New to Indonesia? Start with a Supplier Audit to Minimize Risk

A supplier audit is the first and most effective step toward ensuring transparency, quality, and accountability in your supply chain. It allows you to verify supplier legitimacy, assess operational performance, and ensure alignment with your quality, environmental, and social standards.

Indonesia has become a preferred destination for global procurement and production. It offers competitive labour costs, a thriving manufacturing base, and a strategic position in Southeast Asia that connects businesses to major regional and international markets.

In this blog, we’ll explain why supplier audits are essential in Indonesia, highlight key market risks, and outline a step-by-step guide with best practices and tips for conducting an effective audit.

Why Are Supplier Audits Essential in Indonesia?

Indonesia is one of Asia’s fastest-growing manufacturing hubs, attracting global companies with its competitive labour costs, diverse industrial base, and strategic location. Yet, beneath these advantages lie complex challenges, including inconsistent quality standards, varied supplier maturity levels, evolving regulations, and differing labour and environmental practices across regions.

A supplier audit acts as your safeguard in this environment. It gives you the clarity and confidence to verify supplier legitimacy, assess operational reliability, and ensure compliance with both local laws and international standards. Without an audit, companies risk encountering production delays, quality failures, labour violations, or even reputational damage that can be costly to repair.

By conducting a thorough supplier audit at the outset, you establish transparency, build accountability, and foster long-term ethical relationships with your Indonesian partners. In short, supplier audits are not just about compliance; they are a strategic investment that protects your brand, strengthens your supply chain, and drives sustainable growth in Indonesia’s dynamic market.

Indonesia brings some unique considerations that make audits especially important:

Diverse Manufacturing Base and Variable Maturity

Indonesia has a large number of manufacturing facilities across many regions with varying levels of sophistication, quality systems, and labour/management practices. Audit firms emphasize that checking production capacity, machine maintenance, quality management (e.g., ISO 9001) and ethical/labour compliance is especially important.

Labour, Social & Environmental Risk

Audits in Indonesia have uncovered high rates of violations in working hours, wages, social compliance, etc. The complexity of local labour laws and local enforcement means you cannot rely solely on supplier self-certification.

Regulatory & Compliance Landscape

Indonesia’s regulatory regime is evolving rapidly (tax, audit, company, labour, environment). For example, foreign investors need to conduct due diligence on suppliers and understand local legal status, licensing, permits, etc.

Supply Chain Risk & Segmentation Matters

A risk-based approach to auditing (prioritising higher risk suppliers by geography, product, spend) is critical. Guidance from firms such as LRQA emphasises segmentation & prioritisation of audits rather than treating all suppliers equally.

Brand & Ethical Expectations Globally

As brands source in Indonesia, global expectations around ESG, human rights, supply chain transparency are high. Audits help you meet these standards and show you’re proactively managing risk, not just reacting.

What Does a Supplier Audit Cover?

A comprehensive supplier audit covers multiple dimensions. Here are the typical domains you should include, along with what to look out for in the Indonesian context.

1. Supplier Identity & Legal Status

• Company registration, business licence, tax registration, export/import licence (as applicable)
• Ownership structure, legal entity (PT, PT PMA, etc)
• Facility address – verify actual premises vs what is claimed
• History of the company (years in business, previous clients)
• Key management contacts and decision-makers
• Financial health (turnover, liabilities): In Indonesia, you may need to check this through local business information providers. For example, vendor risk management providers like CRIF Asia in Indonesia help identify supplier risk through company information, monitoring changes, and detecting conflict of interest links.

2. Production Facility & Capacity

• Physical inspection of the factory floor: machines, maintenance, cleanliness, layout
• Production capacity vs claimed capacity (volume, shifts, overtime)
• Quality management systems: Does the supplier have ISO 9001 or other recognised certification? Is it valid and current? Example: audit service providers in Indonesia emphasize checking “production capacity & sophistication / machine maintenance & calibration / quality management systems” as core.
• Raw material sourcing: are inputs sustainably sourced? permits/documentation in place?
• Storage, logistics inside factory, inventory management, material flow
• Safety (workshop safety, fire protection, worker PPE)

3. Quality Control & Product Compliance

• QC process: incoming inspection, in-line checks, final inspection, corrective measures
• Record keeping of defects, reworks, scrap
• Product traceability – can suppliers identify batches, raw materials, production runs?
• Testing and certification of products (especially if exporting or consumer-facing goods): compliance with local/international standards
• Pre-shipment procedures, container loading checks, etc. For Indonesia: service providers like QIMA note they help brands ensure product quality and compliance including supplier audits.

