7 Steps to an Effective Supplier Onboarding Process
When companies are in growth mode, they often bring on a range of suppliers to meet business needs. While there’s no perfect number or type of supplier relationships, how you bring on new partners can greatly impact the experience. When done right, supplier onboarding can save money, reduce risk, and strengthen buyer-vendor relationships.
This article introduces everything you need to know about building a reliable, thorough supplier onboarding process. You’ll learn what to look for in a supplier, how to ensure you add the best vendors to your list, the steps to build a well-defined supplier onboarding process, and how technology can improve business outcomes.
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What is a vendor onboarding process?
Supplier onboarding is the process of evaluating a vendor and bringing them online for ordering. In the supplier onboarding process, the finance or procurement team evaluates potential vendors, assesses their risk level, and integrates them into the procurement process or purchasing platform. These steps ensure quality service and a strong vendor relationship throughout the contract.
General supplier onboarding tasks include:
- Identifying potential vendors for a specific need
- Evaluating possible supply partners based on price, terms, and compliance
- Performing due diligence and risk assessments
- Setting up successful vendors in the system for future orders
The aim of vendor onboarding is to find new suppliers that meet the company's product and service quality requirements, delivery timelines, cost-effectiveness metrics, and ethical standards.
Effective supplier onboarding streamlines procurement processes and avoids costly third-party risk factors. The process allows companies to foster strong relationships with suppliers, improve communication, enhance negotiation outcomes, and boost procurement performance. It also helps companies stay competitive and agile in a swiftly changing market.
What makes supplier onboarding challenging?
A lot can stand in the way of bringing on and building relationships with high-quality vendors. Most of the challenges can be traced back to a lack of supplier data visibility or communication.
Companies that struggle with supplier onboarding often encounter the following five challenges in the supplier onboarding processes.
No vendor criteria
Without well-defined expectations, assessing potential vendors' suitability is challenging. Failing to create clear standards and requirements for new vendors may lead to teams selecting suppliers that cause delays, provide subpar product quality, or offer services inconsistent with the company's needs. A lack of vendor criteria can strain the relationship between the company and its suppliers, complicate negotiations, and make it difficult to achieve mutually beneficial agreements.
Gaps in supplier information
Scattered and incomplete supplier information makes integrating new vendors into existing systems and workflows difficult. Without comprehensive data, teams struggle to evaluate the compatibility of a supplier's services with the company's operational requirements.
This lack of information can delay supplier onboarding, as additional time is needed to gather documents like account info, contracts, or quality questionnaires. Incomplete supplier profiles can hinder effective risk assessment, exposing the company to compliance issues.
Offline vendor order processes
While many vendors employ online systems, procurement platforms, and digital marketplaces, not everyone does. Some work off emailed purchase orders, phone orders, or even faxes. Manual ordering slows transaction times and increases the likelihood of errors due to manual data entry.
Tracking and managing orders can be more difficult with offline ordering since updates aren't reflected in financial reporting without the right tools. The absence of an automated system for these processes means buyers avoid integrating offline suppliers or creating out-of-policy exceptions for working with them.
Lack of order visibility
Without a clear view of the entire procurement process, businesses struggle to evaluate potential suppliers accurately. This may introduce redundancy into the procurement process, especially when several locations order supplies outside a centralized platform.
Decreased visibility and redundant ordering mean companies lose leverage at the negotiation table since they lack data on precise order volumes, terms, and pricing. In many cases, teams end up with more vendors than they need, increasing vendor management efforts and reducing cash efficiency.
Poor AP process management
The end of a successful supplier onboarding process is the beginning of a new vendor relationship. But, fractured AP processes can add friction to relationships with new suppliers. Manual AP processes make it harder to pay vendors on time or address issues with billing, backorders, or product delivery.
Vendor Scorecard Template
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Steps in an effective supplier onboarding process
If your business doesn’t have a formal supplier onboarding process for new vendors, building a safe, centralized process is easy. Follow these steps for every new vendor to ensure you enjoy high-quality service and beneficial long-term relationships.
1. Create a procurement policy: A procurement policy is foundational to strong supplier onboarding. It establishes clear guidelines for vendor relationships and management. Procurement policies outline procurement objectives, procedures, ethical standards, and spending guidelines for different roles and departments. They ensure consistency and transparency for all who conduct procurement activities.
