How to Streamline Supplier and Vendor Onboarding: Best Practices, Process Flows, and Checklists

Vendor onboarding — also known as supplier onboarding or supplier relationship management (SRM) — is a systematic process that enables organizations to efficiently collect documentation and data in order to qualify, approve, and contract vendors, purchase goods or services, and make timely payments to new and existing supply partners. 

A vendor or supplier is any entity that sells a product or service to your business, either for your own use or as part of an item you resell over the short or long term.

Vendor onboarding bears similarities to employee onboarding, in which new in-house team members receive an understanding of a company’s practices, processes, compliance regulations, and expectations. To learn more, read “Employee Onboarding Processes: Plans, Best Practices, Flowcharts.”

A well-designed vendor onboarding process can help avoid expensive mistakes, including those that may put your organization at legal or compliance risk. 

In this article, we’ll refer to people delivering products or services to companies as “vendors” and the onboarding process as “vendor onboarding.” Here’s a best practices checklist to get you started on a plan that is purpose-built for the way your company does business: 

Download Vendor Onboarding Best Practice Checklist - WORD 

Look into more best practices and expert advice at “Vendor Management 101: The Definitive Guide to Manage Vendor Relationships.”

Mistakes in vendor onboarding are typically failures related to accountability, planning, training, compliance, and follow-through. Sticking to the above best practices and avoiding the following common pitfalls create substantial benefits for your company. 

Here’s a checklist of seven areas to consider as you design your process:

Download Vendor Onboarding Failures: Mistakes to Avoid Checklist - Word

Shifting procurement and vendor relationships from an accounts payable function to a more strategic position in your organization creates benefits including greater competitiveness, improved efficiency, lowered risk, stronger relationships, and a more powerful brand. Read about each of these key benefits in detail below:

• Greater Competitiveness: Many firms in manufacturing and healthcare spend more than 40 percent of every sales dollar on purchased materials and goods. Consequently, vendor management and close attention to buying performance are critical determinants of a firm's competitiveness.
• Improved Efficiency and Profitability: When you streamline current buying processes and make use of data collected about vendor performance, you can avoid income and productivity losses by reducing redundancies, tracking costs, clarifying expectations, and aligning purchasing processes with organizational goals. Streamlining also leads to less waste, higher productivity, reduced startup times, and, consequently, an improved overall ROI.
• Risk Mitigation: When you comply with industrial and government regulations, vet your internal policies, validate your vendors, and educate them regarding your requirements, you avoid problems down the line. You can also mitigate risk by employing strategic tools like the Deloitte Model or the Kraljic Matrix in order to segment suppliers based on the profitability they may bring to a relationship and the threats they may pose. Learn more about risk reduction in this “Definitive Guide to Vendor Risk Management.” 
• Stronger Relationships: Vendor onboarding best practices build mutually beneficial partnerships that include training and ongoing communication, review, and approval. These practices prevent relationship breakdowns that may disrupt supply chains. 
• Boost Brand: A poorly performing vendor or a difficult relationship can negatively impact your brand and cause reputational damage. Your brand is an extension of you, your products or services, and your character as a company; therefore, it’s malleable and can be formed by others’ perception — or, if approached intentionally, by you. Take charge of vendor performance to enhance your reputation with customers, shareholders, and present and future employees.

Thinking and acting strategically about procurement makes sense for organizations of any size, but it’s essential for organizations that have a large number of vendors and locations. For example, the retailer Walmart has over 100,000 vendors and consumer goods giant Proctor and Gamble has over 75,000. To stay competitive, they have adopted an organization-wide mindset to procurement and onboarding that prevents duplication costs, delivery, and quality failures.

All vendor relationships benefit from a formal onboarding process that clarifies requirements, according to Mahmoud J.  Alabbasi, General Manager of Hollingsworth Distribution Systems. Alabbasi is an expert in identifying vendors who fit his clients’ criteria and who are willing to follow their processes. “The most critical item for all vendors to look for is an understanding of their customers’ quality metrics and on-time delivery demands. Making sure that you thoroughly understand your customers’ needs and implement those requirements is a key success factor for both parties in the vendor relationship.”  

Since vendors work primarily off site (or even offshore), it’s imperative that you use vendor onboarding to bring different types of product and service providers into alignment with your workflow, timeline, payment, compliance, and regulatory needs. Examples of vendors or subcontractors who benefit from onboarding may include the following: vendors who have centralized vendor systems; managers, workers, or third-party field technicians who work for government entities; or private sector companies who work in manufacturing, retail, healthcare, or technology.  

