Maintaining and improving supplier relations with auditing– A study at ABB Sweden and Singapore

Abstract: Background: In today’s globalized world, many producing companies depend on large supplier networks. Supplier relations require maintenance and a tool for that is supplier auditing. ABB is a leader in power and automation technologies that enable industrial customers to improve performance while lowering environmental impact. ABB business division Process Automation (PA) and business unit Control Technologies (CT), abbreviated as PACT, has established close partnerships with many of their suppliers. This emphasizes the importance of conducting audits, since a supplier partnership means mutual dependence between the parties. ABB PACT has to be able to rely on the contracted supplier’s performance, while the supplier has to be able to rely on ABB as a strong and long-term customer. Key actors within auditing at ABB PACT express that there is room for improvement within the audit processes. Purpose: The purpose of this Master Thesis is divided into two parts. The first part is to find out whether there is improvement potential of the audit processes and the use of audits at ABB PACT both in Sweden and Singapore. The second part is to find out how the audit processes could be improved. Research questions: By introducing generic research questions that do not focus on a specific case, this Master Thesis has potential to contribute with findings for the academy in general as well. This study will answer the following research questions in order to achieve the purpose: Frequency • What is an appropriate frequency for conducting supplier audits in order to maintain and develop supplier relations? Measurement • What is an appropriate design for a measurement system that facilitates and motivates for supplier performance improvements? vi Consistency • What is an appropriate way of administrating and documenting audits in a consequent manner in order to facilitate information sharing and communication between auditors? Competence • What is an appropriate level of competence for auditors in order to conduct efficient audits and how can it be achieved? Method: A mixture of the systems approach and the actors approach are used in this Master Thesis. The systems approach includes both qualitative and quantitative data collection and the actors approach is used since many personal opinions have played an important role in the study. Furthermore, an abductive research strategy is used, since the study results are derived from critically evaluating a combination of obvious values and observed processes. Mostly qualitative data from interviews and a survey is used. The survey and old audit material also contribute with some quantitative data. The data collection methods are a literature study, interviews, a survey, and a case study. Findings: This study proves that there is improvement potential regarding the policy for when to conduct audits, the measurement system in the audit templates, the consistency in the audit process and the level of competence among the auditors. A prerequisite for the following recommendations to be useful is a clear supplier audit organization. The following suggestions are the authors’ recommendations to ABB for how more consistent, efficient and probably better audits will be achieved: • There should be clear instructions regarding the annual supplier KPI update and the result of it should show clearly if an audit has to be conducted or not. • All audit templates should use the same scoring system with a passing level at 50% and each graded question should be commented and motivated. • Each audit guide should contain a Gantt chart clearly showing the activities in the audit process and the documents used in each step of the process. • The responsibilities pre, during and post audit should be clearly stated and communicated. • Classroom training of internal audit procedures should be offered vii The following conclusions apply to the research questions. An appropriate frequency for when to conduct an audit was not found. Instead, the findings show that the importance lies within having a well implemented and communicated policy for deciding whether a supplier has to be audited or not. If such a policy is not already implemented, it should be done and communicated clearly. An appropriate design for a measurement system was found. The same scoring system should apply for all audits, it should contain an appropriate scoring scale that notices and motivates potential improvements and it should require the auditor to comment and motivate the given scores. An appropriate way of administrating and documenting audits in a consequent way was found. The audits should contain a clear schedule for the different steps, tasks and documents used in an audit. The audit responsibilities should also be clearly communicated. The documentation of an audit should be administrated through a global database. A competent auditor should have both process and audit knowledge. However, an appropriate level of competence is hard to decide on. In the ABB case, the general opinion is that the auditors’ process knowledge is big but that the auditors lack in specific audit competence. By providing internal audit training for the auditors, the appropriate level of holistic competencecould be achieved.