2. Outline supplier requirements: Setting clear expectations for suppliers reduces service quality and risk issues. Detailing these requirements can ensure the business selects suppliers that meet its needs. It can help streamline the procurement process and foster strong supplier relationships with a smaller selection of high-quality vendors.
Requirements should define every aspect of the vendor relationship, including:
- Quality standards
- Delivery timelines
- Payment terms
- Service-level agreements (SLAs)
It's crucial to communicate these requirements upfront to avoid misunderstandings later. Specify any certifications or vendor compliance standards suppliers must meet, such as ISO certifications or adherence to sustainability standards. A supplier onboarding checklist or supplier security questionnaire is a great first step in setting expectations for bringing on new vendors.
3. Conduct due diligence: Reviewing suppliers ensures companies uncover any issues that would preclude a vendor from selection. The due diligence process includes evaluating the supplier's financial stability, reputation in the market, operational capabilities, and compliance with industry standards. It may also involve checking references, reviewing past performance records, and conducting site visits if necessary.
Careful vendor evaluation and approval process helps mitigate risks associated with supplier performance. This is especially important, considering over 40 percent of companies experienced impactful third-party security breaches in the last year. Due diligence ensures businesses engage with partners that contribute positively to the supply chain's integrity and efficiency.
4. Negotiate and sign the contract: Once a business identifies the right vendor, it must negotiate aspects like final pricing, delivery schedules, quality, payment terms, and confidentiality agreements. Effective negotiation ensures both parties understand their responsibilities, obligations, and noncompliance consequences. It's important to approach this process with clear objectives, flexibility, and a focus on building a long-term partnership.
5. Collect a supplier's information: Once a business signs with a vendor, it must collect necessary contact details, including primary and secondary contact points, email addresses, phone numbers, and office addresses. While some data collection can occur through direct integration, a vendor portal, or APIs, some vendors still operate via purchase order, email, or other means. A business must document these in the system and automate vendor management and payment wherever possible to capture spend data.
In addition to contact information, companies will want to collect payment information like bank account details or preferred payment methods. This data must be accurate within the system to facilitate smooth communication and transactions. It also enables fast payment, which can help companies take advantage of early payment discounts.
6. Centralize order information: Once a business begins ordering from a new vendor, it needs a centralized way to keep track of pending and completed orders. Centralizing this information helps build streamlined processes to track orders, enhance reporting accuracy, boost supply chain management, and enable spend analysis. Data consolidation allows businesses to monitor orders efficiently, generate insightful reports, and analyze spending patterns for better decisions and financial management.
7. Set up vendor performance reviews: The supplier onboarding phase is the perfect time to set up performance monitoring. Buyers who use a systematic approach to evaluate and monitor vendor quality, reliability, and overall performance enjoy fewer issues and stronger supplier relationships.
Onboarding is also a great opportunity to establish clear metrics and KPIs for assessment, allowing companies to monitor vendor performance versus pre-defined expectations. Regularly schedule reviews to enable timely identification of issues, continuous improvement, and stronger partnerships.
Vendor Scorecard Template
Download our free vendor scorecard to make objectively evaluating vendors easier.
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Using technology to make supplier onboarding more efficient
Incorporating technology into the supplier onboarding process can streamline onboarding, making it easier and more efficient. Supplier onboarding software allows companies to automate routine tasks, such as:
- Collecting necessary documentation
- Conducting initial assessments
- Setting up vendor payments
- Conducting vendor performance reviews
- Performing spend management
Digital platforms enable seamless communication and collaboration between businesses and suppliers, ensuring parties meet requirements and timelines. A procurement management system like Order.co also supports buyers during vendor issues such as delays or out-of-stock items. With a procurement platform, buyers can quickly source a similar item from another vendor while maintaining a solid relationship with strategic sourcing partners.
A centralized platform makes it easy to route, approve, reconcile, and pay invoices. With all data in a central location, businesses can perform supplier performance reviews efficiently and ensure vendors stay compliant and competitive.
Let Order.co make the supplier onboarding process better
A procurement management solution centralizes many aspects of the supplier management process, including vendor selection, order processing, reconciliation, and payment. With Order.co, you can maintain strong relationships with strategic vendors, keep supplies in stock with fast substitutions of needed items, and process orders for every vendor you love (even if they have an offline order process). Order.co’s implementation experts make it easy to onboard your favorite suppliers.
Want to maintain great performance from all the vendors you onboard? Download our Vendor Scorecard to evaluate every supplier your organization uses.
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