There is a very positive movement in supplier selection and onboarding: conducting due diligence on the preferred supplier to ensure that the supplier meets certain criteria and expected obligations. In recent years, this ‘due diligence’ has been improved to assess additional areas of risk in the supplier, including some ESG-related risks like privacy, information security, human rights, sanctions, bribery and environmental risks. This new and improved form of ESG-driven due diligence is an excellent addition to most companies’ selection and onboarding processes. It will certainly help you identify weak suppliers in key risk areas and select suppliers that better match your risk profile.
Part of this due diligence process is a research phase, where the company selecting the supplier gathers information on the supplier. The easiest way to do this research is to send the supplier an online questionnaire. The size and depth of issues covered by online questionnaires has grown exponentially as new areas are added to the research list to check off. The process of sending questionnaires, including knowing what questions to ask, interpreting the answers and then deciding whether to move forward (and under what conditions), is the subject of much dialogue among supply chain management and compliance professionals.
While it is easy to send a questionnaire to every supplier, some challenges must be considered before adding supplier questionnaires into your process around ESG supply chain due diligence.
- It can be time-consuming and expensive for suppliers to complete questionnaires. They may have to spend hours or even days gathering the requested information, and may also have to pay for the services of a third party to help them complete the questionnaire. This can be a significant burden for suppliers, especially small businesses.
- It can be difficult for suppliers to answer all the questions in a questionnaire accurately and honestly. They may not have all the requested information, or might be reluctant to provide certain information for fear of it being used against them. This can lead to inaccurate or incomplete information, making it difficult for companies to decide which suppliers to select.
- Larger suppliers may have the resources to complete questionnaires quickly and accurately, while smaller suppliers may not. This can give larger suppliers an unfair advantage in the supplier selection process.
- Many of the questions in these questionnaires are mandatory, yet the issues covered in them are rarely tailored to the risk of the supplier. The hard work of a risk assessment isn’t being done up front to make the questionnaire shorter and more relevant to its recipient.
- Most questions ask for data to be uploaded in the forms of policies and procedures, yet rarely are these ever reviewed, considered, assessed, rated or commented on. They seem to be there for completeness and form over substance.
- Many questionnaires ask questions about information that is publicly available on the recipient company’s website or in filings, therefore wasting the time of both the company and supplier.
- The sheer volume of companies sending questionnaires and suppliers being asked to complete questionnaires is now exponential and causing unnecessary bottlenecks in the onboarding process.
- The questionnaires are part of a research process to conduct due diligence, and little value is offered back to the company in terms of their responses and whether they should take steps or measures to improve their management of risk. It is too often a one-way process.
As a result of these factors, questionnaires can actually discourage suppliers from participating in the supplier selection process. This can make it difficult for companies to find qualified suppliers, which can lead to higher costs and lower-quality products and services.
There are several things that companies can do to make the supplier selection process less burdensome for suppliers. These include:
- limiting the number of questions on the questionnaire – only ask questions that are essential to the decision-making process
- making the questionnaire easy to understand and complete – use clear and concise language and avoid jargon
- providing feedback to suppliers – give feedback to suppliers on their responses to the questionnaire to improve the suppliers’ performance in future selection processes
- using smarter questionnaires that assess risk on the fly and use sophisticated branching questions to ensure only relevant questions are asked
- considering a different gating model and only using questionnaires if necessary (for example, they may be excluded for certain global suppliers or companies that are retailers or large well-known providers).
By taking these steps, companies can help make the supplier selection process more efficient and effective for both themselves and their suppliers. ESG due diligence is important and will be essential going forward as new laws are passed that make the due diligence mandatory. What is not mandatory is how due diligence is completed. While there is a significant focus on using questionnaires, these need to be cautiously used to ensure that they do not overwhelm both the suppliers and the people in-house who are reviewing them.