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Suppliers are often the backbone of a company, and although supplier onboarding is a tedious process, it's often crucial. However, most companies spend their energy on strategic suppliers and lack management of the non-strategic or tactical suppliers, including marketing, IT, and services.

Although non-strategic suppliers represent only 20% of the procurement expenditure, they can be up to 80% of the supplier database – something called 'tail spend'. That's a big database with a lot of potential to work with. The main problem is: onboarding non-strategic suppliers for a one-time purchase is just as time-consuming as onboarding strategic ones. When left unmanaged, the time and effort put into onboarding them are wasted – and in the end, represent a large amount of data with dormant potential.

Supply chain resilience is crucial to business health and growth. Managing a growing network can be a challenge, but this article will show you how supplier onboarding can prevent issues down the line, and how technology can leverage your existing supplier base to improve business relationships and save money.

This article will also explore:

What supplier onboarding is,
Why procurement teams should do it,
What are the biggest challenges,
How to perform supplier onboarding in a few steps,
And how to leverage your existing supplier database.

What is the supplier onboarding process?

Supplier onboarding consists in registering a prospective supplier in a company's system. It's not simply purchasing goods and services, but sourcing them – which involves more complexity. Overall, supplier onboarding includes integrating the following:

Data collection,
Background checks,
Risk assessments,
Legal approvals,
Sustainability compliance,
Privacy compliance,
Corporate social responsibility policies,
Supply chain integration.

Supplier onboarding is specific to procurement teams, and can sometimes be overlooked in the company. Although there are many ways to improve this process, many companies are stuck with years-old processes and unidentified bottlenecks.

But why do companies have to onboard suppliers in the first place?

Supplier onboarding allows companies to conduct more efficient businesses, purchase goods and services, and organize supplier payments – not only in enterprises but in small and medium businesses as well. More than that, a structured onboarding process drives a more transparent supply chain – and will help your organisation to meet the legal requirements like the Supply Chain Act, since it can ensure the exclusion of unwanted suppliers and improve risk-based supplier selection.

In the light of these regulations, the task of onboarding new suppliers, owned by most procurement teams, will also gain greater importance in the future, as Dr. Elouise Epstein - futurist and a supply chain and procurement author, argues:

“The profession will be responsible for facilitating value creation with third parties. It will go from serving the business to being the business. Enterprise ESG goals will be owned by procurement, with CPOs adopting the mantle of Chief Sustainability Officers.”

Mitigating risks, increasing efficiency, streamlining processes, and strengthening business relationships are only a few of the benefits that come from taking supplier onboarding to the next level. The more organised the onboarding, the more a company can benefit from their supplier relationship.

3 steps for the ideal supplier onboarding

If the benefits have piqued your interest, here are three crucial steps to start implementing a more optimized supplier onboarding:

Step 1: remove emails from the equation. During a typical onboarding, requests, orders, and permissions have been granted by email, and the process is unstructured. It can involve managers from different departments, including procurement and even legal and security teams.
Step 2: centralise data collection. When a supplier is officially onboarded, they fill out different forms, such as general information details, main points of contact, and financial information. This might involve several stakeholders in the organisation, and information might be stored in different locations.
Step 3: minimise human error. Once the supplier submits the information, someone is responsible to ensure that the data is complete and must manually transfer the information into the company's Enterprise Resource Planning (ERP) system – a time-consuming, error-prone task. Once that's done, the supplier onboarding is complete.

Technology advancements can dramatically improve the process above. According to the Aberdeen report, The Value of Strategic Supplier Data Management, that was based on a survey of supply chain practitioners:

“Supply Chain Leaders are over 30% more likely to have an efficient supplier data management process to accelerate supplier onboarding.”

Common challenges in supplier onboarding

OnboardingChallengesNot only supplier onboarding can be time-consuming, but a lot of the processes can lack transparency – creating information silos within the organisation. That means that employees are unable to see the bigger picture, and the onboarding process creates a snowball effect, generating:

Frustration for the team members dealing with suppliers, since they might lack an overall understanding of how the supplier fits the company or what the current status is,
Twice as much work for the procurement team, since they might approach the supplier with a more strategic goal, renegotiating terms and prices,
A lack of transparency and delays in the financial department, since they might process orders and invoices separately,
Confusion for the supplier, who might end up talking to different people about the same topics over and over again.

With the current technical advancement, supplier onboarding can be smooth and additionally foster a good relationship with the supplier right from the start. It's entirely possible to streamline the workflow – and the supply chain – of the whole organisation, improving information exchange and even generating savings along the way.

How technology strengthens your supplier database (without extra onboarding)

When non-strategic suppliers comprise around 80% of the total supplier base, there's a lot to work with. But when that large amount of data is left unmanaged, there's no exploring the true potential of your supplier database.

A large part of non-strategic expenses are one-time purchases that require the same onboarding steps as long-term partnerships – a time-consuming process that might be left unmanaged in the end. Luckily, technology can change that: leveraging your existing supplier database with technology can simplify these complex manual processes, making information more transparent and accessible within organisations. It can also help to strengthen existing relationships with suppliers to built a more resilient supply chain:

“Suppliers are the critical component to building tomorrow’s supply chains. We need to treat them as partners instead of interchangeable commodities. As we learned during the pandemic, today’s commodity can quickly become tomorrow’s strategic advantage. All too often suppliers and their contributions are overlooked or undervalued.” Dr. Elouise Epstein, Partner at Kearney

Plug-and-play solutions like Lhotse are fully automated, and use AI to provide procurement teams with intelligent supplier selection, saving teams precious time and supercharging non-strategic procurement execution.

Here's how Lhotse's solution saves time on onboarding:

**Lhotse leverages your existing supplier base: **when up to 80% of all suppliers are non-strategic, most of the data is left unmanaged. We take your existing internal and external risk data to the next level, integrating it into a streamlined sourcing process.
Lhotse covers ESG scenarios by implementing relevant ESG data (e.g. EcoVadis scores) directly in the supplier identification process. Procurement teams get transparency about their suppliers and tendering processes, enriched with data and suggestions on sustainability, sanctions lists, and much more.
Lhotse ensure compliance with the Supply Chain Act and other procurement policies by excluding unwanted suppliers using a risk-based supplier selection approach. Your existing data is now usable, regulatory data.

If you wish to find out more about how Lhotse can help you to improve your procurement processes, book a demo with us today!

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Work Cited:

Kearney. “2022 IS A TIPPING POINT FOR SUPPLIERS | INTERVIEW WITH DR. ELOUISE EPSTEIN.” Procurement Foundry, 28 Juni 2022, https://procurementfoundry.com. Accessed 30 Juni 2022.

Aberdeen Group. “The Value of Strategic Supplier Data Management.”