In this video, Linshan Tiong, Associate Director of Marketing for Asia-Pacific and the Middle East, and Choon Hong Chua, Head of Financial Crime Practice Group for Asia-Pacific and the Middle East, chat about navigating supplier due diligence and third-party risk management.
Supplier due diligence is the process of verifying and evaluating suppliers before entering a business relationship with them. In many cases, this evaluation doesn’t stop at onboarding: companies may continue evaluating their suppliers on an ongoing basis as part of continuous risk management.
Evaluating suppliers can help supply chain and procurement professionals in a company better understand a supplier’s financial health and identify potential risk exposure in critical areas, such as cybersecurity, operational resilience, financial health, regulatory compliance, human rights due diligence, and geopolitical risk. It’s important to develop a clear supplier evaluation framework that reflects the company’s risk appetite and standards before they are onboarded.
Based on their conversation, here are three tips for procurement teams conducting supplier due diligence:
Businesses face increasingly complex challenges when it comes to managing their suppliers and supply chains today. As companies expand their operations and tap into diverse markets, they encounter varied regulatory environments, cultural nuances, and unforeseen vulnerabilities that can impact their operations.
To be adequately equipped to mitigate growing risks across a supply chain, businesses can benefit from access to comprehensive insights into their risk exposures within third-party networks, or a unified view of risk. This requires not just understanding the immediate risks posed by suppliers, but also the broader implications of these relationships on the entire supply chain. A clear grasp of due diligence obligations is important to identify and address potential pitfalls, uphold compliance with international standards, and safeguard the company's reputation. Implementing thorough supplier due diligence processes can provide the strategic foresight needed to anticipate and manage risks effectively.
In the video, Choon uses the example of a manufacturing company to highlight common supplier risks and the consequences of not being able to anticipate them. The complexity in global dynamics, coupled with growing regulatory obligations highlight the necessity for effective supplier due diligence.
Understanding a supplier’s financial health and financial stability are crucial to business operations. If a company’s suppliers are not financially stable, the suppliers may not be able to fulfil their business obligations, which can have a downstream impact on the rest of the supply chain. In this case, the consequence of facing such financial risks would directly impact the manufacturing company’s ability to continue production as planned.
In 2025, tariffs became a disruptive force for global trade. This article on a supplier’s financial health identifies strategies procurement teams can adopt for continuous supplier monitoring programs. The ability to identify and mitigate financial risk early can put companies in a better position to weather global shocks and supply chain pressures.
The volatility of global supply chains came into focus during the Covid-19 pandemic, where companies faced breakages and disruptions in their supply chains. This led to companies needing to source alternative suppliers for resiliency and business continuity. Supply chain disruptions can be shaped by changes in political tensions, environmental disasters, economic instability, and more.
Knowing where potential gaps in the supply chain lie can help companies plan viable contingencies if unforeseen disruptions arise. For example, a manufacturing company may consider nearshoring suppliers, which is the practice of moving business operations to nearby countries or regions. As a result of being closer to operations, companies can respond to supply and demand fluctuations quicker and have better control over the production process, providing more flexibility when disruptions or delays happen.
When it comes to supply chain operations, companies are obliged to comply with laws regulating labor practices; corporate sustainability; ethical sourcing and supply chain transparency; product safety standards; cybersecurity; trade and customs regulations; sanctions; and more. It’s important that companies can work with suppliers, vendors, and third parties with transparency and accountability in the production process. In the unfortunate event of working with a third party who violates regulatory obligations, companies open themselves to potential reputational risk and non-compliance fines.
In addition to the above risks Choon highlights in the video, the top 3 supply chain risks on our radar for 2026 are:
With tariffs still contributing the bulk of these pressures on supplier risks, it remains crucial for businesses to use data-driven analysis to understand a supplier’s financial health, run different scenarios to understand sourcing options, and build greater resilience to short-term shocks.
Companies can consider the following practices as part of a comprehensive supplier due diligence process:
Integrate external data with internal insights for a clearer picture of risk:
As Choon highlights, companies may need to dig into a deeper layer of insights to fully understand how their suppliers’ activity and relationships impact business operations. Businesses can harness the strength of Moody’s data resource, which provides access to corporate ownership information, supplier relationship data, financial data, and information on sanctions and other watchlists to help companies paint a more holistic picture of risk in their supply chains.
Conduct ongoing monitoring of third-party networks:
Similar to a perpetual know your customer (KYC) process in compliance, businesses can continue monitoring supplier networks after onboarding for event-based changes, rather than periodic reviews, which is supported by having up-to-date information on supplier networks. Identifying potential risks in counterparty networks early means companies can take proactive measures to mitigate risks through compliance activity.
Implement a risk-based approach:
By systematically assessing and categorizing suppliers based on their risk profiles from low to high, companies can prioritize their efforts and allocate resources more strategically. Firms that have a targeted focus on higher-risk suppliers can apply more stringent due diligence processes to better safeguard business continuity and improve supply chain resilience. This not only helps optimize resource allocation but also bolsters the organizational capacity to anticipate and mitigate supplier-related risks more effectively.
Moody’s works with organizations to implement data-driven insights on supplier due diligence programs. Learn more about Maxsight™, our unified risk platform, or get in touch today.
Other videos in the series: organized crime, financial intelligence, and master data management