4. Labour & Social Compliance

• Working hours, overtime rules, shift patterns, compliance with Indonesian labour law
• Wage payment: salary slips, social security / BPJS, overtime pay
• Child labour, forced labour, migrant worker issues
• Worker contracts, documentation, union rights/association rights
• Health & safety: safe working environment, protective equipment, emergency procedures
• Grievance mechanisms for workers
• Dormitories or accommodation (if provided) – condition, fire safety, hygiene

5. Environment & Sustainability

• Environmental permits/licences (especially if factory handles chemicals, large-scale manufacturing)
• Waste handling & disposal (chemical waste, packaging waste, water effluent)
• Emissions, energy usage, resource efficiency
• Environment management system (ISO 14001 or equivalent)
• Commitment to sustainability / supply chain transparency. For example, TÜV SÜD emphasises that ESG supplier audits address environment, social & governance performance reliably.

6. Governance, Ethics & Security of Supply Chain

• Supplier’s code of conduct: does the supplier have written policies on ethics, anti-corruption, bribery, etc?
• Sub-supplier / subcontractor management: does the facility sub-contract work? Are these subcontractors audited/controlled?
• Security of facility, supply chain continuity, business continuity planning
• Cyber-security if there are digital systems (especially in more advanced factories)
• Pre-qualify vendor history: legal disputes, litigation, sanctions, media or adverse publicity
• System for traceability and transparency in the supply chain. For complex supply chains, segmentation & prioritisation of audits is recommended by LRQA.

7. Risk Management & Corrective Action

• Supplier’s system for identifying risk: what internal audits or processes do they have?
• Record of previous non-conformities and corrective actions taken
• Continuous improvement culture: do they invest in training, upgrading machinery, improving systems?
• Contract management: how are responsibilities defined, what warranties are in place, what are SLA (service level agreements), what are quality thresholds?

How to Conduct a Supplier Audit in Indonesia

Here is a structured process you can follow (or adapt) when auditing a supplier in Indonesia. We’ll break it into phases: Preparation, On-site Audit, Reporting & Action, and Follow-up.

Phase 1: Preparation

• Define your audit scope & objectives – Clarify what you want to audit (full facility, partial, pilot production, new supplier, existing supplier). Define the key risk areas given your business (if you’re in apparel vs electronics vs food).
• Collect supplier background information – Legal entity information, facility address, product types, production capacity, management team, previous audit records (if any). You can engage a third-party local business information provider (e.g. CRIF Asia) to gather risk data.
• Develop audit checklist / criteria – Create a checklist tailored to your business requirements & Indonesian context. Include legal, production, labour, environment, quality, governance. Adapt from standard frameworks (ISO 28000 for supply chain security, ISO 9001 for quality, ISO 14001 for environment) as useful.
• Schedule the audit & logistics – Agree with supplier on date/time, travel logistics (Indonesia has many islands: Java, Sumatra, Bali – travel may be non-trivial), languages (need translator if local language is Bahasa Indonesia), and confidentiality.
• Pre-audit documentation review – Ask supplier to provide relevant documents in advance: company registration, licences, QC records, HR records, environmental permits, machine maintenance logs, last few months of production/defect data. This helps you focus on site inspection.
• Risk segmentation – When auditing multiple suppliers, segment them by risk (geography, product, spend, strategic importance) so that resources are allocated efficiently. As LRQA highlights: risk-based segmentation helps concentrate audits on highest risk suppliers.

Phase 2: On-site Audit

Opening Meeting

Meet with supplier management, clarify purpose of audit, how long it will take, what will be covered, process for corrective actions and confidentiality.

Factory Tour

• Inspect factory exterior, layout, workshop floor, raw material storage, and warehouse.
• Check machine maintenance, calibration, condition, and production flow (is the facility neat, orderly, and safe?).
• Visit QC room, final inspection area, and shipping/packing areas.
• Inspect employee facilities such as canteen, restrooms, worker accommodation (if any), and overall environment.

Management Systems Review

• Interview key personnel (production manager, QC manager, HR manager, environment/safety manager).
• Review existence of quality management system (QMS), environment management system (EMS), internal audit process, and senior management commitment.
• Check policies on worker health & safety, anti-corruption/ethics, code of conduct, and subcontractor control.

Document & Record Review

• HR records: worker contracts, wage slips, overtime records, and social security (BPJS) enrolment.
• Quality records: incoming inspection logs, defect logs, rework logs, customer complaints, and corrective actions.
• Machine maintenance logs, calibration records, and machine downtime logs.
• Environmental permits, waste disposal records, and water/air emission monitoring (if applicable).
• Business licences, export/import licences, and local government permits.

Worker Interviews

Speak informally with workers (in a private setting if possible) to verify working hours, compensation, treatment, health & safety, and grievance mechanisms. They often reveal the “real” picture.

