Know Your Supplier: Steps, Future Directions & Examples

Businesses miss out on an estimated $1.6 trillion in potential annual revenue due to disruptions in supply chains, production, and operations.¹ Know Your Supplier (KYS) programs help address this risk by ensuring organizations systematically monitor suppliers to safeguard resilience, compliance, and reputation.

Discover how to integrate Know Your Supplier (KYS) into your business processes, understand the key risks it addresses, and explore its importance, future trends, and real-world examples.

What is Know Your Supplier (KYS)?

Know Your Supplier (KYS) is a structured due diligence process that organizations implement to verify and validate their suppliers’ identities, credentials, and overall reliability.

A KYS process forms a critical layer of supplier risk management, ensuring that companies assess risks associated with their supplier network and supply chain partners to safeguard their business continuity and protect their brand reputation.

Steps in implementing a Know Your Supplier process

1. Initial assessment

The key activities in the initial assessment are:

• Supplier identification: The first step involves compiling a comprehensive list of existing and prospective suppliers. This includes direct (Tier 1) suppliers and, where possible, sub-tier suppliers who play a critical role in delivering goods or services.
• Information gathering: Collect essential details, including supplier name, location, legal entity type, ownership structure, contact information, and product or service offerings. This may also involve gathering preliminary information on certifications, licenses, and corporate policies (e.g., those related to ethics or sustainability).

The objective of the initial assessment is to build a foundational supplier profile that serves as the baseline for further due diligence. This profile helps the organization understand who they are dealing with and facilitates risk screening.

2. Due diligence

The key activities in the due diligence process are:

• Verification of documents: This involves authenticating supplier credentials such as business registration certificates, tax identification numbers, operating licenses, and compliance certifications (e.g., ISO, SA8000).
• Credential checks: Verifying beneficial ownership, management structures, and any past legal or regulatory issues. Background checks on key personnel may also be conducted to assess ethical standing.

The objective of the due diligence measures is to confirm the legitimacy and compliance of suppliers, ensuring they are lawfully established and meet minimum regulatory and ethical standards.

This step is critical in preventing fraud, sanction violations, and partnerships with shell companies.

3. Risk evaluation

The key components of the risk evaluation process are:

• Financial assessment: Review supplier financial statements, credit ratings, and solvency data to assess their financial health and identify potential risks of insolvency.
• Operational risk analysis: Evaluate the supplier’s capacity to deliver on commitments, considering factors such as production capabilities, location risks (e.g., political instability, natural disasters), and supply chain dependencies.
• ESG assessment: Assess environmental practices (e.g., waste management, emissions control), labor standards (e.g., avoidance of forced or child labor), and governance structures (e.g., anti-bribery policies).

The aim of the risk assessment and evaluation step is to detect weaknesses and threats that could disrupt operations or damage the company’s reputation.

The objective is to classify suppliers by risk level and determine risk mitigation strategies (e.g., implementing additional controls for high-risk suppliers).

4. Monitoring

The key steps in the monitoring phase are:

• Ongoing surveillance: Utilize tools for real-time monitoring of suppliers, including tracking news of legal actions, sanctions, or regulatory changes.
• Periodic reassessments: At set intervals or upon material changes (e.g., mergers, changes in ownership), re-evaluate supplier risks and compliance status.

The primary objective of monitoring is to maintain current compliance and adjust to changes in supplier circumstances, regulatory environments, and risk exposure. Continuous monitoring ensures that the KYS process remains dynamic and responsive.

5. Continuous improvement

To achieve continuous improvement, here are the key activities:

• Update risk criteria: Refine risk models and assessment criteria as new regulations emerge or as lessons are learned from past supplier incidents.
• Integrate best practices: Adopt innovations in technology, data analytics, and industry standards to enhance know your supplier (KYS) effectiveness.

Continuous improvement aims to future-proof the KYS process by ensuring it evolves in line with the business landscape and regulatory frameworks. This helps maintain a competitive edge and strong governance posture.

Key risks addressed by KYS procedures

Know Your Supplier addresses a wide range of risks by enabling businesses to identify, assess, and mitigate threats arising from regulatory non-compliance, financial misconduct, operational vulnerabilities, and unethical supplier practices:

Regulatory risks

KYS plays a crucial role in shielding organizations from legal and regulatory exposure by ensuring that suppliers operate within the bounds of applicable laws and standards.

• Trade compliance: Suppliers involved in international trade must adhere to complex export and import laws, customs regulations, and sanctions regimes (e.g., EU sanctions lists, US OFAC lists). KYS helps businesses detect suppliers that might violate these controls and expose the organization to penalties or loss of market access.
• Environmental regulations: Non-compliance with environmental laws, such as improper waste disposal or excessive emissions, can result in fines, shutdowns, and legal actions. Know Your Supplier assesses supplier environmental certifications and track records to mitigate these risks.
• Human rights and labor laws: Regulatory frameworks, such as the UK Modern Slavery Act or France’s Duty of Vigilance, impose obligations on companies to ensure their supply chains are free from forced or child labor. KYS ensures suppliers comply with these mandates, helping the company avoid liability and reputational fallout.

By proactively identifying regulatory breaches in the supply chain, KYS helps prevent costly penalties, litigation, and loss of licenses or market privileges.

Financial & fraud risks

Financial integrity is crucial to supplier relationships, and KYS helps organizations avoid hidden dangers associated with fraud or financial misconduct.

