Auditing: service sector vs. manufacturing

It’s not difficult to see that auditing a service industry will present a different set of challenges to an auditor than the more traditional manufacturing sector. As companies in IT and other service sectors increasingly require in-depth audits, Paul Simpson and Dr Vishnu Kanhere discover what the big differences are.

At the end of this article don't forget to read the case studies which look at actual audit scenarios from both the service sector and manufacturing industry:

Let’s be clear: an audit in a service organization isn’t materially different compared to one in manufacturing. Auditors still need to understand the organization’s processes, need to be prepared, be able to interview, observe what is happening around them and understand the standard they are assessing the organization against. So if all this is the same for both industries how do they differ?

Service, by its nature, deals with intangibles. Auditors should not expect to see much in the way of product. When auditing a reception/security team, for example, it is important to check that they know what is required of them in terms of routine responsibilities, but you can guarantee that no day will be the same and thus you’ll need to see that the team adapts to situations presented to them at any time. The ‘quality’ of the service they provide is down to the individual, their own personal characteristics and the training they have received – a combination of nature and nurture.

Audits in a manufacturing organization are a little more straightforward: you are dealing with specifications and tolerances. The pass/fail decision is more clear cut. Product is visible and you can look at a standard production line used to make the same items time and time again.

The challenges are different in auditing service compared with manufacturing organizations. The skill sets should be similar but it is auditor attitude that is key.

Organizational

The organization of manufacturing companies is generally structured and well defined to the point of being rigid at times. They have fixed hours of working, the teams are well defined with tasks, goals, roles, responsibilities and time lines clearly drawn out. In a service organization the structure is much more flexible and requires employees who can multi-task, improvise and work in ever-changing conditions.

Nature of work

Service companies often face a lot of surprises and emergencies with last minute demands coming in from customers. Manufacturing companies generally face predictable requirements as they are predominantly dealing with machinery, rather than people.

Service companies also deal more with people issues and hence scaling up and scaling down of operations becomes an issue. Scaling up entails preserving company and work culture with the new recruits and scaling down involves separation and retirement issues. With manufacturing companies, primarily equipment and facilities need to be scaled up or down.

The audit trail

Another challenge often faced by the quality auditor in a service organization is deciding where to start. In the case of a manufacturing company the steps are clear. Start with the first stage of the input of raw material and end with the finished project being distributed to the market.

In a service organization, given the diversity of customers and processes, the auditor needs to consider: customer interaction; how a service request/order is received; processed; delivered; provided to the customer; and completed.

Performance indicators of quality

The key performance indicators (KPIs) in service organizations are generally focused on customer satisfaction, service realization and delivery. In manufacturing, KPIs are absolute or based on scientific laws of physics, chemistry or biology. They also depend on work, time, effort and speed - relationships which are usually fairly stable and predictable. Quality in terms of effort, effectiveness, cost, speed and time lines can be easily judged for manufacturing companies.

Comparability

A major challenge the auditor faces in a service company is the fact that he cannot readily compare with the immediate past to see if the organization is doing better or worse in terms of quality parameters and objectives. When he goes for the audit he may find departments that were previously flooded with work and finding it difficult to cope now in a relatively relaxed position with a slower work flow and all time lines readily met.

Judging performance in such a situation is a real challenge. One cannot insist on a criteria related to output/service to such departments as it is entirely dependent on marketing and customer demand/need. How then can one assess such departments in such times? There are no hard and fast solutions, but the auditor would do well to use a proactive approach to judge aspects like: the level of preparedness of the team; their competency and whether they are utilizing the time effectively to build up capacity and prepare for the busier period expected in future.   

Intervening processes

Auditing intervening processes in manufacturing companies poses a challenge of a different kind. One of the cornerstones of quality is customer satisfaction, or customer delight. For every company this can be judged and measured overall from the customer feedback and market trends. How can an auditor gauge the intervening production processes - those that do not directly interact with customers or are not customer related - for their customer responsiveness? The overall customer experience of a product depends on all processes, including those that are not directly customer related.

One way is to ask the concerned employees and find out if they are aware of the significance, role and relevance of their work and processes in providing customer satisfaction.

Overall, auditing manufacturing companies a quality auditor can use a more structured check list based approach. For service organizations, which are more flexible and where quality norms are less quantifiable and difficult to compare from period to period, a more open approach where the auditor focuses on approach, attitude and preparedness of employees is required.

Whether dealing with the service or manufacturing sectors, however, the fact remains that whether companies are meeting customer needs and expectations remains key to a successful audit. Ultimately, it is the auditor’s responsibility to identify the quality problems from reports, records and interviews and carry out an in-depth audit to collect more facts, analyze this information, and convince and guide the auditee to help improve the quality management system.

See the rules in action, compare the case studies of manufacturing and service industry audits:

 

Many thanks to Paul Simpson, www.xbs.org.uk, who wrote the introduction to this article, Dr Vishnu Kanhere, who contributed the main body of text and the service case study and T Uthayakumar, of the Sri Lanka Standards Institution, www.slsi.lk, who contributed the manufacturing case study.