Four ways to vet suppliers when you can’t meet in person

Key things to look for as you seek to adjust or broaden your supply chain


5 minute read

 

Key takeaways

  • Many companies may find they have had to fine-tune the way they screen new suppliers in an era of remote work
  • Best practices include third-party assessments, enhanced evaluations of critical suppliers, improving cyber security and deploying new technology
  • This enhanced pre-screening of suppliers may help you manage risk, deliver smooth operations and take advantage of new opportunities

 

Businesses’ continuity has always depended on a reliable supply chain. The coronavirus pandemic, however, may have put your supply chain under pressure in ways you’ve never experienced, prompting you to search for additional partners. If so, you’re not alone: Nearly half of companies plan to expand their supply chain, according to Deloitte’s 2020 CPO Flash Survey.1 “Taking action to make robust supplier networks more robust will have big effects in the long term,” the report says.

But given the difficulties presented by the pandemic, you may have to raise your game when vetting new suppliers to ensure you have the materials and services you need and can secure the most attractive prices, highest quality and best delivery time. That can be especially tricky in today’s remote work environment. Only 50% of organizations believe they have high or very high visibility into their primary suppliers, Deloitte’s report found. Meanwhile, 90% of organizations rate their visibility into their extended supply network as moderate to very low. “This is very concerning for boards of directors and CEOs, 55% of whom are now held accountable for risk,” the report says. 

Checklist:

Key considerations when vetting distant suppliers

 

Confidentiality

Look for suppliers who will sign non-disclosure agreements and contracts that protect your intellectual property

 

Cyber-security

Have your IT team audit partners to ensure they will protect your information and systems

 

Ease of communication

Notice how quickly you can reach potential suppliers and how well you can bridge any language gaps

 

Environmental sustainability

Seek partners who have gotten key industry certifications for environmental performance and sustainability

 

Financial standards

Look for suppliers with third-party assessments certifying that their internal controls meet AICPA or ISO 9000 rules

 

Labor practices

Check for certifications for fair labor practices, health and safety, and zero-tolerance of human rights abuses

 

Technology

Ask if suppliers have advanced technology designed to help them work effectively with distant customers

So how can you gain more visibility? Here are four strategies to help your company screen suppliers so you can make the most of the opportunities ahead and prevent disruption and reputational damage from quality-control problems or late deliveries.

 

1. Insist on third-party recommendations and assessments

 

Even if your suppliers were recommended by your trade association or a local business organization such as the chamber of commerce, this is only the first line of defense when evaluating a supplier. Some CPAs now recommend that companies narrow their candidate pool to those who have undergone third-party assessments certifying that they’ve met the highest standards in their financial practices and in protecting privacy and confidentiality. The gold standard are the AICPA Service Organization Controls, known as SOC 1, for financial service providers and SOC 2 for other kinds of vendors, according to Kevin Hyams, CPA and partner in charge of governance, risk and compliance services at Friedman LLP.  If your company uses international suppliers, look for those that have an ISO 9000 from the International Organization for Standardization, which is viewed as an equivalent to SOC verifications, Hyams says.

 

“Taking action to make robust supplier networks more robust will have big effects in the long term.”

 

Be sure to ask how potential suppliers have continued to meet these standards if their infrastructure has changed to accommodate public health mandates and remote work. “Can you still rely on the kinds of controls that had been implemented in-house and are now being implemented remotely?” Hyams asks. Some changes could portend lax security or lapsed control over your company’s data.


Also make sure they are following the best practices for their industry to prevent disruption. “Do they have continuity and disaster recovery plans in place, as a means to manage current cashflow and as a way to safeguard future sustainability?” Hyams asks.

 

2. Focus on the most critical suppliers first


Many companies find their internal procurement teams have been stretched thin amidst the supply chain challenges of the past year and are often racing against time to plug gaps. When assessing and doing preliminary audits of potential suppliers, rank and prioritize them based on how critical they are to the continuity of your business and the potential risks a failure on their part might pose to your most important business units, systems or products. To make sure you’re covering all of your bases, consider enlisting your legal firm to check the business registrations of your suppliers and ask your insurance company representatives about any industry-wide patterns among suppliers that are affecting compliance and quality control right now. “They may be able to identify risks you haven’t anticipated,” Hyman says.

 

3. Heighten your attention to cyber security

 

Given recent breaches of major corporate and federal government websites, your company can’t afford to simply assume any suppliers’ practices will leave you well protected. If you are not familiar with the cyber security protocols for a client’s industry, bringing in a cyber security consultant to help you vet and interview suppliers may be a good investment, particularly when evaluating providers such as payroll services and payment processors with systems connected to your bank accounts. “These are vendors that have access to sensitive information, and they often provide data that winds up on a company’s financial statements,” Hyams says.

 

4. Make better use of technology in your due diligence

 

Go beyond interviewing a supplier’s key personnel by videoconference. If your vendor is a manufacturer, ask to see their operations remotely — including their warehouse facilities and distribution centers — using mobile cameras. Also consider investing in advanced technology that enables your team to work more effectively with suppliers from a distance and achieve greater ongoing visibility into the first and second tiers of your supply chain. Such investments are more common among firms that have thrived since the pandemic, Deloitte noted.

 

No company can prevent every possible supply chain challenge. Nonetheless, each step you take to learn more about potential suppliers on the front end can help everyone on your team sleep better at night and ensure that your company is ready to make the most of future opportunities. 

  • Logistics & supply chain
  • Business continuity planning

Kevin Hyam | CPA and Partner in Charge of Governance, Risk and Compliance Services at Friedman LLP