As supply chain audits grow, so does the potential for identifying vulnerable areas with suppliers.
“Most U.S. companies do not know who their first-tier, direct suppliers are getting their raw materials from,” said Maureen Gorsen, partner in Alston & Bird’s Environment, Land Use & Natural Resources Group who has a specialty in helping corporate clients with supply chain audits. “Something could be in what they’re buying that’s not allowed, and without sufficient auditing you could wind up with a damaged reputation and lost sales because of boycotts.”
Companies are likely to spend for audits to help quantify potential financial risks, but otherwise they are looking to do as little as possible, according to Gorsen.
“As a lawyer, I try to sell prevention services,” she said. “But not many companies want to buy them. They’re expensive. It’s like when a plumber tells you your pipes are getting old and you might want to replace them. You say no, but then they burst and you’re in hot water. People will not usually spend much on audits until they have a catastrophic failure or in some cases one of their competitors does.”
That’s how the term “supply chain audit” is defined so broadly. On the lower-level, sending a letter to first-tier suppliers asking questions about compliance activities is considered an audit. A comprehensive audit would include making regular, unannounced inspections and all relevant supplier locations like factories and distribution centers.
“The full-blown scenario is extremely rare, though,” said Gorsen.