10 Benefits of Supplier Onboarding
Supplier Onboarding is becoming an ever more important consideration for organizations as new regulations come into force and governments continue legislating. The scope of Supplier Onboarding has also grown and is now commonly referred to as Third Party Onboarding, to reflect that it encompasses all entities that end up in the vendor master as payees.
This also means that Supplier Onboarding or Third Party Onboarding is expanding its relevance to more than just Procurement or Finance and is also of growing importance to other compliance and legal functions.
Onboarding a supplier might be as simple as merely creating a new entity in an ERP or Accounting System to facilitate ordering and payments to them, through to highly rigorous and complex processes.
What is Supplier Onboarding?
Supplier Onboarding means integrating a new supplier into your organization’s procurement processes and overall supply chain network. This involves a series of procedures that enable the two parties to embark on a working relationship. The activity includes collecting supplier information, such as details about their business, services, contracting and pricing and adding the acquired data to a supplier management platform.
As part of this, organizations should also verify documents and educate suppliers about the organization’s specific needs, processes and standards. This should also include supplier risk management to assess the vendor from a compliance perspective and to understand any potential risks the working relationship poses. This is especially important for organizations that are invested in sustainable procurement. Failure to properly audit suppliers during this phase could cause reputational damage in the long term.
As part of the Supplier Onboarding process, organizations should also ensure that suppliers are appropriately informed about workflows, processes and tools for fulfilling orders and issuing and paying invoices.
When successfully implemented, the process ensures that organizations can identify suppliers early on that could cause issues during the working relationship, thus avoiding issues in the long term. It also improves supplier relationships as it helps to streamline and improve processes for both parties, leading to increased mutual satisfaction.
Having a defined process and system to automate the Supplier Onboarding process can provide many benefits for Procurement, Supply Chains, Finance and Compliance functions.
Here we list the top 10 value-driving benefits:
1. Ensure Compliance
Organizations can inform suppliers of their compliance standards during the onboarding phase and educate them on the importance of adhering to them. This is especially important with the shift towards greater awareness of ESG issues and considerations amongst the wider general population.
This ensures that vendors will adhere to relevant laws, regulations and industry standards, which helps to protect the organization from a reputational perspective. Supplier Onboarding software also enables organizations to run automated checks on suppliers against third-party databases to validate the vendor further. This could include ensuring that the supplier exists and does not have any politically-exposed shareholders on sanctions lists from the US, EU, UN, etc.
2. Reduce Maverick Spend
While there will be an initial outlay in terms of costs, Supplier Onboarding should be considered as an investment that yields cost savings in the long term. When implemented, there will be fewer misunderstandings and risks will be minimized, saving significant costs.
It also ensures that relevant individuals within the organization have a workflow for requesting suppliers and receiving approval before engaging with them. This helps Procurement to channel volumes to existing contracted suppliers.
3. Remove the Intermediaries
Procurement and/or Finance are often the intermediaries passing data back and forth to suppliers. With a vendor onboarding solution, the system becomes the intermediary facilitating communications with suppliers and removing the transactional burden away from Procurement and Finance. This leads to streamlined communication that benefits both the organization and the supplier, increasing performance and satisfaction.
4. Mitigate Risk
Through supplier onboarding, organizations can automatically quantify risk upfront and segment suppliers to ensure the appropriate level of due diligence is done and any risks are mitigated from the outset. Levels of risk mitigation can vary by industry and range from basic checks related to insurance to more complicated requirements like Health & Safety, Environmental, Conflict Minerals, Anti-Corruption, Anti-Bribery, Quality and Export Controls.
5. Reduce Transactional Workload
While essential tasks, data collection and data entry can be time-consuming and divert time away from stakeholders adding value and focusing on strategic activities to enhance existing processes. An effective Supplier Onboarding solution removes the effort of data collection and entry from internal users by allowing suppliers to submit their data electronically and update it periodically. This provides the internal team with the time required to focus on adding value rather than policing and managing their processes.
6. Reduce cycle times for internal customers
A more automated Supplier Onboarding process considerably reduces the time to onboard a new supplier. It streamlines the process of integrating a new vendor into the procurement system, establishes clear communication channels and ensures that expectations are clearly defined. The organization must undertake an array of repeated tasks; a Supplier Onboarding solution automates these and accelerates the process further. Combined, these dramatically reduce the cycle time it takes to bring in a new supplier.
7. Remove Duplicated Efforts
A centralized platform for Supplier Onboarding can be particularly beneficial for larger organizations as it can eliminate duplicated efforts across various business units or ERP systems. The process is completed via the shared platform rather than repeating the same onboarding tasks for each new business unit or system. Once onboarding has been finalized, the supplier can be seamlessly integrated into other parts of the organization, ensuring consistency and efficiency are increased.
8. Improve Data Quality
Supplier Onboarding significantly improves data quality by standardizing its collection and verifying supplier information during the early stages of the relationship between the organization and the vendor. This structured approach means that all relevant supplier data, such as business credentials, certification and performance metrics, are accurately compiled and recorded at the outset. This process promotes consistency, reduces instances of errors and ensures that the organization is making better-informed decisions based on reliable, high-quality data.
9. Better Visibility and Audit Trail
Modern Supplier Onboarding solutions have advanced search capabilities, surpassing traditional ERP and P2P systems. These sophisticated features enable businesses to streamline searching for suppliers based on diverse attributes. These systems also provide a comprehensive audit trail of all data changes and workflow tasks. This feature ensures a granular ability to track changes, allowing organizations to precisely pinpoint who made what changes and when to assist in encouraging transparency and accountability.
10. Strengthened Supplier Relationships
Supplier Onboarding simplifies and enhances the way suppliers interact with organizations and improves supplier relationships. By replacing excessively long paper forms with an efficient digital process, the interaction becomes hassle-free for suppliers.
Furthermore, the centralized onboarding system prevents duplicate work from being undertaken when collaborating with different departments within the organization. This efficient, technology-enabled onboarding process makes it easier for suppliers to do business with the organization and nurtures stronger, more productive relationships focused on achieving mutually beneficial success.
Article updated May 2024
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