Sub-Contractors & Supply Chain Check

• Check whether the facility subcontracts work (common in Indonesia). If yes, are subcontractors on-site and controlled?
• Ask for a list of key raw material suppliers – verify them for legitimacy, sustainability, and absence of forced labour risk.

Closing Meeting

• Share preliminary findings (without committing to a full report yet).
• Discuss observations, corrective action expectations, and next steps (report, timelines, follow-up).
• Clarify rights and responsibilities (the audit report remains confidential, and you will decide next steps).

Phase 3: Audit Report & Action Plan

• Write up audit report – This should include:
• Executive summary (key findings, risk rating)
• Facility profile (address, capacity, product types, certifications)
• Findings by category (legal status, production, quality, labour, environment, governance)
• Non-conformities (major, minor), observations, potential risks
• Photographic evidence (with consent) to support findings
• Risk rating (you may use a scoring system, e.g., 1–5 for each category) and overall risk classification (e.g., Low / Medium / High)
• Recommendation & corrective action plan – Define what the supplier must do, expected timeframe, and responsible persons.
• Risk classification & decision-making – Based on the report, decide whether to:
• Approve supplier (possibly with conditions)
• Approve with corrective actions and revisit
• Reject supplier and look elsewhere
• Corrective action follow-up –
• Supplier should provide a Corrective Action Plan (CAP) with timeline and responsible persons.
• Schedule follow-up audit (or desk check) to verify implementation.
• Monitor progress until full resolution.
• Contract or agreement changes – Once you decide to proceed, update the contract to include audit clauses, rights to re-audit, incentives or penalties for non-compliance, and a clear specification of audit frequency.

Phase 4: Ongoing Monitoring

A supplier audit should not be a one-time event. For sustainable, low-risk operations you need a cycle of monitoring and improvement.

• Set periodic audits: full re-audit every 12–24 months, lighter check-ins in between.
• Use supplier performance metrics: quality rates, delivery times, number of non-conformities, worker turnover, incident rates.
• Use risk triggers: if a supplier moves location, adds a new subcontractor, changes key personnel, or you receive an adverse media alert → re-audit sooner.
• Build supplier capacity: share best practices, training, and improvement workshops.
• Consolidate data in your vendor management system so you can see trends, improvements, or persistent issues.

What Are the Key Mistakes to Avoid and Practical Tips for Supplier Audits?

When auditing suppliers in Indonesia (or anywhere), you’ll encounter common pitfalls. Here are some mistakes and how to avoid them.

Relying solely on documents or self-certification

Many suppliers may present perfect documentation, but the reality differs. Always include on-site checks and worker interviews. Auditors’ reports in Indonesia highlight this gap.

One-size-fits-all audit programmes

Treating all suppliers the same wastes resources and misses risk. Use risk segmentation to prioritise higher-risk suppliers.

Neglecting context-specific local risks

Understand major local risks: e.g., Indonesian labour laws (overtime, BPJS), environmental permitting, subcontracting culture, regional infrastructure issues. Without local understanding you may misread signals.

Ignoring sub-contractors or hidden facilities

Some Indonesian suppliers may outsource work to second-tier subcontractors which you don’t know about. Always ask about subcontracting and audit trails. Audit service firms emphasize verifying that the claimed factory is the actual one.

Failing to follow up on corrective actions

Audit is only valuable if findings are acted upon. A report that sits on the shelf is another risk. Make sure you have mechanisms for tracking, follow-up and verifying implementation.

Not building relationship or trust with supplier

Audit can feel like an intrusion. Approach it as collaboration: you’re both working to build a strong partnership. Communicate clearly, set expectations, be transparent about your goals.

Underestimating travel, logistics, or cultural factors

Indonesia is geographically dispersed (17,000+ islands). Traveling to remote factories may incur delays and costs. Ensure you plan logistics, translation, and cultural understanding (e.g., local hierarchy, appropriate behaviour).

Failing to integrate audit findings into sourcing strategy

The audit should inform your sourcing decisions: pricing, lead time, safety stocks, and contingency plans. If a supplier scores “Medium risk,” you may choose to mitigate by higher QA, shorter-term contracts, or higher inspection frequency.

Case Example – Why an Audit Made the Difference

Here’s an illustrative scenario (not tied to any specific company) of how a supplier audit in Indonesia can uncover critical issues and influence the sourcing decision.

A mid-sized apparel brand decided to source from a new Indonesian supplier. On paper, the facility looked good: 2-shift capacity, recent ISO 9001 certificate, and references from other buyers. They commissioned a pre-audit and full audit by a third-party local audit firm.

Findings from audit:

• The factory claimed 2,000 workers but on site it was 1,200; subcontracting out extra work to smaller un-audited units.
• The shift pattern relied heavily on overtime (workers on 12-hour shifts) and documentation did not match actual payments (overtime premiums missing).
• Machine maintenance logs had gaps; some machines were 10+ years old and lacked calibration records, leading to potential QC risk.
• The waste disposal area was not formally permitted; local environmental permits expired and there was no record of chemical storage compliance.
• Worker interviews indicated workers were uncomfortable raising grievances; the grievance process was informal.

