Every business needs a way to manage its vendors to minimize risk. However, many companies fail to implement a formal approach that allows them to acquire, assess and monitor the performance of their partners. A Know Your Vendor (KYV) process is an important and frequently ignored source of information to identify and prevent reputational and financial risks.
Know who you are doing business with
The KYV verification procedures and guidelines are used to ensure the effective management of commercial supplier relationships. It is a way to ensure that the company you are buying from is legitimate and trustworthy. The idea behind a KYV verification is knowing your partners to determine if you are willing to continue doing business with them in the future.
Supply chain professionals sometimes use the term “Know Your Supplier” (KYS) to describe a “Know Your Vendor” (KYV) program. Regardless of the term, these programs refer to a good management practice in which an organization takes the time to build long-term relationships with its partners.
The risks associated with not knowing your supplier/vendor are very real and can have a significant impact on your business. Here are some examples:
- Having minimal visibility increases your exposure to risk. Ignoring who your supplier and their reputation is could put you at risk for fraud, delays, and even theft.
- Reputational repercussions may lead to financial loss. What is their reputation? Ask for references in the industry to see if other businesses have heard of them and what their opinion is. Past customers of your potential partners can have relevant opinions about their services or products.
- Compliance and regulatory / fraud risks. Can you trust them with sensitive information? Do they keep confidential information confidential? Will your partner be able to handle problems that arise during the course of doing business with you? Possible liability related to vendor negligence or non-compliance.
- Impact on your business performance. Are they honest and reliable? Do they have a good track record of completing projects on time and within budget? Are they likely to stand behind their work product?
There are many benefits of knowing more about your vendor.
Build stronger relationships and learn from each other
Working with the same people over time allows you to learn what they do well, what they need help with, and how they prefer to work.
Understanding your partners’ business model and how they operate can help you to work together more effectively. This can also be an opportunity to build trust for new projects and to get feedback about each other’s work.
Minimize supply chain disruptions and risks
Supply chain disruptions are inevitable but risk can be minimized by putting effort into knowing who’s on the other end of your supply chain. Disruptions are a particular problem for businesses that rely on foreign suppliers because they have to plan for the worst-case scenario when it comes to shipping and then hope for the best.
Long-term business relationships
It can take months or even years for a supplier-client relationship to develop into a true partnership. The goal can be for both parties to communicate openly about their needs, expectations, and desires for how the relationship will grow in the future. But don’t expect immediate results — these relationships may take time to build, but they will be worth it in the end.
Stay competitive in the market
It allows you to stay up-to-date with all the latest trends in their industry and gives them an opportunity to know about the latest trends in your industry too. This makes both of you more competitive when dealing with clients who are looking for someone who can provide them with services that best suit their needs.
One of the first steps to develop a strong supply chain is identifying the risks that can impact your business. As we previously established, when you choose a vendor, you need to know about its history, reputation, and reliability. You’ll want to look at their past performance through different public resources, like trade publications, industry trade groups, and advertising materials. But most importantly, run a verification process to avoid and/or minimize regulatory and fraud risks. How much risk are you willing to accept for your business?