Hany Fam is founder and CEO of Markaaz, the world’s first global platform to verify and connect every small business on the planet.
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Can your business survive the shortcomings of a vendor on which you rely?
The sustainability and growth of your small business depend on the strength of each link in your supply chain: producers, vendors, warehouses, logistics and distribution centers. That’s a lot of links for business owners to monitor.
Regardless of the size of your business, one weak link in your supply chain could equal missed opportunities, decreased sales and the potential for long-term reputational and financial loss. Yet, the Business Continuity Institute found in its recent report that half of the companies it surveyed still "fail to carry out sufficient due diligence" on key suppliers beyond tier 1.
While the ability to predict a pandemic or a ship stuck in the Suez Canal isn’t likely, as a small-business owner, you can and must look to the strength of each partner and their potential to impact your own business. As the founder and CEO of a platform that verifies and connects small businesses and suppliers around the world, I've seen firsthand that the first step is to identify and address potential problem areas.
How much do you know about your supplier network?
One problem area for small-business owners is relationships with new and existing suppliers and vendors. Are your suppliers financially stable? Are they credible and in good standing with a strong business and credit score? Are the companies and their leadership teams operating legally? Are they legitimate businesses? Answering these questions (and more) can protect you from bad actors and help you find reputable businesses with which to partner.
You can begin validating suppliers on your own by using resources that are available to you, such as Google searches and review sites like Yelp. Of course, this approach can be time-consuming and, in my experience, may deliver limited results for verifying the trustworthiness and suitability of potential suppliers. Talk to any small-business owner and they’ll likely agree that manually authenticating a business is extremely time-intensive and limited.
To save time verifying your suppliers, you could also consider investing in traditional access to some of this information. This can be expensive, however, and I've found even large corporations with deep pockets only do this for about 10% of their suppliers in the hope of protecting their own supply chains. The reality is, it’s historically been cost-prohibitive for small businesses to purchase access to these types of solutions or other services.
As a result, I've observed a number of companies moving away from supply chains to supply networks or multisourcing solutions. If this is the approach you take, ensure you're still verifying each suppliers' performance criteria, as well as financial and other stability factors, and connect with them through secure and trusted networks.
Furthermore, keep in mind that supplier verification should be an ongoing process of real-time monitoring (for both existing and new suppliers) and being prepared with alternatives, should the need arise. Just consider that while business exits are common, with nearly 600,000 businesses permanently closing in the U.S. each year, the pandemic caused further business instability, with an additional 200,000 businesses permanently closing, according to an April 2021 report by Federal Reserve economists.
The pandemic has also caused other supply chain disruptions for small businesses. Early in the pandemic, an average of roughly 45% of respondents to the U.S. Census Bureau Small Business Pulse Survey reported disruptions to their supply chains, with higher impacts in industries such as retail trade, manufacturing and health care. Now more than a year later, about 30% of small businesses continue to experience domestic supplier delays, and more than 13% are still having difficulty locating alternative domestic suppliers.
What verifications should you have for suppliers?
Financial institutions, payment companies and other highly regulated industries are required to complete robust vetting of any businesses or individuals with whom they do business, including review of numerous global registries, watch lists and other public and paid databases. These are the highest standards in compliance and risk assessment available, and you can use these checks to help protect your own business.
Two of the most prominent global compliance checks I recommend familiarizing yourself with are "know your customers" (known as KYC) and "know your business" (known as KYB).
• KYC is the formal way of saying customer identification. Originally developed as a requirement for banks and other financial services to understand people’s transactional behaviors and assess money laundering risk, now you can also use this to verify the person behind a business is a real individual and operating legally.
• KYB is due diligence performed on companies, including review of the company registration, business license, CEO and other owners/directors, sanctions and adverse media checks for suspicious activity.
Commonly used by large enterprises, these checks offer invaluable insight to verify that businesses are legitimate and trustworthy entities. When made accessible and affordable to small-business owners, you can use this information to make better decisions about vendors and suppliers with whom you choose to do business.
In addition to these verifications, it’s important to monitor the business performance of existing and potential suppliers through credit checks that provide insight into a company’s financial stability. Watch for changes over time, and monitor for declining credit scores, which can indicate that a company has encountered cash flow challenges or the need to incur new debt.
While we will eventually get through the business instability caused by the pandemic, small-business owners must always be watching for potential problem areas in their supply chains. Start by taking a closer look at your current suppliers and determine if you have any weak links. Ensure that you have thoroughly vetted everyone with whom you choose to do business by conducting robust KYB, KYC and other verifications, performing credit checks, and continuing to monitor business performance over time. Then, proactively research alternative suppliers and start building multi-supplier networks. By doing your research and being prepared, you can help your small business survive the next supply chain disruption and thrive.
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