Supplier onboarding is collecting and verifying vendor information, and assessing vendor compliance and risk. Once all the information is vetted, businesses can include the suppliers in their supply chains.
Supplier onboarding is a challenge for most businesses as they have to set up streamlined processes to build strong buyer-vendor relationships. However, the biggest challenge in supplier onboarding process is finding the ideal solution for supplier verification.
Key Steps of Supplier Onboarding Process
To build a robust onboarding process, you need to have a strong supplier onboarding checklist.
Businesses need strong relationships to be successful. The wrong vendor can hurt a business in the long run. A strong supplier management system is built on a robust supplier onboarding process.
Here are the 3 key steps of the vendor onboarding process:
1. Evaluation and Approval Process
The first step in the supplier onboarding process is creating supplier assessment and approval protocols before onboarding the suppliers.
Businesses must design and establish robust workflows to verify supplier documents and minimize the risk of fraud. They need to make sure that the suppliers being onboarded also share the organization’s beliefs and objectives.
2. Supplier Requirements & Expectations
The suppliers that are being onboarded have to be taken through each step fo the onboarding process.
Businesses should also be clearly informed about the rules and operational procedures and the standards businesses have to follow.
This helps businesses prevent misunderstandings that may come up in the long run. The supply chain team must also provide all the relevant information to suppliers to set the right expectations.
3. Data Collection & Verification
The final part of the process is to collect supplier information (contact information, compliance, insurance information, and relevant documents). Collecting all the information can take up weeks.
Then the challenge is verifying the information shared by the suppliers. This is where the DIRO supplier verification process comes in.
With DIRO, businesses can verify supplier documents within minutes by cross-referencing the information from the issuing source. This can prevent document fraud.
Challenges in the Supplier Onboarding Process
Any supplier onboarding process will have its fair share of challenges. It’s tough to move the suppliers through the entire onboarding process without any challenges.
Here are the main challenges that you’ll come across in supplier onboarding:
1. Employees don’t have clarity of suppliers
Larger companies often end up onboarding way too many suppliers for the same services & goods. When a company has multiple suppliers for the same thing, it doesn’t hold any strategic value for the business.
This is also known as ‘duplicate vendors.’ Onboarding multiple vendors not only wastes company resources but also costs the company a lot of money. A part of having good supplier relationships is having good payment terms.
Not working with the suppliers you already know could cost the company a lot in the future.
There are a few reasons why employees don’t have a clear vision on which suppliers the company is already working with:
- In the company’s ERP system, which the vast majority of employees don’t have access to
- In various spreadsheets that are managed by different employees in multiple departments.
Because of this, employees who manage supplier relationships don’t have a clear view of all the suppliers who are working with the business. The end result of duplicate suppliers is time and money wasted to fulfill the same need.
2. Only the business POC has a direct line of communication with suppliers
Processes involving a vendor and a member of the finance team usually have a POC, possibly someone from the procurement team. The communication chain is highly inefficient when finance identifies an issue.
While it would be much more efficient for finance and the vendors to have a clear line of communication. But opening up that line of communication is also problematic. A direct line of communication with every vendor the company’s working with can overwhelm the finance team when they get a lot of requests at the same time.
3. No transparency in the vendor onboarding process
Having limited visibility into the supplier onboarding process is a major challenge. These systems usually take place in siloed systems that become limiting for all parties involved.
It prevents any one stakeholder from understanding where the process stands. Also, employees can’t prepare for what’s in the pipeline. This lack of transparency also makes many people involved in the process blind of what is going on.
Supplier onboarding is a crucial process that companies must manage to continue operating. Most medium to large-scale companies don’t have a supplier onboarding pipeline, the pipelines they have are riddled with poor communication chains, unnecessary delays, and human errors.
Benefits of Having a Supplier Onboarding Process
Improved Data Quality and Accuracy
High-quality, accurate data is essential for a robust supply chain management system. Effective supplier onboarding ensures data is accurate, consistently updated, and well-maintained, supporting strategic decision-making.
- Operational Precision: Accurate data reduces errors across the supply chain, from procurement to payments, minimizing discrepancies and disputes.
- Advanced Technologies: AI and machine learning in ERP systems enhance data validation and integrity during onboarding.
- Error Reduction: Companies using advanced data management report up to a 60% decrease in operational errors.
