Seasoned fleet professionals share best practices.
NAFA’s Director of Professional Development Katherine Vigneau, and fleet management consultant Randy Owen hosted a thought-provoking session at this year’s virtual I&E entitled “Awing the Auditors.”
The session answered the question, “Why would an organization make it a regular practice to audit suppliers?” while outlining a clear step-by-step process to help fleet managers do so most effectively.
“There are several reasons to audit your suppliers,” Owen explained, “but in a nutshell, it’s something you should do in order to make sure you’re getting what you’re paying for, and to keep yourself out of trouble.”
A supplier audit allows an organization to monitor compliance with the terms of a contract, both from a financial perspective (are you paying the prices you agreed to?), and with a focus on the quality of the services or goods (are you getting the quality you expect?).
Owen explained that an audit should not come as a surprise to your suppliers. “If your suppliers are aware and notified that you are going to be auditing them—not just that there is a sentence in the contract that says you have the right to audit them—then they will be encouraged to meet the performance metrics and the other terms that are in your contract,” he explained.
Vigneau and Owen stressed that an audit should not be a divisive undertaking, nor should it create tensions between your organization and your suppliers. Instead, there has to be a balance. You don’t want to give the impression that you don’t trust your suppliers and that you lack confidence in them. On the other hand, you want them to know that you’re paying attention and that you expect them to uphold their end of the agreement or contract.
“You don’t want them constantly looking over their shoulders,” Owen added. “That’s not the point. However, you need to be in a position to monitor performance. And you want to do that continuously, and not retroactively, after you’ve already had a problem.”
The first step in a successful audit is a clear understanding of the objectives. As you define your objectives, Owen explained, you want to keep in mind SMART: Specific, Measurable, Achievable, Relevant, and Time specific.
“If you’re going to be auditing anybody, or reviewing any kind of process, you need to have specific, achievable objectives in mind,” he added.
After defining the objective, the next step in the process it to collect all relevant data. “We can’t do any kind of audit without a good amount of information and data,” Owen explained. “We want that list to be thorough. We want it to be reasonable in terms of the time it takes, and the effort it requires, for us to get that data. And we certainly have to consider if the data is available, and accurate.”
Rather than go hunting for the information you need, Owen suggested that fleets agree on the data they will want from their suppliers in advance. “The data should be baked into your contract, along with the metrics you’re going to monitor. It should all be in your RFP and in your contract.”
Once that data is collected—and prior to sitting down to analyze it—Owen recommended verifying the quality of that data. Do you have the information you need? Is it thorough enough? Are there any anomalies that need clarification? If so, you’ll need to ask your suppliers for explanations.
Owen also recommended speaking with the end-users within your organization to find out how satisfied they are with the services or products your suppliers are providing.
“Also, let’s not forget that we’re going to want to interview the supplier,” Owen added. “So it’s not enough for them to just give us data. We need to talk to them and understand the challenges that they have meeting our terms. Let them have an opportunity to describe to you how well they’ve done for you in the last year. And why—if there were any areas that they’ve not met your terms—what those reasons are, and what challenges they’ve had to deal with.”
While a single audit is certainly helpful, Owen pointed out that trends can help you see the bigger picture. “Hopefully you’re doing annual audits,” he added. “Maybe this is the third or fourth one you’ve done, so you can look back and see how this supplier did in previous years and what the trends are. Perhaps you have other suppliers of similar products and services. That can be a benchmark for you to use in considering this supplier’s performance.”
Once all the numbers are tallied and the results are in, you’ll hopefully end up with a report that helps you make sense of the questions you set out to answer in the first place—are you getting value for your money?
Once that report is final, Owen recommended giving a copy to all the stakeholders in your supply chain. This would obviously include the supplier you’re auditing, as well as the end-users. “This might include the drivers, other stakeholders, purchasing, finance, and your bosses so that you can provide the feedback and set the table for the next audit coming down the road,” Owen concluded.
While audits can be time consuming and laborious, they’re a must if you want to be sure you’re getting your money’s worth and that everyone is playing by the rules. Sometimes audits will uncover fraud. Other times they may uncover mistakes that are being made innocently because of a lack of understanding or communication between all parties and stakeholders. Whatever the case, if you’re not auditing your suppliers you may be losing out without even knowing it.