The supplier or vendor 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 can be worth the effort.

February 09, 2022
By Taulia
By Taulia

Suppliers and vendors play a crucial role in an organization’s daily operations, whether that’s by providing the raw materials needed to produce goods or supplying essential services the company needs to operate. Their importance to regular 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 experience can lay the foundations for a strong future relationship, but by that same logic, a negative experience may get the relationship off to a rocky start. Equally, an inefficient onboarding process could lead to missed opportunities, lost sales, and delays to your daily business operations.

As a result, it’s important to ensure your supplier onboarding process is as smooth and efficient as possible. This means thinking about a number of factors, from assessing risks and ensuring information is secure to communicating effectively and building a lasting relationship. Adopting supplier onboarding best practices can help you to create a streamlined and efficient 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 process of onboarding 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 vendor onboarding process, it’s important to understand the different stages involved. These generally include the following:

  1. Identify the need for a new supplier based on procurement requirements. Any new supplier onboarding exercise is triggered by the identification of a procurement need. While this step technically precedes the supplier onboarding process, it is also responsible for setting everything in motion.
  2. Initiate supplier evaluation. This involves sourcing potential vendors or suppliers that meet the procurement need and evaluating their suitability. During the evaluation process, the company should review data such as the vendor’s service record, reputation, review profile, credit history, and compliance with internal policies.
  3.  Qualify 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. Collect supplier information. Information is collected from the supplier, either by a buyer-led process or through a self-service portal – the latter is 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 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 review supplier performance. The 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 best practices, you can streamline your vendor selection and onboarding processes, and ensure that new vendor relationships have the best chance of success from the outset.

Best practices to consider include the following:

Automate where possible

The onboarding process can be inefficient, labor-intensive and costly. By using automation tools wherever possible, you can unlock opportunities for more efficiency, improve accuracy, and obtain the information you need in a streamlined way. You can also see efficiencies by utilizing a self-service system, whereby suppliers enter their own information through a supplier portal.

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. It’s also critical that your care and attention doesn’t stop immediately after the onboarding process – an ongoing focus on supplier management can bring about benefits for your business.

Prioritize information security

Keeping supplier data secure is essential, so it’s important to invest in systems that protect your suppliers’ information from any threats. A paperless supplier information management system may play an important role in helping you achieve this.

Don’t underestimate due diligence

Spending time on 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. Key areas that may fall under the vetting process include reputational risk, financial information, insurance information and the vendor’s information security measures.

Get stakeholder buy-in early

Last but not least, top-down support is essential when it comes to creating a successful onboarding process. Make sure that all necessary internal stakeholders are involved from the outset.