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Why is it critical to conduct audit of your Chinese suppliers before formal cooperation? 
来源: | Author:Wesley Liu | Time:2024-01-30 | 240 次浏览: | Share:
With the development of the Internet, big data, and other technologies, access to information becomes more convenient. However, many companies rely solely on online supplier qualification audits when making cross-border purchases, neglecting the importance of on-site supply chain audits, especially in the context of the ongoing impact of the COVID-19 pandemic on the Chinese supply chain market, which may result in losses and risks. This article explores the limitations and risks of online auditing and emphasizes the necessity of conducting on-site supplier audits in China.

The main risks of online auditing include limited information, difficult verification, insufficient quality assurance, low supply chain transparency, communication barriers, compliance issues, hidden costs, insufficient relationship building, fraud risks, inadequate due diligence, and lack of on-site inspections. These risks indicate that relying solely on online audits cannot fully assess the true situation of suppliers.

The importance of on-site auditing is reflected in multiple aspects: ensuring product quality, evaluating supplier reliability, verifying compliance and certification, establishing communication and trust, reducing risks, improving supply chain transparency, understanding cultural differences, ensuring production capacity, and resolving conflicts. Through on-site inspections, companies can gain a more comprehensive understanding of the actual situation of their suppliers and make more informed cooperation decisions.

Before conducting on-site audits, companies need to make sufficient preparations, including clarifying audit objectives, developing checklists, researching supplier backgrounds, understanding laws and regulations, familiarizing themselves with cultural differences, arranging schedules, training teams, ensuring health and safety, developing communication plans, reviewing documents, arranging translation services, budget planning, and developing follow-up action plans. These preparations help ensure the smooth progress of the audit and lay a solid foundation for future cooperation.

In short, on-site auditing is an indispensable part of cross-border procurement, which can help companies evaluate suppliers more accurately, reduce risks, and establish long-term, stable, cooperative relationships.


Access to information is becoming easier and more convenient as technologies like the Internet and big data evolve. Also, due to distance and time constraints, many people choose to only conduct online reviews of the qualifications of potential suppliers to cooperate with, ignoring the importance of on-site supply chain reviews, which frequently leads to losses and risks for many enterprises purchasing in China, especially during this special period when the impact of the COVID-19 epidemic on China's supply market is far from over. In this article, I will explain why it is important to conduct on-site audits of Chinese suppliers, as well as how to make adequate preparations to complete supplier on-site audits efficiently and accurately.

 
First, what are the risks of only conducting online supplier qualification audits during cross-border procurement in China?
 
Conducting online supplier qualification audits for cross-border procurement in China can provide some information about potential suppliers, but it comes with several risks. Here are some of the key risks associated with relying solely on online audits:
 
1. Limited Information:
 
Online audits may provide limited information compared to on-site visits. Important aspects such as the actual condition of facilities, production processes, and the quality of goods may not be accurately assessed through virtual means.
 
2. Verification Challenges:
 
It can be challenging to verify the authenticity of online information. Without physically inspecting facilities and meeting key personnel, there's a risk of relying on inaccurate or outdated data.
 
3. Quality Assurance Concerns:
 
Assessing product quality, adherence to quality standards, and the effectiveness of quality control measures is challenging without on-site inspections. Online audits may not reveal potential quality issues that can only be identified through physical examination.
 
4. Supply Chain Transparency:
 
Online audits may lack the depth needed to fully understand the supply chain, including the sourcing of raw materials and subcomponents. A lack of transparency in the supply chain can lead to unforeseen risks and disruptions.
 
5. Communication Challenges:
 
Cultural and language nuances may not be fully understood through online communication. Face-to-face interactions are often essential for building trust, clarifying expectations, and fostering effective communication.
 
6. Compliance and Regulations:
 
Online audits may not adequately assess a supplier's compliance with local and international regulations, ethical standards, and environmental practices. Non-compliance issues may go unnoticed, leading to legal and reputational risks.
 
7. Hidden Costs:
 
Online audits may not uncover hidden costs associated with production, such as additional fees, substandard materials, or unexpected expenses. This lack of visibility can impact the overall cost-effectiveness of the procurement process.
 
8. Limited Relationship Building:
 
Building a strong working relationship with suppliers is crucial for successful long-term collaboration. Online audits may miss the opportunity for in-person relationship-building, potentially affecting communication and problem-solving capabilities.
 
9. Risk of Fraud:
 
Without physical verification, there's an increased risk of falling victim to fraudulent activities. Online information can be manipulated, and the actual conditions of facilities may not match the portrayed images or descriptions.
 
10. Inadequate Due Diligence:
 
Online audits may not provide a comprehensive view of a supplier's financial stability, past performance, and overall business practices. Inadequate due diligence increases the risk of partnering with unreliable or financially unstable suppliers.
 
11. Lack of hands-on inspection:
 
Certain industries or products may require hands-on inspection to ensure compliance with safety standards and regulations. Relying solely on online audits may neglect these crucial aspects.
 
In summary, while online supplier qualification audits can be a preliminary step, they should ideally be complemented with on-site visits for a more thorough and accurate assessment. The risks associated with relying solely on virtual audits highlight the importance of incorporating physical inspections and face-to-face interactions into the cross-border procurement process.
 
Second, why is it necessary to conduct on-site audits of my Chinese manufacturers before beginning the collaboration?
 
Conducting on-site audits of your manufacturers in China before officially starting collaboration is important for several reasons:
 
1. Quality Assurance:
 
On-site audits allow you to assess the actual production processes, product quality, and adherence to quality standards. This helps ensure that the products meet your specifications and quality expectations.
 
