It was before six months our Purchase Department introduced a new vendor to our organization, who had shown deep interest in our business. It was very shocking and a learning curve for us when we realized the vendor started duplicating our products, even copying information from our website.
If the high level of competition in the market has pushed manufacturers to become more competitive and improve their products, solutions, and services, it has also encouraged some in unethical or fraudulent business practices, resorting to even copying products or infringement of intellectual properties.
Many a time, the fraudulent cobs its web deep and unmistakably, and finding out the ill practices becomes difficult.
Inevitability of Outsourcing
In today’s fast-paced market, it is challenging to manufacture or produce everything in-house or source all supplies and/or labour in-house. To speed up TTM (Time-to-Market) of any product cycle and reach the market faster, outsourcing tasks and sourcing supplies from outside is preferred. Also with outsourcing the business can achieve cost-effectiveness and devote more time and effort to the management of other areas of business function.
Selection of vendors may be more or less based on the size of an organization or the scope of the need that one is outsourcing vendor selection or any laxity in it can make or break a business. Vendor Validation is an essential part of the business that not only is important to ensure the overall quality of the purchasing company and its outgoing products but also minimizes the chances of being subject to fraudulent practices by competitors or parasitic establishments. This confirms a supplier as a legitimate entity. It can save the organization from any fraud by ensuring that the organization is not contracting with fraudulent vendors.
How Does Vendor Validation Work?
A business, especially the procurement team, is most likely familiar with a “purchase request” or a “procurement request.” This is generally a form or online submission in which an organization desiring to do business with a vendor fills out all of the relevant vendor information, such as company name, address, and contact information of the responsible vendor agent and submits it to the procurement department.
After this step is taken, the organization’s procurement department uses this information to vet all potential vendors through the validation process. Once the procurement department has validated the vendor, then a purchase requisition is submitted, or the original request is stamped and sent to accounting. This essentially is a green light from procurement services, indicating that the vendor is a legitimate entity, and the purchase can be made.
This brings me to the obvious mentioning of an incident in which Hindustan Automation was at the receiving end of a fraudulent act by a person in the garb of a legitimate vendor. The vendor was introduced to me by our purchase team as a supplier of industrial products, which we use in our customized SPMS and products. Soon after, the vendor started visiting our factory frequently for new orders and payments.
The vendor showed too much interest in keenly observing our products, production unit and capabilities which we initially ignored. We asked them if they could support me in some project execution to which they readily introduced us to someone, they called their partner. Their approach and activity seemed mischievous and soon our suspicion proved right as they copied not only almost all our products but also launched a new website promoting those.
We were also informed by our people that they were approached by the vendor offering them employment with very lucrative offers, but the relationship, values and culture we follow helped us to overcome this threat. For an SME the people play a very integral part, and it’s very important that unethical practices like this can hamper the manufacturing process.
Why Is Vendor Validation Important?
This experience has allowed us the opportunity to streamline our vendor validation process and also the need to have the right procurement team to ensure the proper validation of vendors without compromising the integrity of the organization.
Vendor validation is also necessary for the light of such practices, as there are many scams out there such as this and businesses that are out to incite unethical competition with others. It is imperative for an organization to ensure no leak of information on management decisions and current projects, and also to make sure that it is partnering with a real entity.
