Why Is A Factory Audit Necessary & What Is Involved?
For a Trade Finance facility to go ahead, there are a few crucial components you must have in place. As it’s a specialised and potentially risky transaction, it is important that every element is accounted for.
I’m not going to discuss all of these elements in today’s blog post but rather discuss one of the main and crucial areas. The Importance of a Factory audit, why it’s neccessary and what is involved in a typical Audit.
So why is it necessary to have a factory audit?
Have you been to the factory before? Do you know how they operate? Are they a trust worthy and well run operation? It is unlikey a Trade Financier will agree to a facility if an audit hasn’t been done on your chosen manufacturer.
A factory audit is imperetive before locking in any order, in the long run it can save you from potential disaster, money loss, dissapointment and ultimately business failure! So when selecting your supplier you need accurate and concrete information to assist you in determining if they are the right supplier for your business. Dont rush this decision or base it soley on price, there are many factors you have to take into consideration. Some factories are renown for bad quality, cutting corners, rough handling and even worse signing off on product they may have not even checked. Not to mention the social issues such as child labour, environmental degredation and unfair working conditions. So its up to you to research your manufacturer, visit their premises and make sure they check out before entering into a business agreement.
So what does a typical factory audit include?
There are all kinds of factory audits, but i will give an example of areas covered in a typical one which I sourced from the China Blue Print Website (www.chinablueprint.com.au)
- A review of the factory’s formal business documents; business registration, exporting license, testing certifications, accounting documents;
- A report on the factories operational structure; systems in place, employee breakdown, machinery types, recording processes, quality assurance and systems related certificates,inspection track record;
- Photographic representations: factory entrance, factory production line, machinery, administrative offices, business documents, storage facilities, packing rooms, sampling rooms;
- Charts: factory organizational flow chart, production work flow chart;
- Production information; production line/capacity calculations, daily output checks, information of sensitive points/bottle necks, machinery condition, power supply, transportation;
- Raw materials; supplier and sub-supplier details;
- Sampling; details of sampling capacity; and
- Any client special requests.
So before you lock yourself down with a manufacturer, make sure you have done a proper and sufficient audit. If this is not done you will not qualify for Trade Finance.