Exploring the role of industry 4.0 in enhancing supplier audit authenticity, efficacy, and cost effectiveness

Abstract

Supplier audits are frequently criticized for lacking authenticity and objectivity. Technology-enhanced audits (TEA) offer a potential solution to supplier audit problems by enabling enhanced analytical, visualization, modeling, and predictive capabilities. This paper explores the potential of Industry 4.0 practices in enhancing supplier audit authenticity and efficacy, as well as reducing supplier monitoring costs. The application of Industry 4.0 in supplier auditing is still in its infancy. Therefore, this paper adopts an exploratory approach building on an extensive review of the literature. The paper builds upon an inductive-deductive approach to explore how the individual technologies underlying Industry 4.0 can be leveraged to enhance supplier audits. Based on insights from the literature, the paper develops propositions outlining the role of Industry 4.0 in supplier audit authenticity, efficacy, and cost-effectiveness. The paper builds arguments against the backdrop of traditional audits' limitations and illustrates how TEA can overcome many of these limitations. TEA can enhance the authenticity and efficacy of supplier audits, while also reducing supplier monitoring costs. TEA are most effective in an Industry 4.0 environment where the use of technologies is supported with governance structures. The application of Industry 4.0 can make supplier audits more transparent and value-adding, benefiting both the buyer and supplier. The theoretical and practical implications of the findings are explored. Suppliers can leverage TEA to create opportunities for strategic differentiation, enhance transparency and trust, and stand out from those who view audits solely as a cost. Buyers can use TEA to enhance audit efficacy, enhance insights into supplier operations, cut monitoring costs, and improve their competitiveness. TEA is a new generation of supplier auditing that has the potential to bring fundamental changes to current auditing models and make audits genuine, authentic, prospective, and insightful while building on Industry 4.0 principles.