Want to audit us? It'll cost you.

A colleague of mine, Sandra Gauvin, an expert in the quality field and writer of the Current Quality blog and newsletter, recently brought to my attention a new disturbing trend in supplier evaluation: suppliers who charge their customers to for the privilege of conducting an on-site audit. In this scenario, a customer contacts a supplier requesting an audit. The customer receives a reply something to the effect of:

“You can purchase our audit report.  The audit was conducted by Acme Audit Company (an independent consulting firm).  The report costs 4.000€ and the advantage is that you can receive it soon.   Or you can conduct an on-site audit of our facility but you will have to pay an audit fee of 10.000€ per day.  However, we have no available audit slots in 2009. 

We don’t have the availabilities yet for 2010, but we can place you on our waiting list. We would then propose an audit date, when we receive these availabilities.”

So if you’re the customer, what do you do? You’re between the proverbial rock and a hard place. There are consortia that negotiate with suppliers regarding audits and can prevail upon suppliers not to charge if enough members of the consortia use a particular supplier. An example of this is Rx-360, an international pharmaceutical supply chain consortium. Otherwise, depending on your industry and whether you have any leverage over the supplier, you may need to buy the independent audit report.

This particular situation is occurring in the pharmaceutical and biotech industry because of the requirement to conduct on-site audits of suppliers for compliance to FDA standards and GMP practices. Some suppliers, even small companies, have to host 50 or more customer site visits a year, despite their already maintaining ISO 9001:2000 or AS9100B registration. From the supplier’s point of view, such visits are costly and time-consuming. So why not charge? Suppliers would rather spend the time improving their processes than hosting customer audits. Some suppliers feel that some customers may not be auditing for valid reasons, but just to “check the boxes” or to get to spend a day out of the office. Charging can be a means of vetting out only the most serious customers.

Is charging customers for audits likely to spread beyond this industry? Also, what does charging customers for audits say about the customer-supplier relationship?  The value of audits that customers have to pay to conduct? For those industries where on-site audits are required, this is a means of capitalizing on that requirement and allowing the supplier to recoup its expenses for multiple site visits. Switching to other qualified suppliers is not so easy in pharma and biotech, given the rigorous industry standards. If companies are looking to develop mutually beneficial relationships with their suppliers, what does charging for an audit do to that relationship? I am interested to know if charging for audits conforms with  the ISM Principles and Standards of Ethical Supply Management Conduct.

Does requiring a payment for a customer audit constitute an attempt to influence the outcome of the audit or the outcome of relationship with the supplier? That is, if you have to pay to play, are you going to forgo auditing altogether, letting the supplier off the hook? Or will you be inclined toward a positive audit outcome because of the need to pay to learn the information to work with a supplier? Would paying over $13,000 to audit a supplier have any influence on your findings? Or how about the ethics of independent consultants charging you to view the supplier’s audit or else getting no audit information at all?

I’d be interested to hear readers’ reactions to this trend.

Back to Sherry’s website.

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2 Responses to Want to audit us? It'll cost you.

  1. Dan Eagle says:

    Hello,

    Thank you for this well written article.

    When you mentioned “This particular situation is occurring in the pharmaceutical and biotech industry because of the requirement to conduct on-site audits of suppliers for compliance to FDA standards and GMP practices.”

    Can you please be specific about the requirement?

    Thanks,
    Danny

  2. Thanks for your comment.

    The FDA requires that a biotech company ensures that the identity, quality and purity of all raw materials used to produce Active Pharmaceutical Ingredients (API’s) or drug products are acceptable (i.e. within specification) and known before use. Because of this requirement and the potential risk associated with patient safety, it’s important that biotech companies have a robust supplier quality program that includes such things as:

    – Documented specifications approved by Quality
    – Vendor Qualification program
    – In-coming Quality Control program that ensures the identity, quality, and purity of raw materials received
    – Audit program that monitors suppliers to ensure the on-going reliability of the identity, quality, and purity.

    On-site audits are an important way to verify and ensure that the above elements are in place.

    It’s all about demonstrating to the FDA control of the company’s processes, one of which is supplier quality. The FDA has issued several warning letters to biotech companies regarding this issue because patient safety may be jeopardized (i.e., remember the deaths from tainted heparin?)

    -Sherry Gordon

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