Auditing

Who we audit and how

Our audit programme is based on the use of recognised third-party ethical auditors (a company called CSCC) to approve all significant new overseas direct suppliers, and to follow up these audits where they reveal any concerns. Auditors visit each major factory, examining records, speaking privately with workers and examining conditions. They test whether the factory is complying with the Supply Chain Principles and the Code of Practice.

The results of the audits are recorded and used in four ways:

1. The audit results in a numerical score reflecting the number of non-compliances that the auditors find, the higher the score the better the results.
   
   
2. The supplier is given an overall Grade (1 to 5) reflecting whether there are major shortcomings (Grade 1) or whether the supplier shows best practice (Grade 5). Our objective is that all suppliers reach Grade 3, but historically less than half have done so, even after repeated re-audit. The reasons for this are explained in Section 6.5 below.
   
   
3. The findings are discussed with and given to the supplier’s management team who agree a set of improvements that they will carry out.
   
   
4. All of the information, including photographs of the factory is placed on a web-hosted computer system to allow Home Retail Group’s buying and technical teams to read and review it.

The most important suppliers for us to consider are those where we are buying directly from overseas, and where the product is our own brand, or exclusive to our stores. The graphic illustrates this.

Historically this audit programme has included all direct suppliers supplying more than $500,000 of goods in a year and the number of suppliers we audit has continued to grow, with over 85% of Direct Source suppliers (by value) now ‘live’ in the programme having been audited at least once in the past three years.

The Audit results

We have seen a rise again this year in the number of suppliers receiving a Grade 1 score which, when coupled with the roughly static proportion of suppliers graded as 2, results in only a minority reaching our preferred standard of Grade 3.

There are a number of factors behind these changes. Firstly, we audited many more suppliers this year in an effort to reflect the wider supplier base, not just our larger suppliers. For many of these suppliers, this would have been the first time they had been audited by us and we know, from experience, that such suppliers frequently receive a Grade 1 result on their first audit. Our audit rating is quite stringent in that a Grade 1 rating for any criteria results in a Grade 1 rating overall. This has the benefit of ensuring that we can work with suppliers to address issues at the earliest point in time and, as outlined earlier, we can take remedial action.

Suppliers with a Grade 1 rating are re-audited within a fairly short time frame and these re-audit results are also included in the figures above. Again we believe this is good and thorough practice, but it may have the unintended consequence of increasing the overall numbers of Grade 1 and 2 even as we work with these suppliers to improve their situation.

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