Risks in the supply chain is not only from the product itself, but many also arise from people, locations and hidden connections. A recent report revealed that ~9% of reported issues stem from poor due diligence on people and third-party partners behind them. While companies are often diligent about verifying the quality of products and services, they frequently overlook the stakeholders behind them.
From suppliers to logistics partners, every stakeholder contributes not only value but also potential risk. These risks can take many forms, including fraudulent credentials, undisclosed financial liabilities, or non-compliance with labour laws. To prevent such vulnerabilities from threatening the business, companies should invest in thorough stakeholder due diligence.
What is stakeholder due diligence?
Stakeholder due diligence is the process of thoroughly assessing an associate or affiliate before initiating or continuing a business relationship. This proactive evaluation helps organizations identify and understand the potential risks associated with third-party entities involved in their supply chain. It goes beyond surface-level interactions to examine a stakeholder’s integrity, background, business practices, legal standing, financial health, and compliance with relevant regulations. By doing so, companies can mitigate threats such as reputation damage, legal compliances, operational disputes, or financial loss. Ultimately, stakeholder due diligence empowers businesses to make informed decisions, foster trustworthy partnerships, and build a more resilient and ethical supply chain.
Overlooked Risks in Stakeholder Onboarding
- Financial fraud: Onboarding vendors with fake credentials or wrong documents can lead to billing fraud, GST evasion, or embezzlement.
- Regulatory violations: Non-compliant partners may breach labour laws, environmental norms, or tax regulations, exposing your company to legal action.
- Operational Disruptions: Unvetted suppliers may lack the capacity, reliability, or infrastructure to meet the needs of the business.
Key Reasons Every Business Needs Stakeholder Due Diligence
- India’s Growing Global Role: India is emerging as a global manufacturing and export hub and the integrity of its supply chains is under greater scrutiny from international partners and regulators.
- Stricter Government Regulations: SEBI and other regulatory bodies are actively revising ESG frameworks and disclosure norms, pushing companies to maintain greater transparency and accountability in their supply chain operations.
- Increased Exposure to Reputation and Operational Risks: Lapses in supplier due diligence can result in regulatory penalties, operational disputes, or brand damage, especially in industries under close public and media watch.
- Evolving Investor and Consumer Expectations: Investors, customers, and international partners demands ethical sourcing, and sustainability. Companies unable to demonstrate responsible supplier practices may lose competitive edge and trust.
Building a practical due diligence framework
Before onboarding any supply chain partner, businesses should conduct a comprehensive evaluation of the entity to ensure alignment with legal, ethical, and operational standards. It involves background verification, financial health checks, regulatory compliance reviews, and reputation scans. Incorporating these checks into the onboarding process not only strengthens partnership but also supports sustainable relationship.
Importantly, due diligence should not be treated as a one-time activity; regular re-evaluations help businesses stay informed of evolving risks and maintain alignment as circumstances change.
Conclusion
Strong supply chains are built on trust and careful planning. Doing due diligence isn’t just ticking boxes, it helps businesses avoid risks, stay transparent, and earn long-term trust. By checking and reviewing partners regularly, companies can protect their operations and set a strong example of responsible business leadership.