Supplier Onboarding

Supplier onboarding, also known as vendor intake, is the procedure of finding and analyzing information about a supplier with the intention of registering them in the organization's list of suppliers. This is a procurement-specific process because it concerns sourcing goods/services, not just purchasing them. These vendors provide clarity to the organization on their products and, in turn, understand the organization's processes and expectations.

The organization also sets its expectations right from the outset. They use supplier onboarding tools to make sure that the orientation of clients is as transparent as possible. The process can be started when an organization issues a request for proposal (RFP) or when vendors approach the organization and pitch their products.

Supplier onboarding is the detailed procedure of integrating suppliers who are new to supplying goods or services to an organization. The process induces them into the organization's supply chain and operational systems. A supplier onboarding specialist does a primary screening and clearly states the company's expectations in terms of price, quality, and other such terms. 

The procedure helps businesses reduce the level of risk linked with collaborating with new suppliers by making sure that they meet legal, regulatory, quality, and ethical standards. These checks can validate the financial credibility and reputation in the market, making it easier for the organization to trust them enough to reveal a part of their process.

Once the process between the organization and supplier is set, the burden on the administration is reduced. The process is streamlined, and mundane tasks are left for the software to handle. It is also an efficient way to minimize manual errors and boost productivity within the organization.

However, there are a few challenges to exercise as well. Improper onboarding or suppliers being unable to fulfill the requirements could lead to issues with quality, compliance, and supply chain disruptions. These issues can arise not only due to ineffective onboarding but also due to misunderstandings, regulatory non-compliance from the supplier's end, or even contractual disputes. 

Nevertheless, if the process of onboarding is smooth, expectations are communicated clearly, and terms are negotiated mutually, the process is a vital link to a successful organization. It takes operational efficiency to new heights and gives the opportunity to better the overall process within the organization.

Different companies have different levels of predetermination and checks before a supplier is onboarded. However, the significant steps before they are part of the organization's portfolio of vendors are:

• Prequalification: The foremost step after the organization sends out a request for proposal or RFP, or when a vendor approaches the business to supply goods or services, is prequalification. The vendor's background check reveals the credibility of the market, legal compliance, and ethical standpoint. 
• Compliance Documents: Once the essential prequalification criteria are met, the next stage is ensuring the supplier has relevant documents to support their claim of being accredited to the relevant regulatory body, registration to local authorities, and quality assurance certificates as well. These documents give the business clarity on whether the vendor would have goals and objectives similar to those of the organization.
• Training & Integration: When it becomes sure that the vendor has all relevant documents, they are onboarded and trained with respect to the processes of the organization. Moreover, they also explained in detail the expectations of the business in terms of quality, pricing, terms of delivery, and other such terms. Once the training is complete, they are enlisted or integrated into the organization's system.
• Performance Evaluation: After the supplier is on board and starts supplying goods or services, the organization's (buyer) team constantly monitors their performance to ensure they hold their end of the bargain consistently. Additionally, it is also helpful in finding ways to make the process more efficient.

While each organization can have a specific checklist that can be curated by a supplier onboarding specialist based on their customized needs, below are a few points that can be common for most organizations. These points shall help with onboarding vendors that align with the goals and objectives of the organization.

1. Evaluation: Before even conducting the predetermination process, it is essential to make a list of relevant suppliers and evaluate the best among them in terms of their approach to business. If their approach is similar to the one that the organization is expecting, shortlist them for the next step of the process. The rest of them can be added to the database as a backup option for unforeseen scenarios. 
2. Vendor Information: For the qualification and approval process, the organization and the supplier must be on the same page. After both parties have reached a consensus, the organization must collect necessary information like licenses, addresses, contact details, insurance, bank details, and other such information.
3. Logistics and Product Information: Once the vendor or supplier is onboarded onto the business portal, they can enter details about the product and logistical details. These details cover information regarding pricing plans, discounts, orientation requirements, lead time, delivery process, product/service specifications, and other such details. 
4. Expectations Communication: Once all the details are evident from the supplier's end, the organization must make sure their expectations and requirements are clearly communicated to the supplier. Once both parties agree to the terms, they must also put it down on paper to make sure it can act as a reference point.
5. Internal Access: Once the product and logistics-related intricacies are also clarified, suppliers are provided with internal details such as access to warehousing, purchase, and accounts department. Invoicing or billing information, orientation, and formal approvals take place subsequently. 

Creating a system free of supplier onboarding challenges requires an in-depth understanding of the organization's requirements and balancing supplier performances. The points below show how to create a system that covers all these aspects. 

