Would You Pay to Audit Your Suppliers?

Recently I wrote about the disturbing trend of suppliers charging their customers for the privilege of conducting on-site audits. In this scenario, the customer asks to schedule an on-site audit and is sent a letter informing them that they have three choices: buy a report for $5700 based on an audit conducted by a consulting firm or pay $14,000 plus an additional $14,000 per day to conduct your own audit. If the customer chooses to pay to play, then they are told that audits are being scheduled at least a year in advance and that they'll put the customer on a waiting list. What???

Suppliers' charging to be audited seems to be currently limited to the pharmaceutical and biotech industry. In order to comply with FDA standards and GMP practices, there is a requirement to conduct GMP on-site audits of suppliers. It is understandable that a small supplier would balk at hosting dozens of customer audits every year. Suppliers in the aerospace industry, where site visits by primes are common, complain of feeling like a tourist bureau hosting customers who are continually conducting site visits. (It's Tuesday, it must be Airbus). It is time-consuming and costly for suppliers to dedicate resources to preparing for and hosting audits and site visits and is particularly onerous and costly for small suppliers. But in some industries, it's part of the cost of doing business. And there is a financial upside for small suppliers to winning the business of large customers. Some suppliers feel that charging for audits is a way of determining who the most serious customers are. Customers, on the other hand, spend considerable resources conducting on-site audits. Paying the supplier in addition to incurring their own costs makes the process quite costly.

An international pharmaceutical supply chain consortium, Rx-360, recently conducted a survey of customer companies regarding suppliers who are charging for audits. A big thanks to Sandra Gauvin, a quality expert and publisher of Current Quality newsletter, who tipped me off to this practice and shared a copy of the survey results. Out of the 89 companies who participated, half responded to the survey. The respondents were mostly biotech and pharmaceutical firms. About 44% of the respondents had been asked to pay a fee to conduct an on-site audit at a supplier in the past 12 months. Of these firms, 45% agreed to pay the fee, while the rest did not agree to pay. 34.8% of respondents would agree to pay a supplier-requested fee if their annual business with the supplier was below $20,000, in appreciation of the burden created for a supplier with which they do very little business. While the majority of the survey respondents felt that more suppliers are requesting on-site audit fees, the practice is still not the norm.

Whether this practice of charging customers for audits is likely to increase within pharma and biotech and spread into other industries is unclear. Will customers leave auditing to auditing consulting firms in order to save time and money? Is there any risk in depending upon third-party firms? Will paying to audit a supplier have any influence on the audit findings? Will customers have to audit the audit firms to be sure there are no ethical violations or improprieties? What impact does pay to play have on the relationship with a supplier? Is this merely a shifting of the financial burden from the supplier to the customer? I wonder how suppliers would react to an audit that was scaled or made more efficient by a supplier evaluation software solution. Would they perceive it as lessening the burden?

Pay to audit raises more questions than answers.

- Sherry Gordon

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