What is Vendor Onboarding?

What is Vendor Onboarding

The importance of allocating resources of establishing vendor management processes have been in place, contracts are signed, the software is ready… The next step is to onboard the vendors!

What is vendor onboarding?

Vendor onboarding is the process of collecting the information and documents which are necessary in order to approve or onboard a company as a vendor, or a supplier, for a business. The goal is to make the purchasing process faster and more efficient, allowing companies to secure the goods or services required as well as complete payments easily. Additionally, onboarding vendors is a significant step as it determines whether a prospective vendor is compliant with relevant laws, regulations and your corporate standards.

By following vendor onboarding best practices, such as following a detailed vetting and validation process for new vendors, you are protecting the company from potential future issues and pitfalls.

What should be included on your vendor onboarding checklist?

A checklist of a whole supplier or vendor onboarding process is detailed below, which highlights standard steps. These steps are generalized, however, in order for the process to be effective and successful, the data and information requirements should be customized for each vendor, as their needs are different. For example, some of them include:

  • The vendor type
  • Spend amount
  • Category
  • Country
  • Business unit
  • Risk, and other factors

While the process of vendor onboarding can be time-consuming, by establishing consistent processes the organization is in a good position to automate and remove potential future issues, for both themselves and the vendors.

Example Vendor Onboarding Process
Example Vendor Onboarding Process

Why is it important to have a vendor onboarding workflow?

The whole end-to-end process can sometimes take 3-4 weeks, however, that time can be significantly reduced with the right processes and software in place. The key to effective management of suppliers is a well-established onboarding system.

Data, information and requirements collected at the beginning of a business relationship can have a massive positive impact, if done correctly, on the future processes, including:

  • Strategic sourcing
  • Procurement
  • Risk management
  • Accounts payable
  • Evaluating vendor performance
  • Spend analytics
  • Compliance with local and global requirements

Although effective vendor onboarding is the basis for a successful supply chain management, organizations often find themselves in reactive rather than proactive positions, unable to capitalize on actionable supplier information. It is important to remember that the largest and most profitable vendors are usually not the one who require attention. It is essential all vendors participate in the process, in order to increase the efficiency, reduce costs, capture discounts, and achieve a higher ROI.

Naturally, as the organizations grow and expand, they must be aware and stay on top of external factors as well, such as changes in global operations and supply bases, product lines or ERP system as they can further complicate the vendor onboarding process. For example, a merger or an acquisition will often change the needs of the onboarding environment. In addition, larger companies often fail to automate a lot of processes as they expand which means said processes become ineffective.

Regrettably, this means such businesses are, as a result, wasting their resources manually to stay on top of workflows, information requirements, and verifications. On the other hand, if the inefficiencies are detected early on within the vendor onboarding process, that system can act as a foundation for establishing great supplier relationships and providing value for all stakeholders.

How to set up an effective vendor onboarding process?

As with any system, it is important to execute certain actions in order to account for any risks which might present themselves throughout the process. These include:

  • Setting standards and approval policies which will make it clear to the procurement teams what is and is not needed when onboarding a vendor
  • Managing expectations through communicating with all parties involved to ensure a good working relationship with the vendor is established from the start
  • In order to make the process as simple as possible, a dedicated supplier portal within a supplier onboarding software, such as HICX, should be set up
  • Transparency for all vendors is important, however, a special understanding of the most strategic ones should be established. Those will be the ones with the greatest spend and value to the company.
  • Lastly, clear and simple communication channels should be set up between the procurement team and the vendors

Article updated June 2021

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