The Importance of Factory Audits – with Real Life Case

Quality inspection is crucial in the supply chain, ensuring goods’ integrity before shipping. While not diminishing the significance of quality checks, it’s evident that a crucial step before the final inspection is factory auditing.

If you use an unprofessional factory, inspection results are predictable. In this article, I will delve into the specifics of factory audits and share a recent case to illustrate the process and its importance.

What Is a Factory Audit?

Factory audit means going to the factory for on-site inspection. It checks comprehensive inspection and evaluation of a manufacturing facility to assess its production processes, quality control measures, working conditions, and compliance with industry standards and regulations, and whether the factory has the ability to complete your order, to minimize risk in your supply chain.

Usually, you can entrust a 3rd party company or a trading company to do a factory audit before placing an order with a factory.

Why Factory Audit Is Critical?

It’s easy to find a wide range of seemingly professional suppliers on Google, various B2B platforms, and even social media. However, I must say that sometimes, many suppliers aren’t as good as they describe themselves to be. Relying solely on information found online without conducting an on-site visit, you can’t truly understand the supplier’s real situation, such as their scale, qualifications, production capabilities, and more.

The key point is that the prevailing trend in today’s supply chains is ‘collaborative specialization.’ For instance, when you purchase a batch of stainless steel sports bottles from Factory A, which only makes the stainless steel parts. The plastic components come from Factory B, silicone seals from Factory C, and packaging boxes from Factory D. All these parts converge at Factory A for final assembly and shipping.

As product complexity and production steps increase, it necessitates coordination among multiple factories to complete the process. Any hiccups in these steps can lead to delays or quality issues.

An even worse scenario is when there are some factories that claim to be experts and promise to provide you with high-quality service and products, but in reality, they are only interested in swindling money from you.

For instance, some factories are on the brink of bankruptcy, so they’re looking to make a final profit. Once you’ve paid them the payment or deposit, they vanish without a trace.

If you happen to encounter such factories or companies without going through a thorough factory audit, you’ll have to deal with a series of challenging issues. The potential loss isn’t just monetary; it’s also a matter of business credibility.

How to identify such unscrupulous suppliers? Besides conducting essential factory audits, you can also refer to another article I’ve written in the past – ‘How to Avoid Getting Scammed When Importing Promotional Items from China’ for your reference:

What Does a Factory Audit Include?

There are many aspects involved in the factory audit process, but overall, the following five points are the most important:

Production Capacity

It examines the production capacity of factories in terms of numbers, machines, and labor to determine if they can meet your production requirements.

Workforce and Labor Conditions

Assesses the factory’s labor practices, including the number of skilled workers, working conditions, and compliance with labor laws and regulations.

Social Responsibility and Ethical Practices

Check that factories follow ethical labor practices, including child labor policies, fair wages, and worker safety.

Supplier Compliance

This verifies that the plant adheres to any specific industry or product regulations or certifications, such as environmental standards or safety certifications.

Management and Communication

Evaluate the plant’s management structure, communication processes, and responsiveness to customer inquiries.

Who Can Provide Factory Audit Services Better For You?

In general, you can hire professional and trustworthy third-party inspection companies online or on B2B platforms to conduct on-site factory audits for a fee of $400 to $800 (varies based on factory size and audit scope), and they will assess the factory as per your requirements and provide you with an audit report.

Additionally, it’s feasible to enlist the assistance of trading company for factory audits. For trading companies, ensuring timely and quality delivery of goods is paramount for establishing a long-term, stable partnership with you. Consequently, they will diligently select suitable and professional factory sources and spare no effort in conducting factory audits.

Furthermore, many trading companies, aiming to enhance their competitiveness and provide better service to customers, offer free inspection and factory audit services. For you, this translates to saving hundreds of dollars. Why not take advantage of it?

When it comes to inspections, I believe the following article may be helpful for you:

Actual case?

In 2022, one of our clients from Germany – Stefan sought to purchase LED products from a Shanghai-based factory. Due to pandemic-related travel restrictions, Stefan couldn’t visit the factory in person. But the order amount exceeded $ 120,000 to ensure safety, he entrusted us with conducting the factory audit.

After hearing Stefan’s description, I had some doubts. LED lighting industries are typically centered in Guangdong Province, not Shanghai. To promptly assist the client, our team headed to Shanghai the next day.

Upon arriving at the factory, our auditor initially verified the factory’s basic information, such as its location and workforce size. Ultimately, we discovered that this factory was not the direct manufacturer of LED lights, rather, it was a trading company. The actual manufacturing facility was located in Zhongshan, Guangdong Province.

The very next day, we visited the factory in Zhongshan based on the information we had. However, the real factory was not as large as described by the trading company. It had only seven production personnel and occupied an area of approximately 220 square meters.

Furthermore, our auditor inspected the factory’s inventory, the materials used, and production equipment. During this process, we found that this factory only handled the final assembly process. They did not directly manufacture any components, not even the metal frames used for securing the LED strips.

The metal frames, LED chips, and plastic casings were outsourced to three different factories. These three factories produced these components according to agreed-upon schedules and delivered them to the final assembly factory.

In this scenario, meeting the production deadline for 20,000 LED lights was highly uncertain. Especially given the pandemic-related restrictions at the time, any delay in the delivery of components could lead to a delay in the entire order.

Upon our recommendation, Stefan eventually switched suppliers. Although the final price was approximately 12% higher than the previous one, the smooth delivery in the end proved that this decision was the right one.

Conclusion

To some extent, factory audits are more critical than pre-shipment inspections. A professional factory ensures quality and delivery reliability. If the chosen factory isn’t as professional as claimed, it’s a high-risk purchase.

Even if issues are identified during the final inspection, you will still find yourself in a highly disadvantageous position. The losses incurred are not solely financial, they also encompass invaluable time.

Wondering how to determine a factory’s professionalism and trustworthiness? This article can help:

If you still have any questions about importing promo items from China or choosing suppliers, please leave a message or contact me at [email protected]. I'm more than willing to provide advice or assistance.