The benefits of outsourcing production — which include lower costs and well-equipped factories — have long been countered by the difficulty of conducting effective compliance audits.
While essential for any company with overseas suppliers, conventional audits remain an expensive and inefficient means of monitoring compliance and sustainability in the supply chain.
“Persistent scandals involving illegal or dangerous working conditions show that the standard factory audit is inadequate as a business risk mitigation strategy.”
So, the question is: how can a company conduct more efficient audits while also reducing costs?
This issue looms large for the apparel, footwear, and retail industry, where compliance audits often serve as the only line of defense against violations in overseas facilities.
In this industry, a single garment can undertake a good deal of globetrotting before it lands on a store shelf. The high complexity of such a supply chain makes companies more vulnerable to both disruptions and compliance violations — as well as the secondary effects like loss of consumer trust. All of this translates to high costs.
In this article we demonstrate how moving to digitized audits helps companies reduce costs, obtain trustworthy information from their audits, and reduce risk to both their operations and reputations.
The problem with traditional factory audits
Traditional factory audits can cost more than $600 to $800 per man-day, according to MIT Sloan, and often require suppliers sending a third party to accompany the inspector. These costs continue to increase as the number of audits increases across the industry.
Traditional audits fail in four key ways, according to Cornell University’s New Conversations Project:
- Most audits are completed too quickly to be able to uncover the most pressing violations.
- Auditors receive insufficient training, particularly in identifying serious violations related to safety, hazardous materials, and technical issues.
- In-house auditors have increasingly been replaced by cheaper — and less trustworthy — third-party auditors.
- Audit fraud, which can involve bribes for good ratings as well as fake reports on things like wages, threatens the integrity of reporting.
Several figures indicate there is reason for concern regarding these disadvantages. Over a seven-year period, the average “unreliable” rate for audit information across 12 lead manufacturing countries was 41% for footwear and 39% for apparel.
On the other side of the transaction are consumers, whose demands for visibility, sustainability, and social and environmental consciousness are now more of a deciding factor in their purchases than fashion.
It is clear that manual processes are outdated and rife with problems within the auditing industry. Below we illustrate how supply chain digital solutions fix these issues while cutting down on the time, resources, and risk associated with overseeing a production chain.
3 ways a supply chain digital solution can increase your return on investment on compliance
Digitizing your supply chain compliance programs delivers tangible benefits right from rollout:
1. Save time and resources.
Inspectorio Rise results in a 50% reduction in manual audit reporting.
All operations are centralized to one place, leading to a dramatic drop in the time needed to organize information. Everything is digitized — the configuration of standards, organization of audits, reporting, and so on — so that managers no longer have to spend time searching for documents, navigating email chains, and making sense of spreadsheets.
Instead of requiring auditors to write out reports manually, Rise automatically generates them.
And with anytime accessibility, Rise also facilitates real-time, efficient communication between stakeholders across the global supply chain. No more missed calls and emails. It’s all on the platform.
Auditors are also set up for success with a quicker, easier workflow.
Auditors can record answers as well as videos and photos in real-time on the Rise mobile platform — and this real-time functionality ensures a high degree of data trustworthiness.
Reports and CAPAs are all automated on Rise, enabling more regular, less time-intensive audits without the burden of writing the full report out.
Managers can easily access results and identify areas of non-conformance through the real-time data shared by auditors. All of this translates to greater efficiency at less cost.
Automated reporting leads to another key benefit: a reduction in human error. Because reports are automatically generated, the cost of data errors decreases and issues are less likely to slip through the cracks.
2. Mitigate risk and avoid non-compliance costs.
Real-time data collection and availability creates a single source of truth for compliance information in the supply chain. This makes it easier to manage large supply chains, which is especially revolutionary for giant brands and retailers who often must keep track of thousands of suppliers and factories.
Rise can be configured to any use case of self-assessment and verification audits. It can also cleanly consolidate data from all types of factory audits, speeding up your company’s response time to issues.
As a company auditing suppliers and factories, you can create customized, strategic plans to improve performance in high-risk facilities. Real-time data pinpoints where issues lie, letting you act quickly.
Inspectorio Rise collects vast amounts of data across the supply chain, but this would mean little without advanced analytics.
Inspectorio’s analytics suite distills all data — even that being collected in real-time — into actionable insights to guide your decision making. This means you can identify low-performing factories and create targeted plans for improvement.
This level of visibility is especially crucial for large enterprises needing a streamlined, comprehensive overview of their global supply chains. And with enough data, historical records become available to help you understand risk level, problem areas, and more.
Of further importance to your bottom line is the ability to avoid fines and expensive litigation. Non-compliance was found to be nearly three times as expensive as compliance in a 2011 study, and inflating non-compliance costs — which increased a staggering 45% between 2012 and 2017 alone — suggest a figure that is significantly higher in 2021.
Inspectorio Rise reduces the risk of a compliance-related public scandal by up to 80%. This means you are at far lower risk of alienating your customers and losing your hard-earned reputation.
3. Increase consumer trust by proactively sharing your compliance efforts.
Ethical sourcing is a necessity, not simply an advantage, for the modern company.
A 2019 survey showed that almost half of ecommerce shoppers abandoned brands they thought to be unethical. According to Deloitte, regulatory non-compliance and the resulting backlash from consumers can cost a company 30% of its average annual revenues.
Brands that have lost consumer trust face a long struggle to regain it.
The message this sends is clear: consumers want to know what meaningful steps you’re taking toward sustainability.
Moving from a shareholder to a stakeholder mindset means including everyone from factory workers to consumers in your sustainability initiatives and ethics programs.
With a digital compliance solution, you can be completely transparent in demonstrating to the world that you are doing more than just talking about sustainability — you are practicing it.
Inspectorio Rise maximizes your return on investment on complianceInspectorio Rise delivers the industry’s leading platform for managing resources, risk, and efficiency across your global supply chain, giving your company all of the tools it needs to optimize compliance operations at scale.
Inspectorio has a proven track record of holistically improving the ROI of compliance. With it, your company can:
- Digitize and standardize compliance in a radically short timeframe
- Roll out audits at scale, segregating by country, supplier, factory, and other variables
- Collect trustworthy data in real-time
- Reduce human error and manual labor costs
- Pivot rapidly thanks to AI-driven data analytics
- Improve, highlight, and solidify your brand’s reputation as a sustainable leader