As technology has advanced, businesses have enjoyed the benefits of being interconnected across global markets. However, pitfalls are hidden amongst these opportunities as supply chains can become volatile.
Connectedness has led to booming business for many suppliers. But, for those utilising their services, there is an apparent lack of traceability and reliability within these supply chains. This is leading to further complications, with businesses being impacted by insolvencies, poor-quality goods, and even criminals who are taking advantage of these blank spots.
For businesses looking to conserve and protect their success and growth, preventative actions must be taken. By conducting due diligence checks, businesses can spot potential supply chain risks and take action before the impact reaches them.
But, how does Know Your Supplier (KYS) work, and how does the framework shape a more resilient, responsible, and successful future for enterprises?
What is KYS - Supplier Due Diligence
Know Your Supplier (KYS) is a business practice that involves conducting due diligence and gathering information about the suppliers a company engages with. This process is designed to assess and manage the company's supply chain risks. The goal is to ensure that the suppliers are stable, reliable, ethical, and compliant with relevant regulations.
Why is KYS Important?
Know Your Supplier is paramount in today's business landscape, forming the cornerstone of resilient and responsible supply chain management across three key areas:
Global supply chains are long, complex, and reliant on each part working in perfect harmony. As such, they’re unreliable and delays in one part of the chain can cripple businesses further along.
Know Your Supplier frameworks are an integral part of mitigating risk across all aspects of business. As supply chains become further globalised, companies are sourcing products from a range of countries.
With this, risk increases, as regulatory standards vary, and criminals can mask their actions more effectively. KYS processes also minimise the risk of supply disruptions, quality issues, and compliance violations.
The complexity of today’s supply chains presents further risks surrounding insolvency. If just one business within the chain becomes insolvent, the whole chain will feel the knock-on effect. The impact can range from delays and customer complaints to loss of profits and further insolvency.
The pandemic has highlighted this issue and exacerbated it, as the supply chain is not only struggling to recover to its previous state, it is not as fast as anticipated either.
As global insolvencies are becoming more common, and the demand for supply remains the same, the gap in suppliers is growing. Businesses must be able to monitor the health of their suppliers to plan effectively and avoid the impact of insolvency before it occurs.
Having a positive reputation unlocks a range of benefits for any business. In contrast, companies linked to controversy can face endless challenges, including partnerships being cut short, financial penalties, and even sanctions. This also extends to indirect hits to the overall reputation - a common example being purchasing supplies from a company that is known for poor working conditions.
Transparency is a sought-after commodity amongst global supply chains, as documentation requirements and regulations vary dramatically from country to country. As such, businesses looking to assess their suppliers in detail can find it challenging to gain a clear picture.
Monitoring them closely using third-party software can uncover the details and allow businesses to regain control. Moving forward, they are then able to ensure their suppliers are compliant with ethical and environmental standards, a pivotal aspect, especially in industries marked by intricate and expansive supply networks.
Best Practices to Protect Your Business
Building robust defenses against the global supply chain’s volatility empowers businesses to optimise the supply chain. However, maintaining protective efforts involves an intricate web of preventative measures and proactive research. Take a look at the steps businesses should take to ensure they are hitting every key area…
1. Supplier Types
Businesses can categorise their suppliers based on their overall impact on the overall operations. Identifying the suppliers that are critical to the business makes the picture clearer when assessing which suppliers will need more monitoring resources assigned to them.
From this point, a tiered approach can be formed, allowing monitoring efforts to be conducted based on the nature and scale of the supplier. By making this process smoother, high-risk suppliers can be more regularly assessed, and lower-risk suppliers won’t slip through the net.
2. Risk Assessment
Risk assessments must be comprehensive, so businesses should develop an in-depth risk matrix that outlines the various factors that can impact suppliers. This includes financial stability, geographical location, and regulatory compliance of suppliers. The matrix should be regularly updated for businesses to be able to stay ahead of changing circumstances and emerging risks.
As part of the risk assessment process, businesses can benefit from establishing a proactive system for identifying potential risks early in the supplier onboarding process. This may involve detailed background checks, financial assessments, and evaluations of the supplier's operational history. Identifying risks at the outset enables swift and targeted mitigation strategies.
Acting on the results of the checks ensures businesses are following due diligence requirements. However, this requires a robust verification process to ensure the accuracy and authenticity of the information provided by suppliers.
This involves validating key details such as legal status, financial stability, and adherence to ethical standards. Employing third-party verification services may enhance the efficacy of this process, as corners cannot be cut throughout this process.
Businesses should establish mechanisms for ongoing monitoring of supplier activities. Incorporating regular review and update risk assessments, taking into account any changes in the supplier's financial health, regulatory compliance, or operational practices.
Conduct periodic audits to validate the continued adherence of suppliers to ethical and environmental standards. These audits serve as a proactive measure, identifying deviations and allowing for corrective actions before they escalate.
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