The 10 Questions Supply Chain Managers Must Ask Before Engaging With a New Vendor

In the intricate web of supply chain management, every link plays a critical role. Any weak connection can lead to potential disruptions, compromising the efficiency, security, and reputation of the entire operation.

Just look at Morgan Stanley—in 2020, the financial giant had to pay a $60 million fine when it put customer data at risk by not performing their due diligence when it came to vendor selection and management.

When you’re a supply chain manager, part of your job is finding the weak links in your complex supply chain. If a supplier or partner is bottlenecking the process, or putting the operation at risk, you need to cut them loose before major damage is done to your company.

Better than removing subpar suppliers from your operation is never bringing them on in the first place. We all want to prevent these mistakes from happening at all, and the best way to do that is to have a thorough and strategic vendor selection process.

A great way to help select the best possible suppliers is to make a checklist of questions that you need answers to before signing any vendors. Let’s look at ten must-ask questions to get you started:

1. Is the vendor performing well and meeting its customers’ needs?

The most fundamental question you need to ask is: Is this vendor good at what they do, and do they deliver what they promise in a timely and cost-effective manner? Do your homework—have they gotten negative press coverage related to performance? Check financial reports. Best of all, if you can determine who else they work with and get in contact with a procurement manager there, they can tell you firsthand how the vendor has performed.

2. What is the vendor’s operational capability?

It’s important for vendors to have a level of flexibility or scalability that allows them to handle increases in volume either on a seasonal or ad-hoc basis. During peak seasons, can they ramp up production to meet that demand—or are they already tapped thanks to other customers’ increased needs during that time? Some products are more likely to have a demand spike than others, especially consumer products—if you sell a brand of beverage that explodes in popularity overnight thanks to a TikTok influencer talking about it on multiple videos, will this vendor be able to quickly scale up production to capitalize on that moment?

3. What are their current SEC reporting processes?

One of the most efficient ways to ascertain a vendor’s ability to keep ESG commitments is to review their SEC reporting processes. Have they been compliant with regulations in recent years? Do they provide the info on time? Additionally, a wealth of important information about the company’s financial health is found in those reports, which can shed light on their ability to meet order expectations and be a reliable partner in the near future.

4. What is their security posture?

Vendors that rely on outdated or inadequate security methods aren’t just putting their own company and customers at risk—they could put you and yours at risk as well. A vendor’s systems being hacked could very easily result in the exposure of sensitive business and customer information being exposed, with major consequences. Just look at Morgan Stanley from our example above.

5. Do they do business with sanctioned entities—or are they themselves sanctioned?

The sanctions compliance landscape is complex. Specific persons, groups, or companies might be considered “blocked” by the US’s Office of Foreign Assets Control (OFAC) if they are connected to certain countries or groups tied to human rights abuses, associated with autocratic governments, or for many other reasons. Companies are also “blocked” if they are owned by a person, group, or entity that is on the sanctions list. Bringing on such a company as a vendor—or one that does business with “blocked” entities—opens you up to significant risk.

6. Do they have a plan if any new sanctions include their own suppliers and partners?

All things change, but some things—like the rate at which we’ve seen new sanctions come down since the beginning of the Ukraine-Russia war—change fast. When talking to new or potential vendors, don’t take “we don’t work with sanctioned companies” for an answer to question #5. Vendors should have a plan in place for a quick pivot to minimize disruption to their activities and production if they find out someone they work with ends up being added to a sanctions list down the road.

7. Do they promote diversity among employees and partners?

Diversity is more than a buzzword; it’s a competitive advantage. This is especially true at the leadership level—studies have shown higher diversity leads to higher levels of innovation and financial performance. If a potential supplier has taken concrete steps to promote and protect diversity, this bodes well for their future innovation and performance, which your company will benefit from. Similarly, diversifying the portfolio of their own sourcing—for example, procuring raw materials from different countries—will reduce the risk that a disruption at one company or in one region will prevent them from meeting production quotas.

8. Are they aligned with your business objectives?

What is most important overall at your company? Make sure there’s a policy on the guiding principles from the C-suite down, and get that policy in front of the team in charge of bringing on new vendors. They can work to ensure that all vendors they bring under contract are in keeping with company values. For example, if your company is known for its excellent customer service, the vendors you select should not change that dynamic; you’ll need to make sure that your company is prepared for any customer questions that may arise as a result of your utilizing this company as your vendor. In some cases, you will need to work together with that vendor to offer excellent experiences to customers asking for help—make sure they’re capable of doing this.

9. What does their sustainability program look like?

It’s helpful to receive clarity into a potential vendor’s sustainability program—if they have one. Those without a plan in place should probably be avoided; ESG (environmental, social, and governance) policies are a must-have in today’s business environment. Regulations are popping up that require companies to disclose their emissions and/or their efforts to curb their environmental impact. Vendors that ignore ESG obligations are open to fines. Your company could be too, as disclosing “Scope 3” emissions—those that can be traced to the supply chain—are required in some regions.

10. What level of risk would they bring to your business—and are you prepared?

No business is without risk, but it’s a good policy to limit it wherever you can. Some decisions, such as which vendor to bring on, carry differing risks depending on where you land. Determine the risk-to-benefit ratio of each vendor, and define your risk appetite—how much risk you’re willing to take on. This can take the form of operational risk, strategic risk, security risk, or financial risk—and your company’s appetite for one area may be more or less than another. Only work with vendors that fall inside your risk limit.

These 10 questions should give you an excellent understanding of the vendors you’re considering and should guide you through the decision-making process as you determine which to bring on board and which are the weak links you should pass on.

About the author:

Jag Lamba is founder and CEO of Certa, which works with businesses to streamline the onboarding process for vendors, including mitigating risk and ensuring regulatory and ESG compliance.

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