By Patrick McConville
A thorough, organized, and engagement-appropriate supplier onboarding process is a key step not just for compliance but also for risk management. During this phase of your third-party lifecycle, you’ll gather and assess information about new vendors to make sure it’s safe to do business with them. Keep in mind, onboarding procedures also apply to your existing vendors during periodic recertification / reregistration and if you’re expanding your partnership with them.
To avoid any unnecessary or unforeseen risk, you need to know how to design your supplier onboarding process for success. Here, we’ll talk about how to create a secure yet efficient onboarding process. We’ll talk about key players, compliance, due diligence processes, and beyond.
Mitigating Risk During Supplier Onboarding
Your vendor onboarding process should give your team the information it needs to assess the risk of working together and monitor those risks during your partnership. Here’s how to get started:
1. Create a Standardized and Centralized Process
Having a standardized and centralized onboarding process leaves little room for mistakes. When vetting prospective suppliers, it is highly beneficial to have all the information you need in one place, helping you comply with governmental regulations, improve your service efficiency, and helping you identify any red flags more efficiently. All in all, this will help you make smart decisions that reduce your vendor risks.
All the required pieces of supplier information that you need, such as the company’s legally registered name, address, contact information, applicable licenses or certifications, insurance, and bank details, will all be in one place for everyone to access across departments.
Not only this, but a centralized and automated platform will prompt you to request the documents you need from your new supplier, such as a questionnaire or onboarding checklist, ready for your risk assessments.
2. Align With International Compliance Policies and Regulations
We live in a rapidly changing world, which includes evolving compliance policies and regulations. External factors such as pandemics, political conflict, and wars also contribute to regulation changes. The sourcing manager is responsible for ensuring that the company is compliant amid those adaptations. The consequence of this is having to face huge fines or penalties.
For example, since the Russian attacks on Ukraine, many countries have imposed sanctions on Russian and Belarusian individuals and entities. Doing business with sanctioned businesses can result in massive penalties.
Certa provides a no-code platform that allows a procurement person to modify the vendor onboarding processes with new policies and reviews without needing to ask IT for development help.
3. Conduct a Risk Assessment
Assessing the risk of working with new vendors is the next step in your business processes for supplier management. Potential risks could include cyber security threats, compliance issues, data breaches, future insolvency, negative media coverage, or reputational damage.
Supplier risk management includes adding targeted questions to the above questionnaires. Ask questions such as “In which regions do you operate?”, “What are your data privacy and security policies?”, or “Have you been involved in legal proceedings?”
Risk assessments should also assess how a company is structured, including its ultimate owner, supply chain, relevant stakeholders, whether they have political links, sanctions, ESG compliance issues, or negative press.
You can do more due diligence by researching any sanctions related to areas they operate in, negative press from the last few years, and incorporation documents.
4. Establish the Supplier’s Risk Level
As you complete your risk assessment, you’ll be able to classify how severe a supplier’s risks are. Decide on your category labels, definitions, and how your team responds to them in advance. Risk levels should be scored across multiple domains, including financial, governance, regulatory, & compliance, solutions maturity, people, compliance, and cybersecurity. The score can help decide your next steps for working with the vendor and monitoring your risks.
5. Get Ready to Work Together
Once a supplier’s passed your approval process and you’re ready to work together, you can get the ball rolling by setting up a contract template, automated invoicing with your standard payment terms, and even adding them to your internal systems. We’ll talk more about how to streamline these tasks in just a bit.
Key Templates and Tools for Efficient Onboarding
Streamlining your supplier onboarding process not only helps you to avoid mistakes due to human error but also helps you conduct more accurate due diligence checks and support better supplier data management.
Having an efficient and standardized process also comes across as more professional and organized, which can enhance your reputation with suppliers and prospective vendors.
An easy way to streamline onboarding is to use a platform that tracks each step of the process, stores all key information, and gives your team supportive tools. Your platform should include:
1. Chat functionality: If your supplier portal offers a messaging function, your communication becomes more efficient, so you can resolve issues fast. When your team uses a messaging tool created for this purpose, you can gain context by viewing the specific workflow connected to that conversation. Additionally, you retain a full conversation history, which is useful in case of an audit.
2. Workflows: Make sure your project management platform has an onboarding workflow that streamlines each step of the process. This way, everyone understands a project’s current status, there’s less chance of duplication, and suppliers know exactly what to do and when to do it by. You can create workflows for collecting tax and banking information, verifying diversity status, checking for UBOs, or even following up on risk alerts.
3. Form and questionnaire templates: As mentioned above, these materials allow you to identify risk by giving you a clearer view of a company’s background, internal policies, and structures. Using templates just makes them easier to send out without missing any information.
4. Auto-scoring for risk assessments: Auto-scoring lets you make quick calculations so you can immediately see the risk level for a vendor and respond right away. It also supports accuracy by reducing the chances of human errors.
5. ESG reporting tool: This helps you track and measure ESG performance so you can keep an eye on your benchmarks and address any issues as they come up. Staying on top of ESG reporting is key for government compliance and making sure you’re prepared to meet future standards.
6. Process orchestration: It isn’t enough to have clear policies and strategies for supplier risk mitigation. You need a platform that allows your procurement team to strategize third-party processes in one place. Make sure you use a tool that also integrates with your current data system — Certa can work with 100 data/system providers, making it simple to integrate into your existing processes.
How to Promote Positive Supplier Relationships
Part of an effective supplier onboarding process is building a trusting, open relationship so you can work together productively no matter what challenges come up.
Here’s what to keep in mind:
Support Open Communication
Open communication is one of the keys to having a successful supplier onboarding process. Check in early and often, encouraging questions and following up on tasks.
Introduce suppliers to a dedicated person who can answer their questions, especially during onboarding. You can also have an internal chat tool within your supplier portal or even an email address for supplier partnerships. Offering tools that make communication easy is essential for effective supplier onboarding.
Manage Supplier Expectations
If suppliers fully understand what the different onboarding stages will involve, they’re more likely to understand what challenges or time-intensive tasks might come up. This helps maintain a good business relationship.