Supplier Due Diligence: Why You Need To Know Who You’re Doing Business With
Knowing who you’re doing business with and ensuring both your organization and your partners are compliant is not just a legal requirement - it’s also an internal requirement that protects your bottom line.
Traditionally, procurement organizations only needed to ensure they comply with the law and satisfy regulators. Today, because supply chains have become global, that’s no longer enough - you need to also make sure you satisfy your end-users, prospects, the press, investors, and other suppliers.
And that’s where supplier due diligence comes in.
What is supplier due diligence?
Simply put, supplier due diligence refers to the actions an organization takes to know its partners. This involves making the relevant inquiries to determine whether a third party, existing or prospective, is honest and legitimate. The process is not very exact, though - you can be as thorough as you want or need to be.
However, keeping in mind that there is such a thing as being too diligent. If you’re asking too many questions, you might be offending your partners.
Why supplier due diligence is necessary
Supply chains today are longer than back in the day. They’re also global, which leaves them exposed to a plethora of threats such as trade wars, bankruptcies, cyber-attacks, extreme weather, or volatile foreign exchange markets.
This makes mitigating supplier risks a lot more difficult, but not impossible. For that, a trend has been growing in the direction of ensuring visibility and transparency into the supply chain. Procurement organizations need to be vigilant and monitor risk using accurate, timely data on exactly who is behind the businesses they work with.
Here’s how you can ensure supply chain compliance effectively:
5 steps to ensuring minimal supply chain compliance
To properly carry out due diligence, we recommend you follow these steps:
Checking business registrations and public documents to ensure the organization you’re planning on doing business with exists and you don’t get scammed
Contact your prospect partner - don’t be afraid to telephone or write to suppliers and ask them any questions you might have
Contact other customers of your prospect partner - if you feel like you can’t trust the testimonials on your supplier’s website (or if they don’t have any), you can always ask other companies if they would recommend that supplier
Verify trade accreditations to see what your suppliers’ obligations are to you in terms of quality and service
Trust your intuition - sometimes you just need to follow your gut. If something appears too good to be true, it probably is.
Keep in mind, though, that supplier due diligence is an ongoing process. This is why we recommend you also:
implement an underlying data structure and ensure you’re collecting all the relevant data
make sure your data is always accurate and up to date
use data analytics to manage supply chain risk, identify potential areas of exposure, and protect your company’s reputation
However, if you are thinking of setting-up a process for introducing a due diligence process and policy, here are 10 steps that will guid through this process:
Understand compliance concerns
Define corporate objectives for due diligence
Define the due diligence policy (main information required, owners of the process, flow)
Gather key information
Screen prospective third parties against watchlists
Conduct a risk assessment
Validate the information
Audit the due diligence
Monitor the relationship
Review periodically the due diligence information
Ensure supply chain compliance with Prokuria
Prokuria helps organizations gain better control over their procurement processes. Using our cloud-based solution will save you hours of manual work collecting documentation and filling in the information in different spreadsheets and systems.
At the same time, we can help you ensure compliance, segment and approve suppliers, and customize your supplier registration platform. Our solution covers the entire sourcing and supplier management process, addressing all the needs of the Procurement Departments.
Carry out supplier due diligence with Prokuria