• The first step to creating an efficient process is to define the objectives and goals clearly. It includes details about performance and compliance requirements, as well as protocols relating to communication.
• Decisions within this end of business have to be written on paper, better known as an agreement. Word-of-mouth agreements might not be the most brilliant idea, as when one party does not hold their end of the bargain, an agreement acts as a reference point.
• When a supplier is onboarded, training them to an extent where they understand every step of the process increases the efficiency and turnaround time of the process. 
• Everyone involved in the process must have clearly defined roles. Procurement managers, compliance officers, and legal teams must know their role and the situation when they have to step in and when to let things flow.
• Inculcating a software or portal that tracks onboarding, progress, and workflow can increase efficiency. In today's technology-driven world, software does a beautiful job of limiting the scope of human error. However, constant supervision is advised.

Now that the basics and related factors of supplier onboarding tools are straightforward, adding a tinge of real-life application can give a practical overview of the concept. The examples below are an attempt towards that. 

Example #1

An Electric Vehicle (EV) battery manufacturer decided to onboard new lithium and ion vendors as a result of a higher demand for these batteries from global market leaders. They invited suppliers through an announcement on their website. 

Suppliers could apply on the company's portal and submit all the necessary documentation, such as regulatory clearances, labor commission approvals, and financial credibility. Once these parameters are met, the manufacturing company's team contacts suppliers and collects information regarding pricing, quality, and delivery schedule.

After due diligence from the procurement team, the company selects three more suppliers that can match their levels of requirement, quality, and pricing. They are onboarded and trained with respect to the company processes, and their performance is constantly monitored. 

Example #2

Organizations that buy or sell products know how lengthy and costly it could be to onboard a new supplier. A typical process could take upwards of 30 days and cost multiple thousand dollars.

Therefore, IBM partnered with Chainyard, a company that specializes in blockchain-related solutions. Together, they developed a solution named Trust Your Supplier. It helps with streamlining the onboarding process by letting suppliers create digital identities. Digitization takes away the pain of administrative burdens and the highly manual nature of the typical onboarding process across industries. 

Below are the benefits of hiring a supplier onboarding specialist to create a smooth process and onboard the best possible suppliers.

• The process helps eliminate suppliers that do not match the requirements of the organization. Moreover, it helps distinguish dishonest sellers from honest ones. 
• It also helps reduce the risks of reputational damage because of dealing with suppliers who do not have the necessary regulatory clearance or who do not maintain the required quality levels. 
• A streamlined process ensures that procurement happens only from authorized sellers, and employees must be able to bypass the system and purchase from a supplier who is not inducted and part of the supplier portfolio.
• An efficient system helps establish trust with vendors and suppliers as organizations share information regarding a part of their processes and encourage transparent back-and-forth communication.
• A standard procedure saves a significant amount of time. Once a process is set, it becomes easier to onboard new suppliers as the steps are clear and standards to meet are also upfront. 

Even the best-curated practices are not free from risks or drawbacks. The points below show the supplier onboarding challenges in detail. Risks come in four primary forms; they are:

• Financial Risk: If a supplier does not have solid financial backing or preparations, they may face cash flow and other financial issues. As a result, they may need help to deliver their end of the bargain. There might be a drop in quality, a delay in delivery, or a complete interruption in supplying goods/services.
• Legal/Regulatory Risk: Organizations must make sure that suppliers adhere to all regulatory and legal requirements. Usually, intricate documentations are ignored, which could prove to be costly in the long run. Businesses must ensure that their suppliers have licenses related to human rights and environmental and work area conditions apart from the standard ones. 
• Quality Risk: If a supplier does not ensure the pre-determined quality of their product, it has a noticeable effect on the final product. Therefore, an organization must make sure that their suppliers do not compromise on quality at any cost. 
• Supply Chain Risk: A supply chain risk is the least in-control risk for a supplier. Delays or complete disruptions in the supply chain could be due to natural disasters, political and geopolitical conditions, logistical issues, and more. These cause significant delays in delivery and shoot-up costs. 

Despite the fact that discussions around the benefits and risks clarified a majority of the concerns, it is essential to point out the best practices that can still be brought out by following modern-day supplier onboarding tools.

• The first and foremost step that shall bring in bulletproof efficiency is deciding the stakeholders in the process. Who shall be responsible for which aspect of the process and whose accountabilities must be crystal clear even before external parties are included in the mix?
• The requirements and expectations must be as specific as possible. Generalized requirements leave room for interpretation, which also develops room for error. Specific requirements not only give clarity to all parties involved but also reduce the quantum of risks. 
• Set a communication channel that is most convenient for the organization and its suppliers. One organization might find emails comfortable, while others might prefer the ease of messaging apps like WhatsApp or Telegram more convenient. Whatever fits best for the organization and its vendors must be made a standard practice to avoid lapses in communication.
• A vigilant verification process of the supplier's documents must be noticed and taken seriously. It shall require an investment of time. After this, the organization can be free of worry if they adhere to all regulatory and legal requirements and sign required internal documents such as non-disclosure agreements. 
• Ensure all agreed terms are on an agreement paper. This acts as a reference point during the relationship if any disputes arise regarding the terms or the inability to meet them.