3 keys to a successful supplier onboarding program

07/27/2023 By Conrad Smith

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Supplier Management

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A well-run supplier onboarding program is essential for any business that wants to ensure a smooth and efficient procurement process. By taking the time to onboard new suppliers properly, you can help to mitigate risks, improve communication and build strong relationships.

Before getting started, it’s essential to understand how mature your business is. If you’re a new business, you’ll need a different approach from a more established company. We recommend considering a few things to gauge your maturity levels such as the company’s goals, current procurement process, budget and resources, risk tolerances, etc.

Once you understand your business maturity, you can tailor your supplier onboarding program accordingly.

Centralize new supplier intake

Too many procurement teams operate without centralization, leading to the chaos of disparate teams working on disparate projects. By bringing all intake requests to a single portal or process, procurement teams stand to streamline the supplier onboarding process and make it easier for everyone involved. This process should include all of the necessary steps, such as:

Gathering information from the supplier
Conducting due diligence
Negotiating the contract
Onboarding the supplier

The intake process should be (1) well-documented, (2) simple for critical contributors such as legal, finance and compliance to participate and (3) transparent for stakeholders to track progress.

Collecting and managing supplier information

At its core, effective supplier management has everything to do with data collection and management. Promoting preferred suppliers, onboarding new suppliers quickly, reducing risk exposure and managing supplier relationships all boil down to keeping supplier data accurate, insightful and actionable.

For supplier data to be effective, it must come from reliable sources, be maintained to mitigate data decay and be accessible to those who rely on it. As such, creating a central repository of supplier data is crucial.

Trust but verify

Rely on suppliers to self-report their data, but don’t just take their word for it. Ensure that suppliers report accurate commercial data by checking their work as best you can, and work with third-party data providers to get unbiased information on your supplier’s financial viability scores, cybersecurity risks, ESG scores and whatever else is vital to your organization.

A centralized system for managing supplier data will make it easier to decide which suppliers to work with and how to manage your relationships. The system should be easy to use and update. It should also be secure and compliant with data privacy regulations.

Track and manage risk

Supplier onboarding can potentially introduce significant risk to a business. Understanding and having reasonable expectations for risk is crucial to running an efficient (and safe) supplier onboarding program.

We typically break risk management down into four distinct categories, summarized here:

Identify risks

Risk identification is identifying all possible hazards to an organization’s assets and resources, both internal and external.

Many risk teams stratify risk into two categories, inherent and residual risk. Inherent risk refers to the probability and impact of an adverse event occurring without any controls (a fire in your building, a data breach, a cyberattack, etc.). Residual risk is what remains after risk management measures have been taken (a fire even after installing sprinklers, a data breach after installing firewalls and antivirus software or a cyber attack even after implementing security measures).

Measure

Measuring risk generally involves creating a risk matrix or another relevant tool that helps rate each risk consistently. Assigning standardized scores to each risk in your supply chain allows you to prioritize and determine which risks require immediate attention.

Manage

When it comes to managing risk, we recommend the TAME framework.

Transfer – Risk transfer is passing the financial consequences of a risk to a third party, such as an insurance company.
Accept – Accepting risk is when an organization chooses to continue with an activity despite the potential consequences, but with regular evaluation and escalation if necessary.
Mitigate – Mitigating risk is the most common approach and involves reducing the probability and impact of risk.
Eliminate – Eliminating risk is the most radical and typically the most costly approach. If a risk cannot be eliminated by process or data, the company will avoid the risk entirely by operating in a different sector.

Monitor

Monitoring risk involves regularly reassessing risks to ensure that risk management strategies remain effective. Internal assessments, regular risk assessments with the supplier and well-defined remediation plans are essential to keeping an eye on the risks that your organization is exposed to.

Conclusion

Unfortunately, creating efficient onboarding programs won’t happen overnight. With the right tools, however, crafting an efficient onboarding program will allow you to optimize for both onboarding speed and risk exposure simultaneously, leading to happier stakeholders and more efficient procurement teams.

Procurement is regularly under-resourced, so creating (1) centralized intake programs, (2) effective supplier information processes and (3) risk management strategies all lead to procurement’s ability to onboard suppliers at the speed of the business and manage suppliers with fewer resources.

When you’re ready to take supplier onboarding into your own hands, think Graphite.