Canadian companies need supplier diversification to combat political instability and market changes. Experts must create a goal of establishing a robust portfolio of accessible, trusted vendors that align with their values. Professionals make businesses more resilient if they make the right connections.

How to Vet Suppliers in 4 Helpful Steps

Learn the best way to discover who is worth signing a contract with and what considerations go into long-term business-to-business commitments.

Step 1 — Define Your Needs and Diversification Goals

Organizations must define what they want in a long-term business partner. The foresight allows people to negotiate terms and research effectively, as they can communicate their expectations. These could concern volume, lead times, quality requirements and more.

Manufacturers should justify each need by tying it to a diversification goal. For example, fast fulfillment implies a lower risk assessment of global trade concerns and promotes supply chain resilience. A local vendor with strong sustainability sourcing ethics matches the company’s desire to reduce carbon emissions and withstand instability from natural disasters.

Step 2 — Identify Potential Suppliers

Cast a wide net. Research directories and marketplaces for options, or ask other businesses with which they collaborate. Trade shows are another valuable resource for being exposed to new agencies.

Prioritizing connections in the region eliminates the need for reshoring and nearshoring in the future. It makes suppliers and materials easier to access or manage when geopolitical barriers delay operations.

Step 3 — Conduct Thorough Due Diligence

The initial screening of the supplier is a crucial step. Gain as much information as possible from publicly available sources, like social media accounts, press releases and websites. It provides context for future conversations and gets manufacturers brainstorming questions to ask when they meet.

During these interactions, partners should expect to discuss financial records, including balance sheets and income statements. Creditworthiness is another factor in judging trust and reliability. Red flags could include lower revenue over time or consistently late payments.

Manufacturers should do a site visit to verify that what they say about their facilities is true. Assess how much the supplier can produce and transport in a day. See quality control measures in action as workers handle materials for other clients. These include compliance with Canadian regulations and ethical standards like the Supply Chains Act and others, such as:

• Environmental legislation like the Supply Chain Transparency and Consumer Product Labelling guidelines or Administrative Monetary Penalties
• Labour laws like the Fighting Against Forced Labour and Child Labour in Supply Chains Act
• Safety protocols recommended by the Canada Labour Program and provincial and territorial jurisdictions
• Cybersecurity frameworks like the Critical Cyber Systems Protection Act and the Personal Information Protection and Electronic Documents Act

All of these inform a risk assessment. For example, if prospective partners notice data privacy concerns, there may be compliance negligence. Vendors must complement their partners instead of increasing their political, performance and environmental risk profile.

Step 4 — Negotiate Contracts and Establish Ongoing Monitoring

Once a manufacturer deems a partner safe and productive, it can write a contract. The terms must include how to monitor the agreement’s success, such as regular performance meetings or measurement of key performance indicators. These audits and assessments will ensure everyone is on the same page.

How to Assess Partners

These are a few additional ways to evaluate a potential supplier.

• Geographic risk assessment: See how close a supplier is to external hindrances. Consider proximity to coastlines, where they could be prone to greater natural disasters. If they are rurally located, infrastructure limitations could inhibit them.
• Risk management maturity assessment: Find out if the supplier has a business continuity plan or insurance coverage in case of an incident.
• Mapping and tier visibility: Determine the vendor’s transparency by outlining Tier 2 and 3 partners and their relationships.

Companies can also use a sustainability scorecard to measure commitment to governance and social responsibility. Emissions in supply chains are sometimes 11.4 times higher than those of the direct organization. Therefore, this is a highly valuable way to judge a vendor.

Some sustainable efforts include supply chains, like diversifying suppliers and nearshoring. These support small-to-medium partners from varied backgrounds while keeping resource acquisition closer to operations. It lowers transportation impact and expenses while driving partnerships with varied industry players.

Thoughtful considerations like these are essential for helping Canada achieve diversification targets within supply chains and building healthier relationships with these businesses.

Establishing Supplier Trust

Supply chain diversification is vital to maintaining production without delays amid a trade war. Products are more complex, requiring more moving parts and partners to assemble. Manufacturers should build a resilient corporation with high productivity and quality by vetting new, diverse partners or risk longer delays, increased expenses and reputation losses.