What is Supplier Onboarding? (Process and Best Practices)

What is Supplier Onboarding?

Supplier onboarding is a crucial strategic process marking the beginning of supplier relationship management (SRM) in which businesses or organizations gather useful information about prospective suppliers before integrating them into the supply chain.

The main aim of supplier onboarding is the thorough vetting of potential suppliers by reviewing and evaluating the gathered information so that your company or organization only associates with trustworthy and reliable vendors. The gathered information can range from basic knowledge such as contact details and product specifications, to more in-depth research regarding the potential vendor’s past clients and contracts.

If done right, supplier onboarding can help you avoid many common missteps in the larger supplier relationship management process, ensuring that future supply chain issues are mitigated.

Supplier Onboarding Process: Example 

Let us consider a detailed example to understand supplier onboarding better.

Imagine that a Saas company wants to incorporate an in-app solution to survey its users. The company would then follow the following steps until a supplier is successfully onboarded:

• First, members of the SRM team would shortlist multiple potential vendors who provide the necessary software for in-app surveys.
• Information such as the credentials, history, and pricing for all shortlisted vendors is gathered. This involves visiting other Saas websites or tools that have incorporated their in-app surveys, and even reaching out to them if needed.
• Next, each of these vendors would be reviewed based on all gathered information.
• According to the Saas company’s ideal budget and other practical and aesthetic preferences, a vendor would be shortlisted for the creation of in-app surveys.
• The company would then sign on for a free trial or demo to be extra sure that the right choice has been made.
• If all goes well, the in-app survey portal will be incorporated into the Saas company’s interface permanently!

This example helps to clarify the steps involved in supplier onboarding. To gain a more detailed understanding of the process, let us study these steps further!

Steps of the Supplier Onboarding Process

There are seven main steps in supplier onboarding. They are:

1. Identify your requirements

First, you need to begin by identifying your business requirements. Without this step, supplier onboarding will be futile. 

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Your shortlisted vendor should be capable of meeting your business requirements, be it by suiting the size of your business or organization, aligning with your purchasing policies, or even adhering to your communication style.

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Identifying your requirements helps you to 

• establish clear goals, 
• identify key stakeholders, and 
• distribute your manual and digital resources accordingly.

By the end of the step, you should ideally know 

• the size of your typical purchase order, 
• the corresponding budget allotted for the purchase, 
• the timeline you would like to earlier to adhere to, and 
• your preference of geographical location, if any.

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2. Define your evaluation criteria and process

Based on the requirements you have identified in Step 1, you can now define your criteria for supplier evaluation. This means that your needs are now applicable to what potential suppliers can offer you. For instance, if your activities are limited to a particular geographical location, your evaluation criteria will not take into account suppliers outside of that radius.

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Having a clear idea of what your supplier onboarding process is going to be like is also necessary to avoid confusion along the way.

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Creating a procurement policy is ideal here because it can help clarify guidelines for supplier relationship management. Having clear 

• procurement goals and objectives, 
• supplier engagement procedures and protocols, and
• ethical policies and budgetary guidelines

 is helpful when it comes to communicating to your employees precisely what is expected of them.

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This step is also where you set up your data collection process, deciding whether you want to administer questionnaires or initiate contact differently. 

3. Collect data

Next, you must collect all the necessary data before narrowing down your vendor of choice. Primary and secondary contact details, including phone numbers, email addresses, office addresses, and social media presence. 

Consider setting up a vendor portal For data collection and registration. Ideally, a vendor portal should have a form that asks all the relevant questions to collect the above-mentioned contact information.

Prospective suppliers can also register to the portal to indicate that they want to work with you. Setting up a vendor portal is relatively easy and saves time.

Other methods of collecting data include 

• direct integration, 
• APIs, 
• purchase order, and
• email communication, among others. 

Additionally, you can reach out to the suppliers’ previous clients and get their feedback for a more honest and holistic appraisal.

