2nd party audits are assessments made to verify if organizational and regulatory standards are being met by entities not part of the company but likewise very involved in its operations like suppliers and franchisees. Companies have started outsourcing the management of these audits to external vendors in order to have reliable results, cut down costs, and gain valuable third-party insights.
This blog post is the first of our three-part 2nd party audit series. This month we explore this service line across multiple contexts and how they will be applicable to your company.
The need for the franchise model
In order for a brand to expand rapidly and compete in a continuously disruptive market, retailers rely on franchisees to help them. Franchising is the process of giving interested parties rights to acquire and manage the company’s business model in areas where the brand cannot reach.
This has become the norm because it allows companies to grow rapidly without investing too much resources to expand. Aside from increased profits, losses are also set at a minimum because the risks of expansion are shared amongst the franchisees.
The challenge: Maintaining consistent customer experience across all franchises
Although the risks of expansion are shared, managing multiple franchises causes added operational and reputational risks. Since franchises operate autonomously from the brand, it is likely that they would not follow established standard operating procedures and offerings.
For example, a convenience store brand recently released a new coffee product. However, customers have complained that it was not being offered at all convenience store branches. Likewise, after changing the company logo, a brand might realize after three or four years that there are franchisees who have still yet to change the signboards in their stores.
Frequent customer complaints, inconsistent product offerings, and deviations from company processes are a real threat. A single non-conformance from a single franchise decreases the brand’s reputation. Imagine if you had 100 franchises and each had its own way of doing business. This creates a challenge for brands to find a way to maintain consistent quality and customer experience across all franchises.
Retail 2nd Party Audits
Retail 2nd party audits are typically done to overcome the risk of partiality and the biased nature of an internal audit. In a second party audit, a company with no direct relation to the brand being audited is hired to evaluate the overall brand quality maintenance. Auditors check if all the franchisee units follow uniformity in timing, quality of tools used, hierarchy, general process workflow and even the dress code of employees.
The audits are managed through phases. The audit vendor first plans with the brand company on the audit requirements and itinerary. The audit vendor then sources the required number of auditors, orients them about the brand, and gives their schedules.
After the audits are conducted (usually through the use of checklists or an audit application), the data is consolidated and analyzed. The audit vendor then presents to the company gaps found, the trends observed and their recommendations to close these deficiencies. The audit cycle is then repeated depending on how long the company wants the intervals to be.
The advantages of Retail 2nd Party Audits
Companies are able to focus on strategic growth
Instead of being problematic over consistent customer experience in franchises, companies are able to focus on where they really should—strategic decision making.
By trusting the audit management to an external party, companies only need to give their requirements, wait for the audit report, and decide on the best course of action to further improve services.
2nd party audits are cheaper than creating an internal audit team
Since the service is outsourced, hiring costs for auditors are lowered. This means that companies only pay for auditor services when they need it, removing the need to pay monthly salaries when there are no audits happening. Moreover, the amount of auditors are based on the scope of stores being audited. If there will be fewer stores covered in the cycle then the amount of auditors is also adjusted.
Reliable unbiased findings
Because the audit service provider does not bear any form of relationship to the franchise owners, auditors are able to independently assess the store’s conformance to company standards. The final report generated is therefore reliable and presents a real picture of the status of each franchise.
Valuable external insights
Aside from analysis, the audit service provider provides a comprehensive list of recommendations to close the conformance gaps in franchises. Also, because they are external, the auditors will be able to spot gaps that might not be ignored by internal stakeholders. These overlooked gaps can be space for improvement for the brand to deliver higher quality of services to consumers.
The case for retail 2nd party audits
The benefits of retail 2nd party audit present a persuasive case to outsource audit management to service providers.
How can ECCI help?
ECCI is an industry leader in process improvement consulting. It has developed a robust audit management process to help clients deliver high-quality products and services. Know more about our expertise in 2nd party audits by sending us an email at [email protected].