The supplier onboarding process and best practices to follow

The vendor/supplier onboarding process is a crucial part of any relationship between businesses that cooperate in a supply chain. There are lots of considerations to make to ensure that you’re tackling this process effectively, but the results are worth the effort.

Suppliers and vendors play a crucial role in an organization’s daily operations, providing the raw materials needed to produce goods and supplying essential services. Their importance to operations means that building strong relationships with suppliers should be treated as a priority.

Minimizing supplier risks and ensuring long and healthy relationships doesn’t just involve selecting the suppliers best suited to the company’s needs, though, it’s also important that you onboard them effectively. A positive supplier onboarding process can lay the foundations for a strong future relationship. By that same logic, a negative onboarding experience may get the relationship off to a rocky start.

Adopting supplier onboarding best practices can help you to create a streamlined, efficient, and successful onboarding process that sets all of your relationships off well.

What is supplier onboarding?

Supplier onboarding (or vendor onboarding) is the process a company follows to initiate a new business relationship with a supplier. The onboarding process typically includes steps such as obtaining invoicing data from the supplier, completing all necessary compliance and risk assessments, and registering the supplier on relevant internal systems.

But while there are many common elements, different companies will approach the onboarding process in different ways. For example, the process can be either paper-based or digital, and it can be managed either as a buyer-led or as a self-service process.

Whatever the chosen approach, it’s important to make the supplier onboarding process as efficient and seamless as possible. A smooth onboarding process doesn’t only increase the likelihood of the business relationship beginning positively, it can also have implications for the future shape of the relationship and, consequently, on the overall efficiency and resilience of your supply chain.

There are a number of steps businesses can take to optimize their supplier or vendor onboarding processes. Some of the key factors to consider include:

• Vetting potential suppliers effectively and developing a risk profile for each
• Ensuring the systems used to record new supplier information are both efficient and secure
• Having suitable and reliable channels in place for communications with suppliers
• Establishing a strong relationship from the outset

The supplier onboarding process

In order to optimize the supplier onboarding process, it’s important to understand the different stages involved. Although the details vary from company to company, the process generally includes the following steps:

1. Identifying the need for a new supplier: Any new supplier onboarding exercise is triggered by the identification of a procurement need. While this step technically precedes the supplier onboarding process, it’s also responsible for setting everything in motion.
2. Initiating supplier evaluation: With a need established, the next step in the onboarding process is to source potential vendors or suppliers that can deliver the required goods or services and evaluating their suitability. This typically involves reviewing data such as the vendor’s service record, reputation, review profile, credit history, and compliance with internal policies.
3.  Qualifying suppliers. Once potential suppliers have been evaluated, the next step is to use a pre-set approval process to qualify – or disqualify – prospective suppliers based on an established onboarding checklist. The checklist should reflect the company’s requirements on factors such as price, lead times, ESG credentials, and terms and conditions. Suppliers that fall short of these requirements can be eliminated from consideration, while those that fulfil requirements can be approved.
4. Collecting supplier information: With appropriate suppliers chosen, the next step is to collect all relevant information. This can be achieved through a buyer-led process or a self-service portal – with the latter likely to be more efficient and result in a better experience for vendors. As part of this step, the company will need to collect different types of information including contact information and payment details. As well as gathering the right information, this step should also include making sure that the right internal stakeholders have access to any supplier information they might need.
5. Regularly reviewing supplier performance: Any new supplier’s performance should be reviewed on a regular basis after they’re onboarded, both to ensure that the onboarding process has been completed successfully and to check that the supplier continues to meet the company’s procurement requirements in the future.

Supplier onboarding best practices

In practice, supplier onboarding can be an inefficient and time-consuming process that can take months to complete and may involve multiple interactions and systems.

The good news is there are a number of steps companies can take to optimize their onboarding processes. By adopting these supplier onboarding best practices, you can ensure that every new vendor relationships have the best chance of success from the outset:

Automate where possible

The onboarding process can be inefficient, labor-intensive, and costly. By automating it wherever possible, you can increase efficiency, improve accuracy, and obtain the information you need in a streamlined way.

Utilizing a self-service system, whereby suppliers enter their own information through a supplier portal is one method of automation to consider. But you can also make use of other forms of automation including using a supplier relationship management platform that allows for automated communication.

Be consistent in your approach

Adopting an efficient supplier onboarding process that suits your organization is important – but you should also ensure it continues to be used across the organization to ensure consistent results.

This is especially important for large companies who have extensive supplier requirements. Ensuring that every new supplier is onboarded using the same rigorous process will mean that there are no weak points in the supplier base, with every supplier being checked, vetted, and introduced to the supply chain in the same comprehensive manner.

Prioritize information security

Cyberthreats are one of the biggest supply chain risks, and onboarding new suppliers is a key moment of vulnerability that can expose your company or your suppliers’ to threats. Keeping supplier data secure is essential, so it’s important to invest in systems that protect your suppliers’ information from the most prominent cyberthreats.

A paperless supplier information management system may play an important role in helping you achieve this, minimizing the risk of human error leading to data breaches. But going digital is not a full solution in itself – you also have to ensure that data security is prioritized in the onboarding process.

Don’t underestimate due diligence

Spending more time and effort in the early stages of the supplier selection exercise can result in a more efficient process – meaning you can discount suppliers that aren’t a good match for your needs sooner rather than later.

The most important factor in achieving this is making the supplier evaluation process as comprehensive as possible. Key areas that may fall under the vetting process include assessing reputational risk, financial information, insurance information, and the vendor’s information security measures.

Get stakeholder buy-in early

Since supplier quality is integral to overall operational health, top-down support is essential when it comes to creating a successful supplier onboarding process. The C-Suite in particular should be involved, ensuring that their highly-developed awareness of the business’s core aims and objectives are baked into the supplier selection and evaluation process.

Make sure that all necessary internal stakeholders are involved from the outset can help businesses build a supplier base that’s more appropriately matched to their mission.

Continuously evaluate newly onboarded suppliers

Finally, although the supplier onboarding process technically concludes when the supplier is formally selected and onboarded on all relevant systems, it’s important to adopt a continuous approach to evaluation by tracking supplier performance KPIs as a standard part of vendor management.

This firstly ensures that the onboarding process was successful by verifying that the suppliers are performing as expected in reality. But it also helps to catch any changes in how suppliers are conducting their business, whether that’s monitoring a financial decline or noticing a growing vulnerability to cyberthreats.