The Indian FMCG industry is rebuilding itself strongly after the pandemic highlighted weaknesses in the traditional supply chain models and created new patterns of demand and delivery. In the wake of logistic failures and enhanced business partner (vendor/suppliers/dealer/distributor) risks, FMCG companies are reevaluating their third-party onboarding and risk management processes. Additionally, in a growing industry where digitization is changing the game, speed, scalability, and reliability have emerged as key differentiators.
Be it backward integration with a vendor/supplier or forward integration with a dealer/distributor, a thorough understanding of business partners and the risks they carry is essential. It is also crucial to have a technology infrastructure that can support the seamless integration of third-party stakeholders into the system and monitor the health of a relationship throughout its lifetime. Some of the common pitfalls here are:
Absence of a Solid Risk Framework at Onboarding – To ensure that the business partner is of sound health, it is crucial to mitigate risks from business partners by gathering enough information and conducting effective due diligence. Some of the parameters to evaluate include litigation history, reputational history, and financial parameters. The lack of a solid risk framework often subjects a business to compliance failures and huge financial, and reputational losses.
Lack of Diversity – A business often ends up working with the same set of dealers and distributors for years. Such heavy reliance subjects them to compliance oversight, supply failures, and internal fraud.
Absence of Continuous Risk Monitoring – Once a business partner is onboarded into the system, it is common for businesses to ignore continuous risk assessment. This is essential to raise awareness of changing vulnerabilities and processes and provide for more effective decision-making regarding third-party risk.
Lack of Data – Effective decision-making needs accurate, reliable data and often real-time data. No risk mitigation framework can work if it is not built on reliable data. Moreover, the sources of data are often disintegrated, making it challenging to get a complete picture of the health of the business partner network.
Lack of Transparency – Often, different departments in an organization collaborate with a common business partner without any visibility of the engagement on the other side. Such lack of transparency leads to operational inefficiencies, increased overheads, and an adverse effect on the bottom line.
KYC carries a different meaning for different onboarding journeys in an FMCG ecosystem. KYB focuses on a business entity whereas Vendor Due Diligence (VDD) or Dealer/Distributor Due Diligence (DDD) are broader terms that evaluate an entity on a set of parameters. Some of these include:
Financial Checks: It includes credit checks, bank account checks, GST verification filings, payouts, or any active mortgage/satisfied charges. Determining authenticity parameters and cross-checking if the businesses you deal with are credible or not.
Database Checks: Verifying partners/businesses with proprietary databases including court record database checks, crime watchlist checks, and criminal history checks.
Reputational Checks: Reference checks for business identity/key account personnel and prevent association with wrong parties.
Compliance Checks: Validating PF registration, ESIC registration, and GST taxpayer registration to stay compliant and save businesses from regulatory fines and illegal financial problems.
Address Checks: Proof of address for identity verification of customers/business partners to comply with the Know Your Customer/Know Your Business (KYC/KYB) regulations, and prevent fraudulent activities, and double-dealing.
KYC/AML Checks: KYC/AML checks to prevent money laundering, terrorism financing, and other illegal corruption schemes.
Rethinking Third-Party Onboarding in FMCG
Reimagining third-party onboarding from the ground up is necessary to leverage critical trends in technology. Capabilities like Video KYC and Digital KYC are key to validating business partners at scale, speed, and accuracy. Built on top of technologies like face match and biometric authentication, Video KYC can validate details of business partners, including identity and address, in seconds and within the confines of regulation. Optical Character Recognition (OCR) enables automated form filling, and digital document storage solves data storage and privacy concerns.
Access to end-to-end platforms that can leverage cutting-edge technology to facilitate KYC/KYB checks can be a game-changer. These platforms can provide a huge competitive advantage by streamlining the top onboarding challenges like managing risk, enabling transparency, and facilitating inter-organizational collaboration. The data insights gathered from these platforms over time can further make the entire onboarding process more robust, sophisticated, and intelligent.
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