Suppliers play a huge role in the operational capacity of a business. With a mutually healthy relationship, trusted suppliers can help a business satisfy customer needs, even in a pinch. However, businesses that source goods or services from questionable suppliers run a great risk of failing to meet their own obligations to customers. Such weak links in the supply chain either present prominent or underlying risk and, while the one is evident, it is underlying risk that can only be identified through investigation.
In this month’s SmartProcurement, Rudi Kruger, General Manager: Data Services, LexisNexis South Africa, contends that supplier vetting is the surest way to see the whole picture. “Working with the wrong supplier could cost you money and your customers’ trust but, by vetting suppliers, many underlying risks can be identified.”
Vetting assists with uncovering many red flags, including:
– Suppliers with poor financial health: many supplier performance issues are related to financial health. Those facing financial difficulties are risky because they may not be able to meet your standard of delivery. It is important to investigate the financial status of a supplier in order to establish its capabilities.
– Inappropriate relationships: one of the biggest risks is when a supplier has an advantage in its customer’s supply chain through having some sort of relationship with an employee. It is through these types of relationship that fraudulent activities can slip under the radar. Vetting both suppliers and employees on an ongoing basis is thus highly recommended.
– A history of unreliability: it is important to ensure that your vendor is in a position to deliver goods or services on time and to the expected quality standard. While this type of assurance can best come from past experience, there are other means that can be used to determine a vendor’s reliability, including vetting and referrals.
– Fraudulent activities: it is bad news if a supplier was involved in pass-through schemes, shell company schemes or tender fraud, as these activities are liable for prosecution but also say a lot about supplier integrity. Researching a company’s history will allow for these activities to come to the surface. It is also important to verify a supplier’s broad-based black economic empowerment (B-BBEE) status, credibility, reputation, partnerships, past projects and services, ownership structure and compliance record.
“Thoroughly vetting your suppliers to weed out these and other red flags is a must”, says Kruger. “Vetting suppliers with a specialised solution like Lexis ® ProcureCheck from LexisNexis Data Services is recommended.”
These web-based systems are extremely useful in the procurement process as they assist with procurement vetting and vendor management as well as facilitate the verification of various data sets, providing linkage to identify possible conflicts of interest, pass-through schemes and shell companies.
Benefits of Lexis ® ProcureCheck include:
– Providing automated irregularity alert reports
– Providing vendor and staff reports (useful for King III committees)
– Creating your own internal vendor list (preferred and non-preferred vendor indicators)
– Importing vendor and staff lists
– Providing vendor vetting (on an ad hoc or batch basis)
– Ongoing monitoring
– Providing detailed conflict of interest reports
For more information, visit Lexis ® ProcureCheck.