Performing a Factory Audit in China: Know Your Objectives and Needs

Andrew Reich

September 13, 2010

Looking for a new factory to work with in China can be daunting. With pressures from poor rice production on the rise and labor throughout China unstable, more China-based manufacturers are closing shop every day.

For these reasons I think it’s an opportune time to review the key aspects and goals of performing a factory audit in China, either in regard to current suppliers that are underperforming, or as you are identifying new potential suppliers.

The pre-audit

Prior to a factory audit you will most likely be going through the process of supplier identification. This can include several aspects, such as contacting with factories by phone or e-mail, having factories complete questionnaires, and reviewing samples that have been manufactured by a factory and sent to you. It is a good idea to have any data you have collected during this pre-audit process organized and available during the audit.

Audit objectives

Make sure you know exactly what your objectives are before starting the audit. In general, the objective of any supplier-identification process (which often includes factory audit) is to identify a suitable manufacturing partner in China. If there are additional objectives based on your particular action plan, ensure they are documented and well understood by your team or third-party auditors.

What is a “suitable manufacturing partner?” There are a lot of mega-size and relatively professional factories in China. Keep in mind, however, that just because a factory has the most modern facilities and a staff that speaks English doesn’t mean it is the right fit for your company. The key to finding a suitable manufacturing partner is identifying people whom you feel comfortable with, and whose facility is a good fit for your needs.

Any factory audit in China should also include a chance for you or your company’s representatives to sit down face to face with the factory management. Not only will this allow you to collect data in regard to the more technical requirements of the audit, but it will also allow you and the factory personnel to introduce each other’s businesses at the highest level.

The technical review

This is the core of the audit, where most of the factory data are collected. It’s important to have a well-organized reporting format so that the data you get stay organized and are presentable within your organization.  Following are a few of the key areas of the technical review:

Business registration, ownership, and organizational structure. In this section you should identify the ownership breakdown of the organization, ensure business and manufacturing licenses held are current and appropriate, and identify current and previous customers and countries of export. It’s also beneficial to note the factory’s approximate sales volumes for the past and current year (both domestic and export sales). You may also want to review and photocopy the factory’s organizational chart.

Office departments and administration. Take note of the office staff present at the factory. Determine if the location you are visiting is simply a manufacturing location, or also includes some administrative and management functions. Review the logistical capabilities with factory management and review the appropriate paperwork.

Infrastructure, facilities, cleanliness, and security. Inquire about power outages at the facility and check for documentation. Check to see if the factory has its own power-generation capabilities, and if so, at what level. Note the general infrastructure of the buildings and equipment, and also the surrounding infrastructure such as roads, ports, and the local community. In regard to security, check the security guard areas and records. If required, check for other security measures such as video and automatic alarm systems.

Production, equipment, and capacity. This section can be completed in detail (e.g., measuring the output and capacity of each manufacturing step), as a general overview, or anywhere in between. The level of detail gathered should be sufficient for you to make future decisions about working with this factory. It’s important that when you’re evaluating capacity, you are doing it in regard to the item that you are expecting to produce. In this section, you should also take note of the factory’s production record keeping and organization.

Quality control, testing, and product standards awareness. Check for clear separation between quality control (QC) and production departments, and documentation to support it. Check records and documentation in regard to internal QC, in-process QC, and final QC. Evaluate the factory’s own testing facilities with regard to your product category. Determine if the factory is knowledgeable and confident in regard to the product and safety standards of your country.

Environmental controls and impact. This is another section that can either be completed as a basic overview or with detailed gathering and analysis of data. There are various third-party agencies that specialize in such audits. Points to note include equipment energy efficiency, building energy efficiency, disposal of waste and waste water, air pollution, and knowledge of local environmental standards and adherence to them.

Material supply chain. Take note of the main material suppliers for this factory. Evaluate the factory’s ability to deal with change in its supply chain. Check for documented systems for evaluating suppliers on a regular basis.

Supplementary sections. Keep a section of your audit free for questions and issues that may be specific to your business or project.