Enhanced Supplier Relationships and Communication
Strong supplier relationships and clear communication during onboarding are crucial for long-term success.
- Structured Communication: Regular schedules and clear protocols maintain open dialogue, quickly resolving issues and adapting to changes.
- Collaborative Platforms: Platforms for supplier interactions streamline communication with purchasing, finance, and logistics departments.
Streamlined Onboarding Process and Reduced Costs
Efficient onboarding correlates with cost savings and resource optimization.
- Efficiency Gains: Automating onboarding steps accelerates the process, reducing the time for suppliers to fully integrate.
- Cost Reduction: Automating document management and compliance verification cuts labor costs and administrative overhead.
- Cost Savings: Research shows automation can reduce onboarding costs by up to 45%.
Increased Efficiency and Visibility
A streamlined onboarding process enhances operational efficiency and visibility across the supply chain.
- Centralized Information: A centralized platform for supplier information allows easy access and analysis, providing a clear view of supplier capabilities and performance.
- Real-Time Monitoring: Advanced systems with real-time tracking ensure suppliers meet demands without delay.
- Operational Improvement: Enhanced visibility can improve efficiency by up to 25%, helping companies adapt to disruptions and market changes.
Improved Supplier Performance Management
Effective onboarding sets the stage for ongoing supplier performance management.
- Performance Metrics: Clear metrics and benchmarks established during onboarding help assess supplier performance.
- Continuous Feedback: Regular reviews and feedback help suppliers align with company standards.
- Quality Improvement: Structured performance management can improve supplier quality and reliability by 30%.
Boosted Compliance and Risk Mitigation
Compliance and risk management are crucial in the global market, addressed through thorough supplier onboarding.
- Regulatory Adherence: Comprehensive checks ensure suppliers comply with regulations, preventing legal and financial issues.
- Risk Assessment: Advanced tools identify potential risks, allowing proactive mitigation strategies.
- Risk Reduction: Integrating risk management can reduce exposure to supply chain disruptions by up to 40%.
Faster Time-to-Value for New Suppliers
Efficient onboarding reduces the time for new suppliers to become productive members of the supply chain.
- Quick Integration: Streamlined procedures help suppliers quickly integrate and begin fulfilling orders.
- Pre-boarding Steps: Preliminary data collection and training reduce the time to start delivering value.
- Industry Impact: Optimized onboarding processes can reduce supplier ramp-up time by 20-30% in time-sensitive industries.
Better Visibility in Audit Trails
Modern supplier onboarding solutions offer superior search capabilities compared to traditional ERP and P2P systems. These allow businesses to efficiently locate suppliers based on various attributes.
These systems also maintain a detailed audit trail of all data modifications and workflow activities. This functionality ensures that every change can be tracked down to the specific user and time, promoting transparency and accountability within the organization.
Common Mistakes in the Supplier Onboarding Process
Even with the best intentions, flaws in processes or errors in implementation can derail vendor onboarding. Here are five common mistakes when onboarding suppliers:
- Lack of Documentation: Standardizing the vendor onboarding process is crucial for proper implementation and consistency. Proper documentation ensures continuity despite personnel changes, minimizing risks.
- Lack of Ownership and Responsibility: Suppliers are vital to an organization’s reputation and product/service quality. Streamlined communication with vendors is essential. A single point of contact can reduce confusion regarding registration, order verification, payments, and more, facilitating easier information sharing, change management, and collaboration.
- Absence of the Right Tools: Manual onboarding processes are resource-draining and hard to manage. They can cause time delays, and monitoring and tracking become challenging in emergencies.
- Not Setting Clear Expectations: Organizations must set clear expectations to help new suppliers onboard quickly and align with company policies. This speeds up the onboarding process and integrates workflows. Training suppliers on purchasing processes and signing service level agreements (SLAs) are critical steps.
- Lack of Inspections and Audits: As regulations and requirements change, so must processes. Every change carries a risk. Periodic inspections and audits of supplier premises ensure continued compliance with the organization’s standards.
How DIRO Can Help With Supplier Onboarding
DIRO supplier verification solution can help businesses streamline supplier and customer onboarding workflows. With real-time supplier verification, businesses can prevent the risk of fraud, combat ID fraud, and set up robust onboarding workflows.
Book a demo today and learn how DIRO’s solution can help you.
