Supplier Management

The Secret to Effective Supplier Onboarding – Tiering 

Vishal Patel, VP Product Marketing, Ivalua

One size does not fit all when it comes to supplier onboarding. Best practices have evolved to a tiered approach that segments suppliers and adapts to dynamic business needs. 

A tiered approach to supplier onboarding helps Sourcing and Procurement leaders develop a sensible list of checks and resources. Among other things, this prevents redundancies when suppliers get asked the same questions by multiple departments. 

Use Supplier Segmentation for Adaptive Onboarding 

Segment your suppliers and prospects into transactional, critical and strategic tiers before applying the appropriate onboarding process. (Gartner covers this in the report:Balancing Speed and Risk Oversight with Supplier Onboarding) The degree of supplier scrutiny varies depending on the importance of the contract and the strategic value of the supplier. 

A critical supplier has value and cultural alignment as a transactional supplier, but not as much as a strategic supplier does. Strategic suppliers deliver additional benefits to your enterprise beyond typical operational aspects such as cost, quality and service. They contribute to enterprise performance in areas such as revenue growth, increased profitability and product innovation.

How to Apply Qualifying Checks to Supplier Onboarding?

Qualifying checks establish an understanding of the supplier’s business continuity planning and evaluates things like risk management policy, financial viability, quality controls, cloud security and performance tracking across your supply chain.

Internally driven qualifying checks include requirements by departments such as Legal, Finance, Engineering, Procurement and Diversity. These checks go deeper into evaluating supplier readiness to integrate and become an extension of the business. They also encourage operational and cultural alignment.

Onboarding High-Value Suppliers

A higher-value, higher-impact contract undergoes a more comprehensive onboarding process that includes qualifying and quantifying checks. Onboarding these strategic suppliers involves more parties and collaboration across functions, processes and tools. It needs Procurement’s facilitation to gather and reconcile information into a supplier digital identity

A low-value, low-impact contract may involve mandatory qualifying checks such as:

  • Government- and compliance-focused requirements and background checks
  • Legal identity checks relevant to powers of attorney, accounts and payment systems
  • Checks to ensure no additional exposure to financial (e.g., insurance, liabilities) and reputational risks (e.g., ethics, workforce, environmental) once in production

Consider automated checks for low-value and low-impact contracts to speed up the onboarding process.

Onboarding to Bridge Upstream and Downstream Sourcing 

Onboarding serves as a bridge between upstream and downstream sourcing. Upstream pre-contract sourcing activities include aligning the potential supplier relationship with business plans, defining scope and specifications of needs, and identifying the supplier prospect portfolio and who should be shortlisted. 

Downstream activities occur after a contract is signed and transferred to operations and the vendor relationship owner to manage business engagement and purchase products or services. Downstream activities include:

  • Project planning
  • Development and innovation sharing
  • Statement-of-work and alignment
  • Contract execution
  • Material requirements planning (MRP)
  • Performance measurements

Onboarding Existing Suppliers

Tiered onboarding doesn’t only apply to your new suppliers, but also existing vendors when they:

  • Add a new manufacturing site
  • Relocate a current manufacturing site
  • Receive substantial new business volume
  • Enter a new product line
  • Increase the level of supplier integration
  • Change processes or technologies that present significant risk

Onboarding Innovative Suppliers

To access innovation faster and to encourage more innovative suppliers to work with your organization, perhaps the lengthy onboarding path isn’t the best. Some organizations have been able to setup a faster onboarding path for such suppliers, ensuring that their innovative ideas are able to make an impact faster. 

For many enterprises, supplier onboarding happens on many levels. To ensure you’re prepared and well-versed on the requirements, download the Gartner report: Balancing Speed and Risk Oversight with Supplier Onboarding

 

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