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Supplier Intelligence

Demystifying Corporate Risk Evaluations for Diverse Suppliers

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In order to secure a large contract, you most likely require suppliers to go through a financial risk assessment. This is standard practice, and yet it is a stumbling block for many diverse companies that worry about providing access to financial information.

In a recent survey of small and minority business owners, we asked about the challenges they face when seeking contracts with larger companies. Many responded that navigating the risk assessment process is overwhelming and disheartening. Here's what one business owner told us: 

“The biggest challenge in the supplier diversity space, and in [the] business space in general, is that most companies want to work with larger companies to reduce risk. But if smaller, diverse companies are not given an opportunity to participate, they cannot change their status or financial structure. It's a Catch-22 scenario.” 

We know that diverse businesses face systemic discrimination that reduces access to opportunities and capital. That's what we're trying to change through our supplier diversity programs: eliminating roadblocks to economic success for small and minority-owned businesses. 

Does that mean exempting these businesses from risk assessment? Absolutely not. 

You need to protect your own company by ensuring a stable supply chain. Due diligence of potential suppliers reveals their financial stability, longevity, reputation, compliance with relevant regulations and quality control requirements, how well they can deliver the product or service you need, and their ability to scale. You require that your suppliers be properly insured to protect both parties.

A closer look at their supply chain helps you determine if they can meet your needs now and in the future. This all seems beneficial to both parties, right? A healthy, stable supply chain is good for everyone.

Why are diverse businesses reluctant to undergo financial risk assessment?

Many diverse businesses fear that submitting to the vetting process opens them up to an audit because they are still implementing compliance with laws and regulations. Access to capital is another major concern for diverse suppliers. Because obtaining a loan is still a substantial hurdle, the minority business owner may see a contract with you as the means to scaling up his or her enterprise, but without that contract, his or her company’s potential is limited. As the respondent above noted, it's a Catch-22 scenario. 

How can we reconcile these two needs?

When you're working with a publicly held company, its financial data is public and easily accessible. Most diverse companies are privately held, however, so you must request the information you need. Automating this process provides your supplier diversity and procurement teams with the tools to assess and address supplier risk proactively, from the moment you post bidding opportunities. 

A supplier portal allows you to vet potential suppliers by using a customized web-based form before they can submit a bid. When paired with a data enrichment service, the supplier portal is a powerful tool that eliminates the need for manual research and verification. 

Gathering the necessary information for risk assessment manually is time-consuming and a poor use of human resources. Data enrichment reduces supplier risk and maintains the integrity of your diverse spend by continuously monitoring merger and acquisition activity, ownership changes, and updates to certification or classification status via hundreds of verified databases. 

Using a third-party or independent evaluation service allows you access to necessary financial assessment, yet maintains the diverse supplier's confidentiality. Make it easier for your procurement team and your potential suppliers to work together for success.

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For over a decade CVM's mission has remained unchanged: lead the transformation of Supplier Diversity program management and support Supplier Diversity programs. CVM helps corporate supplier diversity programs in every stage of their evolution; from those that are just getting started, to the most advanced, world-class programs. Equipped with unparalleled data intelligence, superior technology and expertise guidance, businesses can effectively establish and advance their Supplier Diversity initiatives.