Suppliers are checking you out, are you keeping an eye on them, too?

Supply chains are becoming increasingly dependent on a seamless, reliable relationship. In the world of manufacturing and logistics, a supplier contract is not simply a transaction - it is a strategic commitment.

Companies should be applying the same high level of due diligence when onboarding a supplier as they do when negotiating credit terms with a new customer. The initial benefit of conducting due diligence is that it provides you with a thorough understanding of a supplier’s position before negotiations begin, however the longer-term benefits of continuity and scale are just as important. 

When assessing a supplier, there are key considerations and several basic checks that can be conducted. From a continuity perspective, a company’s financial position is a good indicator of how resilient it is likely to be if needed to respond to supply chain shocks both up and downstream.

From a working capital perspective, understanding their financial position also allows you to negotiate for optimal credit terms. Another key consideration is growth – if you’re looking to scale your business in the short to medium term, a supplier with strong financial indicators is more likely to be in a better position to scale at the same pace as you.

Understanding the group structure of a company can also help mitigate risk by highlighting potential conflicts of interest or compliance risks associated with other areas of their overall business. While your supplier may seem straightforward, a suspicious company within the group may be supplying potentially contaminated ingredients to your supplier. Companies are, in most cases responsible for the actions of third parties acting in their name, so companies must demonstrate that they have procedures in place to address such supply chain risks.

Traditionally, most due diligence was often conducted manually. Not only is this inefficient, it is potentially risky.  Manual methods often relied on expensive, potentially flawed data sources. Regulatory change is driving more complex checking processes, making it increasingly difficult for individuals to piece different data sets together. Lastly, the manual approach requires periodic tracking and auditing of suppliers to highlight any potential changes. The key is having full visibility of all data sources to have enough context to build a true profile of a supplier.

With the introduction of technology and more comprehensive data sets, companies no longer need to rely on manual methods to know when they are at risk or when they need to identify replacement suppliers. By tracking changes to a supplier in real time, companies can make strategic decisions and take appropriate action swiftly.

The UK has been a great test bed for democratising key company information, and technology providers are leveraging this access to map company information with other data sources, such as credit ratings, stakeholders and ownership structure, to create rich and comprehensive company profiles. Until recently, conducting due diligence on companies abroad has not been as straightforward. 

It remains to be seen whether UK manufacturing and logistics companies will engage more, less or the same with supply chain partners across Europe when we officially leave the European Union. But regardless of what happens in the future, rigorous supplier due diligence is fundamental to help protect your company from risks, to plan for growth and scale and to optimise working capital.