, before publishing their results.

The report argues that “audits are ineffective tools for detecting, reporting, or correcting environmental and labour problems in supply chains”, and that many of the problems that ethical audits were created to solve are actually being made worse by the process. This is in part down to the organisations carrying out the audits working towards the interests of businesses.

One auditor was quoted in the report as saying, “we will audit as far down as the brand wants to go”. As stakeholders and organisations, such as ISM and CIPS, focus more on the concept of the end-to-end supply chain, including all supplier and subcontractor practices, it appears that in some cases, the full chain is not being assessed.

The Auditing Industry

A quick Google search for the term ‘supply chain audit’ throws up a vast number of results. Included in these results are a considerable number of private companies who are either supply chain auditors, or offer it as part of their services. The increasing market for ethical audits has led to the creation of a booming industry.

It should be pointed out that these firms are not being accused of falsifying results or deliberately misleading the organisations who are employing them to audit supply chains. The accusations lie in the fact that some practices within the supply chain are being missed.

Apportioning blame, even taking the findings of the SPERI research into account, is not as black and white as people might think. If the organisations carrying out the audits are providing misleading findings, then action must be taken.

However, much as procurement may be bound by a specification when purchasing goods and services, auditors will be bound by what they are requested to do by the employing organisation. The auditors may be culpable for not going far enough, but the blame should be shared if organisations are seeking to limit their activities.

Governmental and Public Input

And perhaps this is part of the issue, in having auditors as commercial enterprises. These organisations will be operated as businesses with the aim of meeting customer demand, but, as a business, still need to make enough money to remain operational and satisfy investors.

The SPERI report argues that ethical audits need greater governmental involvement, both from the point of view of conducting audits, but also in enforcing the required standards for working conditions and the environment. Governmental enforcement of these regulations can be difficult, especially where organisations operate global supply chains and fall under a diverse set of jurisdictions.

Many national Governments are tightening regulations around modern slavery and the environment. The UK Government has announced a set of measures aimed at combatting modern slavery in the supply chain. The newly formed Gangmasters and Labour Abuse Authority will be able to use the measures to force organisations to take action, where there is belief that offences have occurred.

However, in order for the issues to be tackled effectively across global supply chains, similar measures need to be in place for all countries, or there will always be areas where practices will remain unchecked.

You can find a full copy of the SPERI report here. We’d love to hear your thoughts and opinions on this issue. If you work for an auditing company, let us know your experiences of this too.

In the meantime, you can check out the major headlines in procurement and supply chain this week…

EU to Scrutinise Large Company Big Data Use

The European Union is considering whether the way large Internet companies, such as Google or Facebook, collect vast quantities of data is in breach of antitrust rules
Margrethe Vestager, European Commissioner for Competition, speaking in Munich over the weekend stated that the EU would step in if Big Data usage was negatively impacting competition
Some experts have warned that with a few large companies controlling the data, it becomes harder for new organisations to enter markets, being too far behind to compete effectively
Ms. Vestager also said the EU would look into why some companies can’t acquire information that is as useful as the data that other competing firms have.