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It wasn ’ t until very long ago that onboarding a new supplier for an organization was a straight-forward process . The focus was on three main elements : cost , quality , delivery . After preparing a shortlist of suppliers competitive on price and delivery , a buyer would send a vendor ’ s information for a review by the QA
( Quality Assurance )
Department . Perhaps too often , it may have been a perfunctory review providing the supplier could provide an ISO
9001 certificate , or equivalent .
By Stephen Cherlet
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Today , the areas of focus are greatly expanded as are the regulations that might apply . From the 1976 implementation of ITAR [ International Traffic in Arms Regulations ], impacting products for defence contractors , to the 2022 EU Mandatory Due Diligence Directive , impacting companies operating in the EU , there are a plethora of regulations to consider . Current supply chain interruptions mean that many firms are shortening supply chains and bringing elements of work , or entire factories , closer to home . But that means having a process in place to ensure firms understand not only their own regulatory landscape but also that of their suppliers . Beyond some basics like regulations , what should organizations be looking at , and how far should the review go ? That ’ s not an easy question to answer but here are a few quick tips : • Develop an in-house checklist based on best practices gleaned from other firms considered to be best-in-class ( they often publish articles , participate in forums , or present at conferences ) as well as information from reputable sources on the internet ( industry associations , associations offering designations in a specific field , or educational institutions ).
• Focus on key suppliers and / or apply a standard A-B-C type categorization to work through the supply base . Keep in mind , a critical supplier may be one with a low business volume ( i . e . Class C by purchase but still mission critical ). Remember , you can ’ t only focus on the top ranked and eventually the whole list should be reviewed , but we can also do a deeper dive on the top ranked .
• We need to consider the end-to-end supply chain which on the supplier end means “ my vendor ’ s vendors ”. To truly be able to
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validate a key vendor ’ s ability to perform , we may need to look a level below them . Recent conversations with colleagues have revealed that it is often the tier 2 vendors causing a tier 1 vendor to be unable to deliver .
Checklist
So , what should be some of the items on a supplier due diligence checklist ? There are various aspects that need to be addressed : Overview of the Business , Financial Statements and / or 3 rd Party Assessment , the Business Management Systems ( or ERP ), Operations Review and Quality Assurance / Management .
Overview of the Business
Chart showing legal , organizational and ownership structure of the business . This should include a list of directors , offices and key employees of the company . With the list of sanctioned countries , companies , and individuals growing continuously , this is a critical item . Summary of the company history , as well as product listing .
Financial Statements and / or 3 rd Party Assessment
For most business ’ s needs , a 3 rd party assessment by a recognized firm , such as Dun & Bradstreet or similar , is sufficient . For larger , or critical , suppliers obtaining a copy of the last 3-5 years financial statements could be a good idea . Your internal finance team can provide their assessment of the historical operating performance . Key is to try to ascertain that the proposed , or existing , supplier can continue operations . For example , a discussion around current supply chain issues revealed that efforts to onboard a second source for a critical , sole source supplier was about to be
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