Why and What is Examined During a China Factory Audit?
Do you feel safe in your decision if you start working with a new supplier that you have not yet visited or do factory audit in China on site?
I’ve talked to a lot of people in this situation, and they usually don’t fully realize what they might be missing out on. So, that’s what I’ll cover the China factory audit in this article.
Table of Contents
What is a China Factory Audit?
The on-site evaluation of a factory is termed as a factory audit. The purpose of a factory audit is to verify whether a manufacturer is skillful enough to make a specific order as per your requirements.
Therefore, a factory audit usually concentrates on one specific product (category).
For example, if you want to produce e-bikes, you found a manufacturer that produces electric bikes and electric skateboards.
The auditor will then concentrate on evaluating the manufacturer’s ability and capacity to produce your particular order of e-bikes.
During a factory audit, the auditor (which can be you, a colleague, or a third-party professional auditor) will travel to the factory. When it arrived, the auditor will collect information about the factory and work using a checklist of items that the factory should follow.
Generally, the China factory audit checklist is based on the client’s international standards and requirements, which can be you.
In the end, all findings of the factory audit are documented in a report to provide a detailed overview of the manufacturers’ capacity and capabilities.
Why Do You Need a Factory Audit in China?
A China factory audit allows you to compare different manufacturers and choose the appropriate one for you depending upon the facility’s facility, quality & experience.
1. Test the seriousness of the supplier
If they are not interested in your business, they will reject your request to send an auditor. If you know this in advance, so much the better.
If they are secretive, they will also fight back. That’s a good thing, too. If you deal with a secretive supplier, you’ll never get transparency in the areas that matter to you, which means you won’t have control over your supply chain.
In addition, if they have problems and you can’t send someone to analyze what caused them, you will have to rely on their engineering capabilities and their ability to prevent them from happening again in the future …
2. Know what type of operations are involved
Do they have immature (or non-existent) systems? Are they well structured (and safer to use)?
If you only look at their website, their pdf manual, or what is written on their Alibaba profile, you may be far from the truth.
There is a huge difference between a well-run factory and a poorly run factory. It shows up clearly in the audit report scores.
Let’s illustrate this in an illuminating way. We plotted some of the average scores from the audits we conducted in various Chinese cities, and the gap between the best and worst cities (including Yiwu, no surprise here) is quite stark.
3. Know what processes are done inside the factory
When looking at the products you want your suppliers to make for you, you need to consider the key components and critical process steps.
It’s all about identifying the major risks and then developing a plan to mitigate/control them.
If you are dealing with suppliers that only do packaging or only do final assembly and packaging, the major risks may be located further down the supply chain and you may need to understand where the critical components/sub-components are coming from. You may also want to evaluate these suppliers.
4. Know if their ISO 9001 certification is genuine
In fact, almost any factory in China can obtain ISO 9001 certification if they allocate a budget for it (rather than “build a management system that meets the requirements of the standard”). I’ve written about this before in Hiring a Consultant to Prepare for a Factory Audit.
I wrote about some of the terrible systems we observed in the 10 Signs of ISO 9001 Implementation Failure. In reality, suppliers are probably better off without all the ridiculous paperwork.
5. Predict if their product meets your quality standards
A low score in a quality system audit is not a good sign. This is not just my subjective opinion.
We worked with Professor O’Connor at Monash University to see if insights could be gleaned by looking at past audit and inspection data (based on completely anonymous excerpts) that we had conducted for our clients, and it became clear that factories that scored higher in factory audits also tended to perform better in product inspections.
6. Know if they maintain process discipline
Last year, I wrote about the importance of defining processes and ensuring ongoing process discipline.
What we are seeing now is that overseas customers are not coming in every 2-3 months like they used to, and many manufacturers tend to “relax”. Their ability to do a good job has been slipping. They are dropping the ball more and more often. If no one sounds the alarm and gets management to look into this, it could go on for a long time.
7. Do get to the root of the problem
To a certain extent, everything I wrote applies to existing providers as well. Their organization fluctuates over time, they gain and lose business, some key people leave, and you need to keep checking on them.
This point (point 7) is only relevant to existing suppliers. Most likely, you have encountered some problems and you have asked them to analyze them and make the necessary changes to prevent them from happening again. The problem is that you can’t really be sure that the countermeasures they are taking are consistently effective without being there in person. This is a good job for an auditor.
Some companies do this regularly, for example every 2 months, as part of a tiered process audit program. If you buy a lot of products from one supplier and want to drive continuous improvement there, then this may be a good fit for you.
Before Apply a China Factory Audit:
First, can anyone go to a factory?
