How well do you really know your suppliers?

Businesses spend countless hours – and in some instances money – trying to find out more about their customers and often fail to do the same with their suppliers. Mark Heymann, Senior Director: Commercial Information Solutions at TransUnion looks at why businesses need to know their suppliers and the associated risks if they don’t.

Suppliers are the lifeblood of a business – they provide the products and services that are vital to keeping companies operational. Without them, the business ecosystem as we know it would collapse instantly. However, businesses often don’t place the same emphasis on researching their suppliers as they do in trying to learn more about their customers, yet this is equally important for the business to know and understand its suppliers. There are two commonly made mistakes when it comes to vetting suppliers, the first of which is failing to thoroughly check a supplier before signing a contract while the other is failing to regularly assess suppliers because of complacency.

Businesses need to ensure that they make use of available credit solutions that will check the financial and operational stability and compliance of their suppliers – such as bank information, VAT numbers, registration numbers, tax certificates and BEE certificates. All of this information combined, is crucial to knowing whether or not a supplier is financially and operationally viable and will help businesses avoid contracting suppliers who may not be able to deliver on time or in full, which can be detrimental to operations.

By failing to investigate all aspects of a supplier – from its finances to its BEE compliance – a business is also at risk of falling victim to a supplier going insolvent, being part of fraudulent activities, failing to comply with regulations or a possible conflict of interest. For example, a company’s BEE score is influenced by the scores of its suppliers so it is crucial to not only check if suppliers meet minimum requirements, but to also compare levels of compliance between competing suppliers.

Furthermore, some businesses – such as those in the food or health industries – need to meet health and safety standards. If businesses in these types of industries are supplied with products that do not comply with regulations, they are at risk of closure from the relevant watchdog authorities and, even more damaging, face health and safety risks for its employees and customers. The reputational damage that can arise from these types of risks can be devastating to a business, which they may never recover from.

A detailed database with up-to-date supplier information will also enable a company to detect if one of its suppliers poses a risk, such as one which is going insolvent. With access to this information the business can proactively block that supplier and quickly change to a supplier that is fully compliant without any disruption to the supply chain. This can only be made possible through a detailed database of suppliers which is updated regularly. For example, once the relevant information is updated in such a database, TransUnion is able to monitor suppliers in order to provide live updates to customers about any changes that may occur. This is crucial to businesses considering that they need up-to-date information in order to understand their suppliers and to take immediate, yet informed steps should a problem arise.

The second mistake businesses often make with their suppliers is becoming complacent. While a history of working together between a company and its supplier is important in building trust, suppliers should be regularly assessed to ensure standards are kept high and that they remain cost-competitive. Competitors regularly enter the market and if they can supply quality goods or services at a lower cost, businesses need to be aware that these suppliers could have a major impact on their own margins.

It is clear from the value that suppliers provide – and the risks they can pose – that getting to know them better is vital to any business’s operations. Businesses need to empower themselves with information that can identify both value and risks associated with potential and current suppliers in order to build the strongest possible supply chain. This way, they can have peace of mind that their suppliers are financially and operationally viable, while remaining cost-competitive.