Latest / The Buyer's Side with Fexingo: Procurement, Sourcing, and B2B Purchasing Decisions / How One Company Used Supplier Audits to Prevent a Crisis
Transcript
- Lucas: There's a mid-sized snack manufacturer in the Midwest — I'm not naming them because the story is still sensitive — but their procurement team scheduled an unannounced audit at a sunflower oil supplier back in January 2025. Walked in, found pest droppings near a production line, and shut down that source on the spot. The recall that didn't happen probably saved them around eight million dollars. Luna: Eight million is huge for a company that size. And they only caught it because the audit was unannounced? Lucas: Exactly. The supplier had passed an announced audit three months earlier with flying colors. But announced audits are basically rehearsals. You know the buyer is coming, so you deep-clean, you rotate inventory, you put your best people on the line. Unannounced — you see how the place actually runs. Luna: I think a lot of procurement teams treat audits as paperwork exercises. Check the box, file the report, move on. This case shows the real value. Lucas: Right. And that's the angle I want to drill into today — not whether to audit, but how to audit in a way that actually surfaces risk. Because the gap between a good audit and a bad one can be the difference between a supply chain disruption and a quiet quarter. Luna: So where do most teams get it wrong? Lucas: Three places. First, they audit the wrong suppliers. They go after the biggest spend items, not the highest-risk ones. That sunflower oil supplier was only a mid-tier spend for the snack company — maybe three percent of total procurement cost. But the risk profile was high because oil contamination can shut down an entire product line. Luna: So risk-adjusted auditing, not just cost-based. Lucas: Exactly. Second mistake — they audit too infrequently. I see companies that audit a strategic supplier once every two years. That's a joke. A lot can change in six months — new management, cost-cutting pressure, turnover on the quality team. Luna: What's the right cadence? For a critical supplier, I mean. Lucas: For a high-risk or sole-source supplier, I'd say at least annually, with an unannounced audit every other year. For medium-risk, every 18 months. And you rotate the audit team so you get fresh eyes. Luna: Third mistake? Lucas: They don't act on findings. I've seen audit reports with real red flags — undocumented process changes, expired certifications, employee safety issues — that just sit in a shared drive. The procurement team doesn't escalate because they don't want to strain the relationship. Luna: That's a cultural problem. If your team is afraid to flag issues, the audit is theater. Lucas: It is. And the fix is partly structural — you create a clear escalation path with a hard deadline. The audit team files a report, the supplier gets 30 days to respond with a corrective action plan, and procurement follows up within 60 days to verify. No exceptions. Luna: Do you think unannounced audits damage trust with suppliers? Some purchasing managers worry about that. Lucas: It depends on how you frame it. If you show up with a clipboard and a scowl, yes. But if you explain upfront — in your contract — that unannounced audits are part of your quality assurance program, and you position them as collaborative, most professional suppliers accept it. The ones that push back are usually the ones you need to audit most. Luna: That's a good litmus test. So how do you actually run an unannounced audit that doesn't feel adversarial? Lucas: You start with a short, respectful introduction. You're not the police — you're there to understand their process so you can both improve. Bring a small team — two people max — and focus on the areas that matter most: process documentation, equipment maintenance logs, training records, and any recent changes. You're looking for gaps, not gotchas. Luna: And if you find a gap, what then? Lucas: You discuss it on the spot. Ask questions: 'Help me understand why this log wasn't updated.' Maybe there's a reasonable explanation — a new hire who wasn't trained yet. That's different from a systemic culture of cutting corners. A good auditor can tell the difference. Luna: You mentioned the snack manufacturer's audit team shut down the source immediately. That's drastic. When is that warranted? Lucas: Immediate shutdown is for imminent safety risks — like pest contamination, or a supplier using an unapproved sub-supplier that could introduce counterfeit materials. For less urgent issues, you give them a corrective action timeline. But you have to mean the deadline. If they miss it, you put them on probation or start sourcing alternatives. Luna: That requires having backup suppliers ready. Which is its own challenge. Lucas: It is. But that's actually another benefit of a strong audit program — it forces you to know your supply base well enough to have alternatives in mind. The snack company had already qualified a second oil supplier six months earlier, so when they shut down the first one, they switched within a week. Luna: If today's episode was useful to you and you want to keep it ad-free, buy me a coffee dot com slash fexingo helps. Lucas: Yeah, that really does make a difference. Keeps the whole network going without any sponsors. Luna: Alright, back to audits. What about small suppliers who don't have sophisticated quality systems? Is an audit even fair? Lucas: It's fair if you calibrate your expectations. A 20-person family-run machining shop isn't going to have a six-sigma black belt. But they should have basic traceability: batch numbers, date codes, inspection records. You can audit for those without demanding a full ISO 9001 system. Luna: And the audit report itself — what should it contain for it to be actionable? Lucas: Three sections. One, what was observed — factual, no judgment. Two, what was discussed — the supplier's explanations and any commitments they made verbally. Three, required actions with specific dates. And a rating system helps: green for compliant, yellow for minor issues, red for critical. That way procurement can prioritize follow-up. Luna: Do you think audits are becoming more important given the supply chain disruptions of the last few years? Lucas: Absolutely. When the economy gets tight, suppliers cut costs. Sometimes they cut quality control first. An audit catches that before it becomes your problem. And with more companies nearshoring or diversifying sources, you're often working with suppliers you haven't had a long relationship with — you need that verification. Luna: One thing I've seen is companies using third-party auditors for objectivity. Good idea or not? Lucas: Mixed. Third-party auditors bring expertise and remove bias, but they don't know your business the way your own team does. I think the best model is a blend: your own procurement team does the initial audit and relationship management, and you bring in a third party every three or four years for a deep dive on technical areas like environmental compliance or labor practices. Luna: That makes sense. So let's say a listener is starting an audit program from scratch. What's the first thing they should do? Lucas: Map your supply base by risk, not just spend. Identify which suppliers, if they failed, would cause a production stoppage, a quality issue, or a regulatory problem. Those are your audit priorities. Then start with a simple checklist — maybe 20 items covering safety, quality, documentation, and financial stability. Don't try to build a perfect system on day one. Luna: And communicate the policy clearly to suppliers before you show up unannounced. Lucas: Exactly. Put it in your terms and conditions. That way it's a known expectation, not a surprise power move. Suppliers who balk at that clause are telling you something useful. Luna: I think the snack company story shows that audits aren't just about catching problems — they're about giving you the confidence to act fast when you do. Lucas: That's the whole point. An audit is an insurance policy that also makes you a smarter buyer. You learn how things are actually made, who the key people are, what the bottlenecks are. That intelligence is worth more than the compliance check alone. Luna: Next time we should talk about how to audit a supplier's financial health — that's a whole other layer. Lucas: Putting that on the list. For now, if you're in procurement and you haven't done an unannounced audit yet, maybe start with one low-risk supplier. See what you learn. Luna: And if it saves you eight million dollars, you'll be glad you did. Lucas: Exactly. That's it for this episode of The Buyer's Side. We'll be back next week.