Operational Efficiency and Risk Audit at an Automotive Supplier’s China Subsidiary

The client was a leading European manufacturing company in the automotive industry, with a local subsidiary in China. The subsidiary had experienced a rapid growth of revenue and rising demand on the Chinese market, and strived to maintain this momentum. At the same time, they aimed to build a robust infrastructure for future expansion.

With this objective, the client approached Asia perspective to evaluate and improve the effectiveness of existing processes, including risk assessment and management, internal control systems as well as the governance structure in their China subsidiary.

Car engine parts

The objective of the project was to perform an audit assesing the the operational effectiveness of the key control systems supporting the Client’s subsidiary in China. In particular, the project focused on the following areas:

  • Current purchasing processes, supplier validation and contract approval processes.
  • Documentation of inspections to demonstrate the fulfillment of required standards.
  • Current sales order receiving processes and order handling processes.

Several high-risk occurrences were identified during the project. Based on these identified risks, ARC Consulting presented a detailed audit report, including main findings, risk assessment and recommendations.

Some Recommendations:

  • Establish an independent sourcing team reporting to the global head quarter while the purchasing team reports to the local subsidiary.
  • Establish clear annual bonus and commission scheme. The commission scheme is suggested to be based on 3 aspects, annual company’s profit performance, team targets, and the individual targets
  • Establish corresponding approval processes regarding sales price approval and payment terms approval.
  • Conduct periodic reviews to current payment terms and adopt corresponding payment terms based on customers’ credit.
  • A new supplier validation process and evaluation form is required. It is suggested to share the supplier evaluation form in the internal system.

A profit analysis should be added for price approval records, and it is suggested to build up pricing mechanisms, a strategy and clear sales instructions

See more about experience in the automotive sector.

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