Keep in mind that your data collection must be thoroughly documented every step of the way for future reference and ease of streamlining.

Important information that you need to collect includes:

• the validity of suppliers’ business licenses,
• tax information and identification,
• Insurance policies,
• subcontractor details,
• security certifications,
• supplier financials and credit history,
• sustainability credentials, if needed,
• adherence to GRC (Governance, Risk, and Compliance) guidelines, and lastly,
• their service track record.

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4. Perform due diligence

if you rely on primary data collection, due diligence is your next responsibility. 

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The verification of the data you have collected is something that cannot be done by half-measures. 

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Just because a prospective vendor has declared that they follow a certain code of conduct does not mean that this will translate into practice. To safeguard your interests, consider getting the supplier to sign an ethical code of conduct.

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Do not hesitate to spend extra time on due diligence because this step is where you will be able to identify any red flags. Not only will being thorough mitigate vendor risk, but it will also reduce any future supply chain issues.

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Additionally, at this stage of the process, you should also supply your prospective vendor with some information about your company or organization such as:

• your code of conduct policies
• an overview of your company’s ideals, beliefs, missions, and values,
• the details of the current project you're working on for which you need to onboard the supplier,
• bank account details and billing information, and
• your review and feedback policies.

By doing so, you secure the trust of your vendor by demonstrating that information disclosure is a two-way process.

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5. Negotiate and clarify expectations

At this step of the supplier onboarding process, you should be negotiating pricing for your order and drawing up a contract. Be sure to discuss

• additional terms and conditions in your contract,
• workflow expectations,
• delivery timelines, and
• additional training for employees on both sides, if required.

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Be straightforward in communicating the intricacies of your business relationships, and the policies you follow with respect to 

• payment systems,
• service level agreements (SLAs), and 
• non-disclosure agreements (NDAs)

Transparent communication will go a long way in setting up a supply chain network that stands the test of time.

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6. Set up continuous monitoring

Before setting up continuous monitoring, ensure that all relevant stakeholders in your company or organization have access to your chosen supplier’s details and requirements, along with a copy of the finalized contract prior to vendor approval.

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This allows everyone involved to stay updated and hold up your end of the bargain and also opens the supplier onboarding process to valuable feedback from all organizational tiers.

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For instance, it is important that your accounts payable team, HR, and procurement team are informed about operational changes as a result of a new business relationship.

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Setting up continuous monitoring is crucial because it not only gives you a bird’s eye view of your onboarding process but also provides an opportunity to

• establish clear metrics and (key performance indicators) KPIs for assessment based on your data, and
• monitor a specific vendor’s performance in comparison to expectations set.

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This helps you to review your decision, bringing us to the last step of the process.

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7. Review, rinse, repeat

Conducting regular supplier performance reviews will serve as quality control for suppliers, keeping third-party risk levels manageable and consistent.

Reviews don’t just need to be quarterly or biannually logged. Setting up a stringent schedule for vendor assessment ensures that you continue to restate your desired benchmarks.

Compare your agreed-upon KPIs to your current supplier management outcomes, and establish clear expectations for the future.

Ensure that feedback is gathered from all relevant departments in your organization and communicated to the supplier promptly and firmly.

Even though the process might seem time-consuming and daunting, supplier onboarding becomes more streamlined the more you do it. It also makes up for its length by being helpful in several ways. 

Let us now familiarise ourselves with some supplier onboarding benefits.

Benefits of Supplier Onboarding

A cohesive supplier onboarding process neutralizes many problems that would otherwise require time and resources to deal with, helping your supply chain network function smoothly with minimized disruptions.  

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Some established supplier onboarding benefits are detailed below.

Vendor risk minimization

Since the supplier onboarding process is reliant on thorough research, you have a lot of information to form an opinion of potential vendors. 

Actions like the verification of

• supplier credentials and certifications,
• suppliers’ compliance with laws and regulatory frameworks, and
• suppliers’ adherence to ethical standards, 

all ensure that potential risks are minimized. Even something as small as payment systems optimization can greatly save time by facilitating the clearance of invoices in a speedy manner and without error.

