Apple and Supplier Audits – How Far Does the Apple Fall From the Green/CSR Tree (Part 1)?

In last Friday's rant, I provided a cursory look and analysis of Apple's recent Supplier Responsibility 2011 Progress Report, opining that relatively speaking, Apple is doing as commendable a job of any high tech manufacturer, despite what the naysayers who know nothing about supplier management had to say in critiquing the report (and with the caveat that Apple could be doing even more than they were, making key investments to drive greater supplier management efficiency to increase auditing and monitoring throughput and overall effectiveness). In a series of posts looking at some of the most useful points from Apple's own findings from peering into the practices of their suppliers (both tier one and in certain cases, lower tier suppliers), I'll plan to share a few points that are insightful on their own accord and/or would be potentially helpful in designing and implementing a supply chain auditing and CSR program for your own organization.

I'll start Apple's supplier audit numbers. Apple audited 127 total suppliers in 2010, up from 102 in 2009, 83 in 2008 and 39 in 2007. By our own calculations, Apple's audit rate picked up slightly from the previous year's numbers (a 24.5% increase). In comparison, in 2008, Apple increased its auditing rates by 113% and in 2009, by 23%. But more interesting is the breakout of supplier audits. Apple has audited 97 suppliers for the first time in 2010, up from 83 in 2009 (and 69 in 2008 and 39 in 2007, respectively). This number represented a declining percentage of first time audits (17% increase over the prior year), compared with a 20% increase the year prior, and a 77% increase two years before. Repeat audits of suppliers picked up steam, however, reaching 30 in 2010, up from 19 in 2009 and 14 in 2008 (a 58% increase, compared with a 36% increase the prior year).

The absolute number of audits -- total, new and repeat -- is most certainly useful to look at from a trending basis. But it's a bit striking how Apple appears to place its near entire emphasis with audits on actual site visits, at least given what it reports in its annual report. No doubt, physical inspections of supplier facilities are essential, especially in emerging market environments. But what's as important -- and does not happen enough -- are more frequent virtual audits and information requests handled through supplier and performance management technologies that can allow for a more consistent and frequent monitoring of suppliers (consider this, in certain cases, the equivalent of an automated IRS correspondence audit). These systems, when properly designed, can ensure that suppliers are truthful in their responses, by asking questions in certain ways of different parties.

There's no doubt Apple is investing in on-the-ground resources in Asia to audit suppliers. Clearly, an on-site audit rate of a supplier roughly every three days in 2010 is commendable. But I suspect there's more Apple could be doing in between these visits on a virtual monitoring and reporting basis, as well as in a manner that extends their auditing reach to lower tier suppliers without incrementally adding resources (either internal or third-party) at the rates they've had to in the past to carry out on-site audits.

- Jason Busch

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