Increased globalization has meant a more dynamic, yet less stable supply chain for many corporations across the world, and recent global crises have thrown the problem of disruption into stark relief.
However, when companies need to switch suppliers quickly or on-board new ones, disreputable or fraudulent vendors can more easily insert themselves into otherwise relied-upon supply chains. This creates risks for companies that go beyond manufacturing disruption and can include significant reputational and even legal risks. Manufacturers that are sourcing materials need to examine compliance not just in their own organizations, but throughout the entirety of the supply chain.
Fortunately, there are digital tools that can enhance this process and provide more comprehensive and up-to-date intelligence while prioritizing accountability. In this environment, Know Your Vendor (KYV) protocols have never been more important. The more companies are able to keep up with advancements in KYV tools and practices, the more the benefits of a strong KYV process will become apparent.
Machine learning and AI boost digital search and analysis tools
Digital tools that accelerate and sharpen the due diligence work involved in KYV are highly beneficial. It is important not just to know what a supplier does or has done as a business entity, but also to know the individuals and entities involved in the supplier’s business networks. Beyond the benefit of avoiding doing business with sanctioned individuals, there is a great advantage in knowing about individuals and ownership and in analyzing these connections.
A good data analytics program can combine public and proprietary records to illuminate searches for key individuals and entities as well as the relationships between them and even help assign risk scores to potential suppliers. Next-generation data analytics — driven by machine learning and artificial intelligence (AI) technologies — can make this process considerably more thorough and less time-consuming.
However, it’s also critical for companies to be able to turn this intelligence into actionable assessments, and that means having the right kind of skilled personnel who can interpret and channel the information into quality due diligence. Ideally, a good data mining system should be able to provide an ongoing assessment of third parties, including vendors and suppliers, and come equipped with customized alerts.
Sustainability and carbon neutrality
Environmental concerns remain a potent force in supply chain evaluation, and gathering reliable data about vendors’ carbon reduction practices continues to be a challenge for many companies — yet this is where most of the manufacturing’s carbon footprint comes from. Environmental, social, and governance (ESG) guidelines increasingly shape manufacturing decisions, but it’s Scope 3 emissions (those coming from suppliers) that have the greatest environmental impact.
In 2023, the Thomson Reuters Institute conducted a survey of ESG decision-makers in supply chain roles at midsize and large companies, both public and private. While public companies were further along in implementing an audit process for their supply chain with regard to carbon emissions, nearly all expressed concern about the breadth of their knowledge about vendors.
Using digital tools, however, it is certainly possible to monitor adverse media and legal sanctions regarding vendors and their principals as individuals, but more advanced tools may be needed to develop a broader and perhaps more predictive view of Scope 3-related practices.
Supply chain reassessment
Indeed, recent events — such as the effects of COVID-19, trade disruptions, and climate-related crises — have brought to light the need for resilient supply chains. Although crises that are global and broad in scale can happen, manufacturers also should expect more limited disruptions that may be felt in only a few locations or economic sectors at a time.
How can organizations anticipate every such challenge affecting the supply chain? In fact, no manufacturing concern can do that — but companies can better plan for such disruptions by using KYV intelligence to screen multiple suppliers at once. For example, when the Germany-based conglomerate Siemens found itself without an adequate supply of Surlyn, a patent-protected substance used to package medical products, it contracted with an AI-fueled firm that quickly searched a variety of documents, including import and export records, to identify more than 150 alternative suppliers. After using similar tools to winnow down the list of potential vendors, Siemens was able to avoid a major disruption in its own supply chain and among customers as well.
Clearly, being able to gather a wide variety of information about vendors on an ongoing basis can increase confidence in quick decision-making during a supplier crisis.
Conclusion
Modern KYV practice is quickly evolving beyond making sure suppliers don’t have past criminal records or a history of unreliability. Digital tools and due diligence practices are quickly evolving together to help make supply chains more resilient.
Manufacturers should know how suppliers conduct their own internal reviews and assessments regarding supply chains and ESG practices. In fact, transparency is itself a hallmark of reliable vendors.
Modern tools like Thomson Reuters CLEAR, Adverse Media with Sanctions, and Global Beneficial Ownership can aid in the rapid gathering of information about individuals and entities across a wide array of databases and records — can help corporate leaders make informed risk assessments and key decisions and go a long way toward prioritizing the kind of accountability corporations need to demonstrate to stakeholders.
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