Outcomes:

• The brand decided not to move ahead with the supplier immediately pending corrective action.
• The facility was required to:
  • (a) Stop subcontracting outside of audited units.
  • (b) Revise overtime practices and wage payments.
  • (c) Update machine maintenance & calibration logs.
  • (d) Secure up-to-date environmental permit.
  • (e) Define a formal grievance mechanism for workers.
• Only after a follow-up audit six months later confirming implementation did the brand move into production orders, and as a result the initial defect rate dropped significantly and there were no labour-related incidents.

This example shows how a proper audit saved the brand from potential reputational damage, quality issues, and compliance risk.

Audit Checklist Template (Indonesia Focus)

Here’s a condensed checklist you can adapt for your audit programme. Use this to guide the on-site audit and report structuring.

Supplier Audit Checklist – Indonesia

How to Customize Supplier Audits for Various Industries in Indonesia

Depending on the type of product you’re sourcing (apparel/textile, electronics, food/beverage, furniture etc.), you may need to emphasise specific audit points.

• Apparel / textile: Focus on dyeing, chemical handling, worker skill levels, storage of finished goods, sewing machine maintenance, overtime risk and subcontracting (common). QIMA found high violation rates in apparel factories in Indonesia.
• Electronics / hardware: Focus on component traceability, machine calibration, cleanliness (for sensitive components), ESD (electrostatic discharge) protocols, export licence & regulatory compliance, sub-supplier audits.
• Food & beverage: Focus on food safety management system (e.g. ISO 22000), hygiene of facility, raw material traceability, storage/handling of perishables, packaging, local regulatory compliance and halal certification (Indonesia is a large Muslim market).
• Furniture / wood products: Focus on legality of wood sourcing (e.g., Indonesian SVLK, legality certificates), environmental permits, worker health & safety (for carpentry operations), chemical treatments (e.g., for finishing/varnish).

To make informed sourcing decisions, explore our guide on 10 Things to Check Before Signing with a New Manufacturer and learn what to verify before finalizing any contract.

Additional Considerations for Working in Indonesia

Here are extra factors you should keep in mind when auditing and working with suppliers in Indonesia.

• Regional differences: While Java (Jakarta, Bandung, Surabaya) is more developed in manufacturing, other islands or regions (Sumatra, Sulawesi, Kalimantan) may have less infrastructure and greater variance in standards. Travel and logistics may also be more challenging.
• Language & cultural factors: Bahasa Indonesia is the primary business language, and many workers or managers speak limited English. Provide translators or ensure the audit firm has bilingual staff. Respect local business culture — relationship-building is essential for long-term cooperation.
• Permits, licences & regulation: Indonesian regulations can be complex and inconsistently enforced depending on region. For example, environmental permits, labour certificates, and local government licences require careful document verification.
• Infrastructure & logistics risk: Indonesia’s transport network, particularly in remote islands, can cause delays or unpredictable costs. Always include supply continuity risk in your audit and contingency planning.
• Changing regulatory regime: Compliance standards in Indonesia continue to evolve. For instance, by 2025, many entities are subject to mandatory annual legal audits. Stay informed about ongoing regulatory developments.
• Sub-contracting culture: It is common for Indonesian manufacturers to outsource portions of work to smaller units. Failing to identify this during an audit can expose hidden risks. Always trace sub-contracting chains and verify compliance.
• Sustainability & ESG expectations: Global buyers increasingly expect strong social, ethical, and environmental compliance. Demonstrating a robust audit and monitoring system is now a competitive advantage. TÜV SÜD, for example, emphasizes ESG supplier audits in Indonesia.

For a deeper look at how to establish clear communication and mutual understanding with new partners, read our article on How to Set Expectations with New Overseas Suppliers .

AMREP: Strengthening Supply Chains in Indonesia

Indonesia offers tremendous opportunities for growth and expansion, but success begins with choosing the right partners and ensuring accountability throughout your supply chain. A well-executed supplier audit is not just about compliance; it is about building a solid foundation for trust, quality, and long-term collaboration.

At AMREP, we specialize in helping global companies minimize sourcing risks through our comprehensive Supplier Management Solutions, which include supplier audits, factory evaluations, and quality assurance services across Indonesia and the Asia-Pacific region. Our local expertise, technical knowledge, and ethical approach enable clients to make informed decisions and build sustainable, transparent supplier relationships.

Partnering with AMREP ensures that your suppliers meet the highest standards of quality, safety, and integrity, giving you the confidence to focus on growing your business while we safeguard your supply chain.