India supplier due diligence: documents and checks

What due diligence is for

Due diligence is not a background check for its own sake. It answers three questions. Is this a real, solvent business? Can it make the part to the drawing? Will it still be able to do so next year? Each question needs a different kind of evidence.

The work should be proportionate. A low value catalogue part needs less than a safety critical assembly. But the legal identity check and the site check apply to every supplier, because a mismatch there undermines every other document you collect.

Legal and registration documents

Start with the entity. Ask for the certificate of incorporation, the permanent account number and the goods and services tax registration. Check that the legal name, the registered address and the plant address are consistent. A supplier that trades under a different name from the one on the invoice creates a customs and liability problem.

Then check the operating registrations. A manufacturer should have a factory licence, an Udyam registration for small and medium firms, and an import export code if it ships abroad. A plating or chemical process needs an environmental consent. The document should be current and should name the site you plan to audit.

Watch for group structures. A sales company, a manufacturing company and a property company may share a name but hold different assets. The entity that signs the contract should be the entity that owns the plant or the tooling, or the contract should make the relationship explicit. A purchase order to the wrong entity can leave you with no claim on the equipment.

Financial checks

Ask for the last two or three years of audited accounts, the bank details and a credit reference. Look at revenue trend, debt, working capital and dependence on one customer. A firm with a single dominant customer may be stable, but it may also be unable to give your programme priority.

Check the name on the bank account against the legal entity. Payments to a personal account or to a different company are a warning. For a large programme, a credit report and a visit to the plant's banker are reasonable steps. If the supplier cannot provide basic financial evidence, the price is not the main risk.

Look at the balance sheet as well as the profit. A firm with growing revenue but negative working capital may be financing its growth from supplier credit, which can tighten quickly. Ask about the payment terms it gets from its own material suppliers, because a sudden stop there will stop your line.

Quality system evidence

A certificate should be checked for three things: the standard, the scope and the site. An ISO 9001 certificate for a head office does not cover a remote machine shop. An IATF certificate for one product line does not automatically cover another. Ask for the certificate and the last audit report.

Then go deeper. Ask for the control plan, the process flow, the calibration register and a recent first article. For a new part, ask how the supplier will run the PPAP or the equivalent. A quality manager who can explain the measurement system analysis and the reaction plan is worth more than a wall of certificates.

Check the certificate on the issuing body's register as well. Suspended and withdrawn certificates still appear on a wall. The register shows the current status, the scope and the expiry. If the supplier cannot explain a gap between the certificate dates and the audit cycle, ask for the surveillance audit report.

Capacity and process evidence

Capacity is not a single number. It is the capacity of the bottleneck process, by machine and by shift, after existing commitments. Ask for a machine list with tonnage, spindle hours or press strokes, and ask how much is already committed. A supplier that is 90 percent loaded cannot absorb a launch curve.

Process evidence should include the equipment, the tooling, the gauges and the people. For a casting, ask for the pattern and the melting control. For a machined part, ask for the fixture and the capability study. For an assembly, ask for the poka-yoke and the end of line test. Then verify the bottleneck on site.

• Machine list with capacity by shift
• Committed load from existing customers
• Tool room and maintenance capability
• Gauge list and calibration status
• Process capability on a similar part
• Subcontractor list and their approvals

Environmental, safety and labour

Environmental consent is a legal requirement for many processes. Check that it covers the actual operation, the quantity and the waste route. A plating shop operating beyond its consent is a compliance risk that can reach the buyer through the supply chain.

Safety and labour practices matter for continuity as well as ethics. Ask about training, protective equipment, accident records and working hours. For export programmes, a customer code of conduct may apply. A plant with high turnover or a poor safety record will struggle to hold a stable process.

Commercial and ownership checks

Understand who owns the business and who can sign a contract. Family firms are common and can be excellent partners, but the decision maker may not be the person in the sales meeting. Ask for the authorised signatory and the board resolution if the company is a private limited entity.

Check for related party transactions, pending litigation and any history of insolvency. Public registries and credit reports can surface most of this. Also check the supplier's export history: shipping bills, customer references and the markets it already serves. A firm that has never exported will need support with documentation and packing.

Read the contract terms with the same care. Payment milestones, tooling ownership, intellectual property, warranties and the dispute forum all need to be clear. A supplier that will not accept a written quality agreement is telling you something about how it will handle a claim.

Red flags and the path to a purchase order

Walk away or pause if the legal name and the bank account do not match, if the plant is not at the stated address, if the consent is expired, or if the supplier cannot show a material certificate for the lot. Other warnings are a refusal to allow a site visit, a certificate with the wrong scope, and a price that is far below the market with no explanation.

A sound path is a document pack, a site audit, a trial order and a first article. Score each stage and keep the evidence. Then agree the inspection plan, the change process and the escalation contact. Due diligence ends when the first production shipment is accepted, not when the contract is signed.