2. Supplier Reliability:
 
By visiting the manufacturing facilities, you can evaluate the reliability and capabilities of your potential suppliers. This includes assessing their production capacity, equipment, and overall ability to meet your production requirements.
 
3. Compliance and Certifications:
 
On-site audits help verify if the manufacturer complies with industry regulations and standards. You can check if they hold necessary certifications, adhere to ethical manufacturing practices, and comply with environmental and safety standards.
 
4. Communication and Relationship Building:
 
Face-to-face meetings provide an opportunity to establish a personal connection with your suppliers. Building a good working relationship from the beginning can enhance communication, trust, and collaboration over the long term.
 
5. Risk Mitigation:
 
Conducting on-site audits helps identify potential risks such as production delays, supply chain issues, or inadequate quality control measures. This allows you to address these issues proactively and implement risk mitigation strategies.
 
6. Supply Chain Transparency:
 
Visiting manufacturing facilities allows you to gain insights into the entire supply chain, from raw material sourcing to production processes. This transparency is crucial for assessing the sustainability and resilience of your supply chain.
 
7. Cultural Understanding:
 
China has a unique business culture, and understanding it can be essential for successful collaboration. On-site visits provide an opportunity to learn about local business practices, communication styles, and expectations.
 
8. Customs and Import/Export Compliance:
 
Familiarizing yourself with the manufacturing processes also helps in understanding potential customs and import/export compliance issues. This is especially important for international trade to avoid any legal complications.
 
9. Production Capacity Assessment:
 
On-site audits allow you to verify the manufacturer's claimed production capacity. Understanding their actual capabilities ensures they can meet your order volumes and deadlines.
 
10. Conflict Resolution:
 
In case of any discrepancies or issues, being physically present at the manufacturing site facilitates quicker and more effective conflict resolution. It's easier to address concerns and negotiate solutions in person.
 
In summary, on-site audits provide a comprehensive understanding of your potential manufacturing partners, helping you make informed decisions, mitigate risks, and establish a solid foundation for a successful and long-term collaboration.
 
Third, what preparations should I make before conducting on-site audits of my suppliers in China?
 
Before conducting on-site audits of your suppliers in China, it's crucial to make thorough preparations to ensure a successful and productive visit. Here are some key preparations to consider:
 
1. Define audit objectives:
 
Clearly outline the objectives of the on-site audit. Whether it's assessing product quality, production processes, compliance with standards, or other specific criteria, having a well-defined purpose will guide your assessment.
 
2. Create a checklist:
 
Develop a comprehensive checklist that covers all aspects you intend to assess during the audit. This may include quality control procedures, production capacity, equipment condition, worker conditions, compliance with regulations, and any other relevant factors.
 
3. Research Supplier Background:
 
Gather information about the supplier's background, reputation, and any past performance issues. This includes checking references, reviews, and any available certifications or compliance records.
 
4. Legal and regulatory compliance:
 
Familiarize yourself with the legal and regulatory requirements relevant to your industry and the products being manufactured. Ensure that the supplier complies with these standards and regulations.
 
5. Cultural Understanding:
 
Learn about Chinese business etiquette and cultural norms to facilitate effective communication and relationship-building during the visit. Understanding the local culture can enhance your interactions with the supplier.
 
6. Schedule and confirm appointments:
 
Coordinate with the supplier to schedule the audit visit in advance. Confirm the dates, times, and locations of the meetings and facility tours to ensure that key personnel are available to provide the necessary information.
 
7. Logistical Arrangements:
 
Plan your travel and accommodation arrangements well in advance. Make sure you have transportation to and from the supplier's location and that you have all necessary travel documents.
 
8. Team Training:
 
If you are bringing a team for the audit, ensure that team members are adequately trained on the audit objectives, checklist, and any specific areas of focus. Consistency in the audit process is crucial.
 
9. Health and Safety Precautions:
 
Familiarize yourself with the health and safety regulations in China. Take necessary precautions, such as vaccinations, and ensure that you have appropriate personal protective equipment (PPE) if needed.
 
10. Communication Plan:
 
Establish a communication plan with the supplier, including designated contact persons and communication channels. This ensures effective communication before, during, and after the on-site audit.
 
11. Document Review:
 
Request relevant documents from the supplier before the visit, such as quality control records, production schedules, and compliance certificates. Reviewing these documents in advance will help you prepare targeted questions.
 
12. Translator Services:
 
If language barriers exist, arrange for translator services to facilitate communication during the on-site audit. Clear communication is essential for accurate assessments.
 
13. Budget Planning:
 
Plan a budget for the on-site audit, considering travel expenses, accommodation, meals, transportation, and any unforeseen costs that may arise during the visit.
 
14. Follow-Up Plans:
 
Establish a plan for follow-up actions based on the audit findings. This may include addressing non-compliance issues, negotiating improvements, or establishing ongoing monitoring processes.
 
By making thorough preparations, you increase the likelihood of a successful on-site audit that provides valuable insights into your suppliers' capabilities and helps build a solid foundation for a successful collaboration.
 

If you are fully prepared for on-site audits of suppliers in China, in the following article, I will introduce you to some of the audit projects that I have summarized during my 13-year career of conducting on-site audits of thousands of suppliers in various industries, which are easily overlooked but important and critical for your audit accuracy. They will help you more efficiently understand the true situation of suppliers within a limited time. So see you in my next article.


Author: Wesley Liu (Founder of ProcurementInChina.com, Leader of Procurement & Supply Chain)