Conducting thorough checks of the financial status of your potential supplier also ensures that they have the capacity to hold up their end of the bargain and maintain a long relationship with your organization.

The supplier onboarding vetting process makes sure that you filter out undesirable elements like

• dishonest dealings, 
• non-compliance risks, and thus,
• the potential damage to your company or organization’s professional reputation by association.

Streamlining future supplier selection

Practicing effective supplier onboarding means that your company or organization has established certain standardized procedures that will set a useful benchmark for future supplier selection processes. 

These policies and procedures can cover criteria that are non-negotiable for your professional purposes, such as 

• a set of budgetary requirements, 
• terms of engagement and cooperation, including general contract stipulations, and 
• the maintenance of a comprehensive supplier questionnaire which can be modified as the need arises. 

Thus, instead of restarting the entire process every time a potential supplier is being vetted, you have a customizable structure in place and increase your overall efficiency when onboarding suppliers in the future!

Cost efficient

• The minimization of vendor risk results in less money spent on rectification and remediation. 

Because your research and risk assessment have been thorough, you no longer have to worry about violating legal or regulatory frameworks by associating with certain suppliers, saving on fines and other penalties.

• Maverick spending, that is, when off-contract purchases are made from available suppliers due to last-minute changes or poor planning, is greatly reduced. 

This is because supplier onboarding ensures that you set up a robust supplier network, providing you with a list of approved suppliers to choose from.

Standardized procurement requirements for all suppliers successfully prevent employees from making additional purchases without prior sign-offs.

• Cost savings are further enhanced by a smooth vendor onboarding process, which means that fewer resources are utilized both by you and the vendor. 

Vendors are less likely to upsell you when contract clarity and operational efficiency are prioritized from the get-go!

• The exhaustive evaluation process also ensures that the supplier you choose provides high-quality goods and services within your budget. 

This helps boost your return on investment (ROI) by increasing your sales revenue and reducing sourcing costs.

Better supplier relationships

• Supplier onboarding helps you foster strong relationships based on mutual trust and a strong contractual foundation. 

The process encourages transparent communication and clear negotiation, helping both parties understand each other's expectations and align their agendas successfully. 

• Because the supplier onboarding process focuses on quality control and longevity, your suppliers are also incentivized to maintain mutually beneficial business relationships.

This proves especially useful. If your company or organization is interested in training suppliers in the long run, which requires their collaboration with your follow-up review and evaluation processes.

Challenges of Supplier Onboarding

There are several common challenges that you might face while implementing supplier onboarding as a strategic process. Four such challenges are:

Incomplete supplier information

• Because supplier onboarding is dependent on the processing of a large amount of data, it can be hard to determine when you have completed your due diligence. Without complete data about prospective suppliers, your organizations, departments, and teams cannot accurately review the credibility.

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• The process is also heavily reliant on continuous communication between different parties. Hence, a delay on either end can have big consequences, leaving gaps in the data available for processing.

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• Moreover, since information is processed in bulk as part of the supplier onboarding, automated software can sometimes result in booking duplicate vendors, that is, having multiple vendors supplying the same service or product. This can further muddle items on your onboarding checklist.

Time inefficiency

• Supplier onboarding is a time-consuming process. There is no shortcut here.

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If you are in a business that requires a lot of flexibility when it comes to your purchasing process, supplier onboarding may not be the right choice for you.

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Since the process only works, if you are completely thorough in your supplier wedding process, a lot of time is spent on research and due diligence.

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Automation can mitigate this issue somewhat, but not entirely because even automation software has to shift through a large amount of data and coordinate with other installed supply chain software. 

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• Sometimes this can result in the accumulation of data silos, which can further increase the amount of time it takes to complete supplier onboarding.

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• Also, some vendors might use online systems, purchasing software, and be visible on digital marketplaces, while others might have off-line order structures. 