You can view onboarding as a strategic component to meet overall company goals and, ultimately, profitability. For insights and action items, read “Transform Your Business with Enterprise Resource Planning.”

Shifting from traditional, tactical purchasing methods to a strategic engagement with vendors and suppliers saves time and money, and can potentially reduce the number of vendors you work with — a real money saver. 

 Below is a comparison chart that illustrates the differences between “old school” tactical methods and a strategic perspective:

The best strategy to efficiently control vendors, suppliers, and workflow is to use data to monitor and improve the onboarding process. According to Aberdeen’s 2015 report, The Value of Strategic Supplier Data Management, companies that are leaders in supply chain management are over 30 percent more likely to accelerate supplier onboarding and use that business intelligence to refine processes. 

The following model provides a framework for continuous improvement: 

One of the outcomes of applying a data-driven, continuous improvement approach to your vendor relationships is that you learn to look at the total value of a partnership (beyond the price), and look at metrics beyond the lowest bid. In the food manufacturing, defense, aerospace, and utility industries — where margins are tight and up to 90 percent of annual revenue is tied to vendor contracts according to McKinsey & Company  — controlling vendor performance is vital to company survival. Sophisticated operations in these businesses set metrics and quality level standards to structure vendor monitoring and use those standards to write contracts that clearly define partnership and collaboration across all stakeholders. 

To learn more about creating successful business processes, take a look at “Save Time by Taking the Time: Creating Workflows.”

Onboarding vendors properly is where long-term and fruitful business relationships begin, and the foundation of effective onboarding is the contractual agreement, according to Tom Reid, Chief Problem Solver for Certified Contracting Solutions, LLC and author of Sustained Leadership WBS.

“Much of that success rests on the quality of your contract,” Reid says. “A contract is a legal relationship, and, like any relationship, it should be treated with an appropriate level of respect.” Based on his experience, Reid shares his top seven vendor onboarding tips:

Download Expert Vendor Onboarding Contract Tips and Insights - Word

For more information about creating vendor contracts, read the “Vendor and Contract Management Solution Guide.”

There are three overriding considerations for any business looking for vendor onboarding software that centralizes purchasing: 

1. Easy integration with internal platforms and systems already in use 
2. A self-service portal for vendors
3. Security to guard against cyber attacks and stolen data

Your ability to justify the cost of vendor onboarding software depends on the size of your business and the number of current vendors you work with. If you currently have good relationships with reliable, compliant suppliers, but are planning for future growth, you'll need a system that can scale and handle the more complex needs.

Selecting a cloud-based product allows for two things: flexibility in pricing and the ability for the software to grow along with your business. For example, if you’re a young manufacturing company looking at a way to manage vendor contracts, you may want to have the ability to eventually add features that support stocking, shipping, handling backorders, and being able to use mobile applications to pick, pack, and ship.

The following checklist can help your team discuss and select what’s needed to work with your vendors:

Download Vendor Onboarding Software Features Checklist - Word

“Most parts of the process can be automated using software and online communication,” says Reid. “That doesn’t mean they [parts of the process] should always be automated. Completely removing person-to-person contact doesn’t strengthen the relationship.” Particularly with critical suppliers, make an effort to reach out personally and check in. 

Here’s an example of vendor relationships at work in one of the world’s largest companies. In 2017, the Boeing Corporation spent almost $60 billion with nearly 13,000 suppliers worldwide. Increasing price pressure from smaller rivals as well as from Airbus, its chief rival, meant that Boeing had to look at ways of reducing costs to maintain its profit margins. 

To improve profitability, Boeing began an initiative called Partnering for Success. Under Dennis Muilenberg, the company has worked with vendors for discounts. In return, Boeing has offered to help vendors control their own costs, as they increase volumes and overall efficiency. For example, GM Nameplate, which provides Boeing planes with approximately 1.6 million placards and signs, agreed to speed up production and supply price discounts in the range of 15 to 20 percent. 

Hollingsworth’s Alabassi believes it’s essential to take time at the outset to locate the right vendors. Hollingsworth has developed a thorough proprietary intake form to pinpoint the right vendor for the right relationship. “The Hollingsworth Distribution Systems Supplier Survey helped us reduce the amount of RFQs that Hollingsworth was sending to the wrong suppliers,” Alabassi says. “The survey essentially streamlined our onboarding process by helping us create a place where all questions would filter to the appropriate team.”

You can use templates to streamline the creation of documents, like questionnaires, assessments, registration, and contracts, based on your needs. The templates below are completely customizable, so you can include what applies to your company add other items to suit your needs, and design vendor onboarding that will move your business to the next level.

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