Also keep in mind

In addition to the above sections that should be covered in any factory audit, keep in mind the following factors in regard to the supplier evaluation and audit process:

Social compliance. Working with a socially compliant factory is just as important (if not more) as working with one that can support your manufacturing needs. Social compliance audits should be part of your supplier selection process. These audits are best kept separate from your standard factory audit.

Factory acknowledgment of the audit. It’s important that upon completion of the audit the factory is provided an opportunity to include comments for inclusion in the audit report. A factory representative should also sign off acknowledging the findings of the audit.

Grading. If your audit report provides a grading system, make sure you understand exactly how grades are calculated and how they can be applied to your analysis.

Photos. Ensure the entire audit is photo-documented every step of the way, from photographing example records kept by the factory, to photos of the manufacturing areas and production (with factory approval, of course).

That basically lays out the important parts of performing a factory audit in China. When evaluating a facility in China, it’s important to keep in mind your needs and exactly how you intend to work with the facility in the future. As mentioned, the biggest and best factories are not always the ones that are a good fit for your operations.

About The Author

Andrew Reich’s picture

Andrew Reich

Andrew Reich is the founder and general manager of InTouch Manufacturing Services, which provides solutions to quality and overseas manufacturing issues through product inspection and related quality control services.


Not just checking documentations

You mentioned the point of review with the mangement on logistic management is good! However, I would like to comment that on Quality issue, security issue etc. also must review the related person. I dare to tell you most of the quality records in China are made for audits purpose instead of real performaning. Interview the quality staffs you shall know more. Interview the security guards you shall know more. Also, remember to observe how the factory receive you when you appear at the factory gate, you shall know whether they are really perform security procedure.

Poor Article

Andrew: Having performed hundreds of facility audits in China, I feel you have missed a very important point in your article. You mention QC or Quality Control. QC or Quality Control is only the inspection function within an overall Quality Management System (QMS). When you audit a facility you need to audit all aspects of the QMS, not just Quality Control which is about 10% of the QMS function by actual tasks. Also, you need to determne compliance or QMS registration to ISO 9001, or ISO 13485, etc. as just two examples and this is critical.
Also, in my opinion you should have mentioned getting trained in auditing and.... by the way.... the ASQ offers some excellent courses and certifications in auditing.

I found the article so laughable, that I shared it with the students in my Masters degree in Regulaltory Affairs class at Northeastern University here in Boston. Many of my students are Quality VP's, Directors and Managers and also 6 class members are managers from companies in China. The class concensus and mine as well, is that your background is in Manufacturing and Production, however, your background and understanding of Quality Management Systems, and auditing companies is very shallow. Which upon finding that article in Quality Digest was not good.

My opinion is that you should include the elements as mentioned above in your next paper or as an addendum to this article you just wrote.

Not all of this present article was bad and you did touch on some important issues. I aso think you writing style was good. However, an important concept also missed was that the ability to tranform product specifications into a Quality product is the result of the proper functioning of the QMS and not a lot of the other things you mentioned.

Very Best Regards,
Dick Barbieri,
Ashby, MA

Factory Audit in China

Hi Dick,
InTouch, my company, is a recognized leader in helping brands, importers and retailers get the very best quality (and work with the best factories) when buying from China. To attack this article so harshly is wrong. I can understand that you are coming at it from an ISO/Six Sigma style viewpoint, perhaps as quality control is "taught in the classroom". Fortunately, i never learned about quality in the classroom (that would have been way too boring!). I learned about it visiting hundreds of factories throughout Asia and US, helping brands and importers find suppliers who are the right fit and right quality level for their needs. Sure, if you are attempting to identify a factory from a detailed "manufacturer's technical level" prior going into a major joint venture, buying the facility, or setting up manufacturing from scratch, then what you are talking about is very important and one needs to take a more analytical view (which was not presented in my article). However, not to bust your bubble, but in working with some very large companies who are mainly interested in "sourcing" from China, the data we can present in our reviews (as outlined in my article) is exactly what they want (and need). The process has been highly successful for my clients and InTouch alike. Can you argue with that?

Solutions through inspection and quality control

I find it interesting that there is little mention of manufacturing process scrutiny, which I consider vital. But this makes sense if you are selling inspection and quality control solutions. A process focus might put you out of business.