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Carrying out supplier onboarding when you can only communicate with the vendor via email, phone, or in online or physical meetings is not ideal, and can further increase the time spent on completing the process.

Communication gaps

• Between communicating your delivery timelines, vetting criteria, KPI expectations, and keeping up with your supplier’s policies and working guidelines, supplier onboarding is not a process you can be lazy about.

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• Add to this the responsibility of having to communicate the status of the process itself to all involved stakeholders, coordinate feedback from your organization, and incorporate supplier-end feedback, supplier management can prove to be a hassle.

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• Some bits of information are bound to slip through the cracks, which is why experts recommend automating the process partly, if not fully!

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Now that you’re aware of the challenges involved, here are some supplier onboarding best practices to ease the process!

Supplier Onboarding: Best Practices

Maintain a vendor onboarding checklist

Maintaining a vendor onboarding checklist cuts down a substantial amount of time in your supplier onboarding process. 

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This is because you can quickly cross off items once you have that information. Not only does this help you keep track of information you don't have, but it also gives you an idea of how far along you are in your data collection process.

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Having a standard supplier onboarding checklist or questionnaire is instrumental in streamlining the process as a whole. A good example of such a checklist is EFTSure’s supplier onboarding template.

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This practice ensures that you get all the relevant information you need in a concise and precise manner!

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As a bonus, the standardization of the checklist is also useful for future supplier onboarding processes.

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Select a primary point of contact (POC)

Since vendor onboarding as a process relies heavily on consistent communication, selecting a primary point of contact can reduce confusion by defining clear communication lines and hierarchies.

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Ensure that the person you pick as your primary point of contact is confident and able to work with your supplier onboarding checklist, and is comfortable dealing with all involved stakeholders in the process.

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Remember, communication is key to a successful supplier onboarding process, and thus your primary representative needs to be skilled in 

• guiding conversations, 
• driving negotiations, 
• collaborative problem-solving, and 
• setting the tone in professional environments.

Draw up an ironclad contract

Under no circumstances, should you enter into any business relationship without having signed a contract. This contract needs to be negotiated and approved on both the supplier and buyer end.

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Make sure that your contract mentions all necessary procedures and stipulations, including any additional terms and conditions. Mentioning payment terms and delivery schedules is a forgone conclusion, but it is a good idea to mention peripheral concerns like

• when and how often vendor performance reviews will be conducted, 
• clear expectations of vendor performance, 
• your policies when it comes to maverick spending

to ensure that supplier management goes as smoothly as possible.

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This contract sets the tone for your professional relationship, and therefore it must be well-rounded and ironclad.

Incorporate automation

Using supplier onboarding software can save time, by automating repetitive and mundane tasks such as

• The conduction of vendor risk assessment, 
• the procurement of necessary documents and licenses from prospective suppliers, 
• the setting up of a mutually agreed upon payment system, 
• the scheduling of vendor performance reviews, 
• continuous monitoring of assets and suppliers, and 
• streamlining your workflow more efficiently.

Conclusion

Supplier onboarding can seem like a research and resource-heavy process, but you won’t regret it in the long run. Spending a little extra time on onboarding now will be worth it later when your overall supplier relationship management thrives because of a strong foundation.

Adopt a standardized supplier onboarding process and streamline your supplier management today!

FAQs

What is the cost of supplier onboarding?

Supplier onboarding software costs anywhere between $1000 to $10,000 depending on the size of your business or organization, and provides services such as vendor compliance verification, vendor analytics and database, and streamlined communication.

What is a supplier onboarding process?

The supplier onboarding process is a crucial strategy that marks the beginning of supplier relationship management (SRM) in which businesses or organizations gather useful information about prospective suppliers before integrating them into the supply chain.

How long does it take to onboard a supplier?

It can take anywhere from a few weeks to a few months to onboard a supplier, depending on factors like the type of goods or services being purchased, the supplier’s upkeep of relevant documents and licenses, and the speed of the buyer’s vendor approval process.