What is Supplier Onboarding?
Table of Contents
Supplier onboarding is the process of collecting the information and data required to set up an organization as an approved supplier or vendor. This procedure aims to enable your company to conduct business, purchase goods and services and pay the supplier efficiently.
Supplier onboarding also requires vetting and validation to ensure the prospective supplier complies with relevant laws, regulations and corporate standards.
Supplier Onboarding Process Example
For a vendor onboarding process to be effective and yield results, the data and information requirements must be customized for each supplier based on their various needs.
The most common of these needs include the following:
- Supplier type
- Spend amount
- Category
- Country
- Business unit
- Risk
An example of a Supplier Onboarding Process is provided below, outlining the standard steps to move a supplier from the consideration to the approval stage. As you can see, the process comprises numerous processes with a single overarching strategy to ensure that vendor onboarding is as streamlined as possible.
Request a New Supplier
The user enters basic details which are required to invite a new supplier. An automated system then searches and lists candidates that match to avoid duplicates. If none are found, the process can proceed to the next step.
Supplier Request Approval
Pre-invite approval workflow to validate if a new supplier can be requested. This is either rejected or approved; if approved, the system moves onto the stage of triggering the invite to be sent to the supplier for consideration.
Invitation is Sent to Supplier
Once the user or system has triggered the invitation to be sent to the supplier, a global record is created as a potential supplier with the status set to “invited”.
Supplier Registration
Once the invitation has been received, the supplier logs into the portal and provides the necessary data and information. Once accepted, the supplier status is updated to “registered”.
Due Diligence
The system or user reviews the supplier’s information and a pass or fail assessment is completed. The status is then updated to “assessed” with the appropriate classification assigned.
Supplier Approval
Once all mandatory initiatives have been completed, the user can review all the assessment results and approve. Following the approval, the supplier state is updated to approved.
Supplier Activation
Once all of the above has been completed, the user activates the supplier and the vendor master is created and sent to the relevant systems, such as ERP or P2P.
The Benefits of an Effective Vendor Onboarding Process
The supplier or vendor onboarding process can initially seem daunting, with numerous challenges to overcome. However, careful consideration should be invested in its refinement, as doing so will ensure that your organization is preserving existing important business relationships and providing long-term profit for the business.
The entire end-to-end process can often take 3 to 4 weeks, but this can be significantly reduced with the right supplier management software and tools. Although it may seem somewhat complex, an effective supplier management process includes starting with a suitable supplier onboarding strategy.
Additionally, supplier onboarding is the foundation of effective supply base management programs, yet organizations often find themselves in reactive positions, unable to capitalize on actionable supplier information efficiently and proactively.
Using Supplier Onboarding Processes to Maximise Revenue
It is important to remember that significant and the most profitable suppliers are not the only ones who require attention. If all your suppliers are not performing to the required standards, it becomes harder to increase your business’s overall efficiency, reduce costs, benefit from discounts and generate increased levels of return on investment.
By establishing best-in-class supplier onboarding processes, organizations can avoid many downstream disruptions or results of poor supplier governance during a supplier lifecycle.
As vendor onboarding can be a highly transactional process, it is therefore vital to capture all supplier requirements upfront to effectively operate downstream systems and drive other strategic supplier processes such as:
- Strategic sourcing
- Procurement
- Accounts payable
- Supplier risk management
- Supplier performance
- Spend analytics
- Supplier compliance management, with global and local requirements.
Complications of vendor onboarding processes
Regrettably, an organization’s success and growth, combined with expanding global operations, supply bases, product lines and ERP systems, can complicate the supplier onboarding process, especially if it spans several weeks.
For instance, a merger or simple acquisition can quickly change the demands on the onboarding environment. Additionally, as companies evolve and grow, they can become reluctant to automate, quickly becoming ineffective.
Naturally, this leads to those organizations wasting their resources on manual efforts to account for ever-changing workflows, information needs and verifications.
A better understanding of the current inefficiencies and roadblocks of the supplier onboarding processes can provide that baseline for improving supplier relationships and establishing “value” for all stakeholders involved in broader supplier-related processes downstream.
How to Set Up an Effective Supplier Onboarding Process
When setting up a new supplier onboarding process, specific actions should be included to overcome any challenges that could arise and risk derailing the initiative. These include:
Reviewing Approval Policies & Suppliers’ History
Establishing approval policies and setting standards to make it easier for the procurement team to understand what is and isn’t required when onboarding a supplier should always be the primary consideration for supplier onboarding.
It is also prudent to check suppliers’ previous performance and track record to gain insights into whether there have been previous negative experiences that have impacted their previous customers. This indicates whether they have a reliable track record and can provide your organization with the level of service you require.
Defining Expectations from the Outset
Expectations of both parties must be clarified from the outset to ensure that a positive working relationship between your organization and suppliers is achieved. This will help ensure that the defined standards and required deadlines are respected to create a harmonious and profitable relationship for both parties.
Identify Your Strategic Suppliers
Establish an understanding of your organization’s most critical strategic suppliers, which have the most spend and the most significant value to your organization. This information can ensure that you’re assigning additional resources to these suppliers to identify areas for further revenue generation or to ascertain if there are opportunities to refine further and enhance the supplier relationship.
Efficient & Effective Communication
Setting efficient lines of ongoing communication between the procurement team and suppliers will help ensure that the relationship is as profitable as possible for both parties. Issues can be quickly identified and resolved to prevent disruption in the supply chains and organizations can provide their customers with the best experience possible.
Supplier onboarding is a crucial process for organizations to conduct business efficiently, provide an enhanced experience for existing customers and generate significant levels of return on investment. While the process can be complicated, it can be made as streamlined as possible by using supplier onboarding software, such as HICX, to make the process as straightforward as possible to enable your internal teams to focus on other areas of the business where attention is required.
Article updated September 2022