As a professional third-party inspector, they can go to any factory and perform supplier verification. This is not a daunting task.
If the factory is open but no one can go there, it may be useful to look at their key SOPs and most meaningful records. It confirms the fact that they have a quality system in place (even if going on site would give a more complete picture).
In addition, in some countries, such as China, some information can be collected in government databases to supplement the audit.
Second, does the supplier accept a factory audits?
If you intend to place a very small order with a manufacturer, they will most likely refuse. And, if their product is so “hot” that demand exceeds supply, they may also reject it. The reason they are rejected is not that they are unqualified, but that they don’t have the extra staff to arrange these things.
One way to meet in the “happy medium” is to call it a “factory visit”. It can still be done by professional auditors, who can use the opportunity to ask questions and gather evidence on site, but not in the traditional way – not in a structured way. Then he writes comments that are useful to policy makers.
What is the cost of a Factory Audit?
The standard all-inclusive factory audit cost is around $200 – $398 USD/man-day (no hidden fees) in any major manufacturing clusters in China.
If you job is simple, you can find some cheap price around $150 – $180
What is Examined During a Factory Audit?
Factory requirements vary across different industries:
- For clothing brands, it has become very much important that the working conditions inside a factory should be ethical.
- And if you buy medical equipment, you need to make sure your manufacturer works with strict rules and regulations.
To serve these needs, different types of factory audits exist, focusing on a specific area.
The three most common factory audits checklist in China are below:
1. Initial Factory Evaluation
The Initial Factory Evaluation is the most basic factory audit among the three. It focuses on typical but vitally significant aspects of a manufacturer for the supplier selection process. The audit report generally includes, but is not limited to:
- Factory Profile (address, major products, the main export countries).
- Staff Count (number of workers for production, engineers, QC personnel).
- Production Process (describing the production steps).
- Machinery & Equipment (condition of machines, their type, and number).
- Quality Management (work procedures, work instructions).
- Official Documents (licenses & certificates)
- Facility (images of the workshop, QC room & warehouse).
But we distinguish three cases:
- Small factories that have not implemented their own systems do not need to be evaluated against all the traditional criteria – they look bad, but may actually be suitable for relatively small buyers.
- Factories that pretend to have a quality management system (for example, they may hold ISO 9001 certification) can be evaluated in more depth.
- And, when buyers want to assess a factory’s manufacturing processes and various good practices, the situation requires a process audit. The key is whether they know what they are doing.
2. Factory Technical Audit
A technical quality audit provides a more clear evaluation of the factory’s equipment maintenance, management techniques, and quality of the system, making it easy for you to determine the manufacturer’s strengths & weaknesses.
It includes the same information, and also, the auditor evaluates:
- Quality Management (objectives & action plans).
- Supplier Selection (procedures in progress to vet sub-suppliers).
- Internal QC (quality procedures & revisions).
- Capacity (comparing the same products from different manufacturers).
- Use of Data (documentation & analysis of inspection yields, defect rates, resource needs, corrective actions).
- Equipment Maintenance (calibration records & certification of equipment).
- Employee training ( training records & work instructions).
Sometimes the key question is whether the manufacturer is ready to accept orders (based on their internal production capabilities, their supply chain, their validation of new products …)
3. Social Compliance Audit
A Social Compliance Audit focuses on a factory’s consent with social, environmental, and legal standards. This is essential for the protection of your brand. A Social Compliance Audit includes:
- Labor Policies (child labor, forced labor).
- Safety Policies (evacuation plan & fire prevention).
- Environmental Policies (waste disposal, hazardous chemicals & energy use).
- Health & Safety (in workshops & buildings).
- Working hours (reviewing documents & employee interviews).
- Compensation (respecting minimum wages, reviewing payment records)
Is it a One-time Factory Audits or Part of a Program?
- If you just want to determine the qualifications of a potential supplier, then a one-time assessment is sufficient. However, you may need to keep a close eye on the manufacturer’s dynamics.
Perhaps their number one customer has left them. Perhaps the opposite is true and they are growing very fast. How are their systems and practices maintained? Have someone check in with your major suppliers at least once a year…
- Another reason to set up a program of factory audit is to drive factories to improve their processes and systems, often called a tiered process audit.
But you also can consider quality control after a Chinese supplier verification.
Factory Audit in China Conclusion
Global products sourcing is becoming an important part of international business. Companies running global businesses must make sure the goods they buy are of good quality, safe, compliant with associated requirements and guidance and that they have been created in ethically and environmentally friendly conditions.
This is why you need China factory audit to avoid Chinese suppliers scams. To discuss how we can help you achieve your sustainable strategy throughout your factory audit, contact us now!