MIT Sloan Management Review Article on Digital Audits as a Tactical and Strategic Management Resource

U.S. companies that outsource production to manufacturing hubs in countries such as China and India lower their costs, but the practice comes with substantial reputational risk. Manufacturers in these countries run the gamut in how lax or strict they are about enforcing labor and environmental regulations.

To offset this risk, enterprises have made sizable investments in factory audits, which can include asking suppliers to meet externally certified accreditations or hiring third-party auditing companies to make site visits. However, persistent scandals involving illegal or dangerous working conditions show that the standard factory audit is inadequate as a business risk mitigation strategy.