The big international, independent, accredited third party inspection companies have facilitated international trade for hundreds of years. They have been the objective eyes and ears of distant importers – ensuring that products manufactured many time zones away from the final client where what was specified in the contract between the tier 1 supplier and the organisation at the market facing end of the supply chain.
The inspection companies have been hugely successful and have grown to employ thousands of auditors, located in hundreds of offices around the world, making many millions of pounds sterling, USD dollar and Euros profit over the years. Their auditors are highly trained and the inspection businesses hold a wide and comprehensive range of accreditation’s – giving them the right and credibility to audit against specific process and product standards.
Their business models are largely built around a simple metric – auditor utilisation. They need to have those auditor boots on the ground, doing fee earning work for a specific percentage of each auditor’s working week. If their auditors are fee earning for that key % of unit time, then all the overheads and salaries are met; well over that breakeven % and the profits are significant. To date they have been very successful at making money – but is that well-tapped source of revenue drying up?
They’ve diversified into owning and operating test houses. These have served as an important revenue source as the auditing cash-cow started to stagger somewhat under the pressure of commoditisation. But it’s still there – munching away at suppliers and retailers margins.
So how do the inspection bodies lubricate the wheels of international business? And why is that model under threat?
In the days of old they delivered the transparency on the quality (and existence) of the product or service being purchased from a distant vendor, that perhaps spoke a different language, was from a different culture and had a different way of doing business. The inspection bodies provided the bridge across the divide.
But a quantum change is coming – delivered by the Internet. The Internet suddenly has the potential to provide that visibility down supply chains that was formerly the reason-to-be for the inspection bodies. Language barriers are shrinking and will be virtually non-existent in a few years. Suddenly the boots-on-the ground and auditor utilization business model looks more and more shaky.
Can the inspection body juggernauts change such a fundamental plank in their business structure in ‘Internet’ time? Time will tell…
~ Frank Miller, Managing Director