• Fraudulent suppliers: Know Your Supplier enables the detection of shell companies, fictitious suppliers, or entities engaged in fraudulent billing or supply of substandard goods.
• Money laundering exposure: In some instances, supplier networks can be exploited as conduits for illicit funds. KYS screens for beneficial ownership structures, political exposure (PEP checks), and suspicious financial patterns to flag high-risk entities.
• Supplier insolvency: By analyzing financial statements, credit reports, and market reputations, KYS identifies suppliers at risk of bankruptcy that could leave a company stranded mid-contract.

Know Your Supplier protects businesses from financial loss, legal consequences associated with financial crime, and operational disruptions resulting from supplier insolvency.

Operational risks

KYS enhances supply chain resilience by identifying operational threats stemming from supplier weaknesses.

• Supply chain interruptions: Suppliers in politically unstable regions, those dependent on a single facility, or those without contingency plans pose a risk of delivery delays during crises (e.g., natural disasters, political unrest).
• Quality failures: KYS helps ensure suppliers meet quality standards and certifications, reducing the likelihood of defects, recalls, or safety incidents that could impact customers.
• Dependency risk: Identifies over-reliance on a single supplier or region, enabling businesses to diversify sources and mitigate concentration risk.

Organizations are better prepared to maintain supply continuity, product quality, and customer satisfaction even in the face of supplier disruptions.

Reputational & ethical risks

KYS safeguards a company’s brand and stakeholder trust by aligning supplier practices with corporate values and social expectations.

• Labor abuses: Suppliers engaging in unethical labor practices (e.g., child labor, forced labor, discrimination) can severely damage a company’s reputation and lead to consumer boycotts or activist campaigns.
• Environmental harm: Association with suppliers involved in deforestation, illegal mining, or pollution can alienate investors and customers, especially in an ESG-focused environment.
• Corruption and bribery: Suppliers linked to corrupt practices may bring companies into conflict with anti-bribery laws like the US FCPA or UK Bribery Act.

KYS provides a reputational shield, ensuring the company is seen as a responsible corporate citizen and safeguarding stakeholder confidence.

Importance of KYS in modern supply chains

Risk management

KYS enables organizations to identify and mitigate various supplier-related risks, including financial insolvency, regulatory breaches, operational disruptions, and reputational damage from unethical practices.

Compliance

By implementing KYS, businesses ensure alignment with key regulations, such as the EU Corporate Sustainability Due Diligence Directive and France’s Sapin II law, thereby helping to avoid legal penalties and maintain their license to operate.

Supply chain resilience

KYS contributes to the stability and continuity of supply chains, ensuring that organizations can respond effectively to disruptions such as natural disasters, geopolitical tensions, or supplier failures.

Ethical and ESG alignment

An advanced KYS process promotes ethical sourcing, safeguards human rights, supports anti-corruption efforts, and aligns supply chain operations with corporate sustainability commitments.

Future trends in KYS with real-world examples

The Know Your Supplier (KYS) processes are evolving rapidly to meet the growing demands for supply chain transparency, regulatory compliance, and resilience. Here are some of the key trends shaping the future of KYS, supported by case studies:

AI-driven supplier risk management

AI and machine learning (ML) are enabling KYS to:

• Continuous risk monitoring instead of periodic reviews.
• Automated supplier scoring using structured and unstructured data.
• Predictive analytics for early detection of supplier distress.

Real-life example:

A major financial services firm partnered with apexanalytix to automate and strengthen its supplier risk management program.

The firm needed to identify risks, including ethics, business continuity, financial health, IT, and sustainability, at the start of supplier relationships and monitor them continuously.

By adopting apexanalytix’s solution, which includes automated scoring, supplier segmentation, and real-time monitoring from multiple sources, the company reduced onboarding time from 45 to 4 days, enhanced risk visibility, and improved vendor relationships while protecting its reputation.²

ESG & ethical sourcing integration

As ESG regulations tighten, KYS programs are embedding sustainability, ethics, and social responsibility checks:

• Supplier assessments include carbon footprint, labor practices, and ethical sourcing.
• Multi-tier supply chains are mapped to monitor indirect supplier risks.

Real-life example:

Tapestry, the owner of Coach and Kate Spade, has been working to trace 95% of its raw materials by 2025, partnering with TrusTrace to manage supplier data collection and meet rising transparency regulations.

The company has onboarded most Tier 1 and Tier 2 suppliers and is focused on mapping key materials like leather, cotton, and polyester.

Tapestry’s cross-functional teams are creating a long-term, systematic approach to supply chain traceability, aiming to reduce environmental impact and improve worker livelihoods.³

Supplier self-service & digital collaboration

Future KYS systems include:

• Supplier portals for self-updating profiles and document uploads.
• Enhanced supplier engagement through training and shared tools.

Real-life example:

Autoliv, an automotive safety supplier, transformed its supplier governance and quality management by adopting AuditComply’s platform to replace outdated manual processes and legacy systems.

With real-time supplier portals, digital audit templates aligned to IATF and VDA standards, and automated reporting, Autoliv improved efficiency, compliance, and collaboration across its global supplier network.

This shift led to faster supplier onboarding (reduced by 80%) and cut supplier risk management time and costs by 50%, while ensuring consistent quality, timely communication, and stronger supplier relationships.⁴

External Links

• 1. https://www.accenture.com/content/dam/accenture/final/accenture-com/document-2/Accenture-Resiliency-in-the-Making-Report.pdf
• 2. Supplier Risk Management Program.
• 3. How Tapestry convinces suppliers to share their data | Vogue Business. Vogue Business
• 4. https://www.auditcomply.com/wp-content/uploads/2025/04/Case-Study-2025-Autoliv.pdf