5 Supplier Onboarding Best Practices to Boost Vendor Relations

For many small- and medium-sized businesses (SMBs), finding and implementing best practices for supplier onboarding can be a frustrating process.

While in an ideal world selecting and integrating a vendor into the companyting’s system should only take a few days, problems such as regulatory issues, unclear logistics plans, unaligned back-and-forth processes, and technology gaps means onboarding may take several months — especially if it’s left to one person.

Besides potential friction with the vendor, delays like this can result in extended periods without parts or raw materials, months of waiting to launch products, or even months of lost income.

This is something that many SMBs often can’t afford, particularly in the U.S, where recent Goldman Sachs research says that 76% of SMBs have confirmed their financial health has taken a hit since mid-2021.

The need to avoid heavy onboarding issues is crystal-clear, but how can SMB owners do this as well as handle the day-to-day pressures of running a business?

The good news is that there are ways to finetune and streamline supplier onboarding best practices to help ease this burden.

Before we outline thost best practices for you, let's take a quick look at what vendor onboarding looks like today.

What is vendor onboarding?

Vendor onboarding, also known as supplier onboarding, is a vetting and integration process that aims to add suitable new suppliers to a company’s systems as smoothly as possible.

This involves analyzing the vendor’s reputation, performance, and business practices before aligning them with your company's internal processes, regulatory requirements, and expectations.

A lot like employee onboarding, supplier onboarding practices can make or break business relationships. If done well, it helps avoid miscommunication and fulfill expectations while maximizing the chances of shared success for both parties. If done poorly, your company could delay potential growth or end up with a sour relationship that could do more than just dent business.

So, why do supplier onboarding issues happen?

And what can small business owners do to streamline onboarding practices and overcome this challenge?

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5 Supplier Onboarding Best Practices

For small businesses, finding and implementing supplier onboarding best practices shouldn’t be a pipe dream, but a top priority that directly contributes to the company’s overall performance.

Having a clear and coherent supplier recruitment strategy is thus a fundamental part in business growth.

SMB owners can achieve this by following a series of tangible and effective measures.

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1. Make checks anessential first hurdle

Checking and evaluating suppliers is a broad endeavor, but an essential first step to many small businesses — especially in industries with a high choice of vendors.

With so many factors to consider, it makes sense to break the process down into at least two stages.

The first deals with minimum requirements or thresholds; that is, the essential characteristics that each supplier must have before you’d even consider doing business with them.

For example, do they meet a minimum threshold that makes them financially sound enough to do business with you? Do they comply with regulations essential to your firm? Does the owner have a clear understanding of your business and communicates well?

Asking questions like this will weed out the unsuitable options, leaving you with a smaller list to work with.

The second stage is more specific, and requires creating a checklist of risk-oriented factors that will be useful for you or a member of staff to apply to your shortlisted candidates.

These criteria could include, but are not limited to, the following:

  • The supplier has no past performance or legal problems
  • The supplier can finance the delivery of goods or services within a specific timeframe
  • The supplier doesn’t supply the same service as another of your vendors
  • The supplier’s operational software is compatible with your own.

If you haven’t already, then consider assigning an employee who will verify supplier checklists as one of their main tasks.

This will help to streamline the process and avoid missing important factors in what can be a lengthy and detailed process, especially if you are vetting hundreds of suppliers.

2. Clearly set out expectations

Like with many things in life, difficult working relationships are born out of poor communication.

As such, clarity and precision need to be at the center of your conversations with your new supplier.

From the outset, they must know what you expect from the working relationship. Lay down crystal-clear company policies, pricing and payment information, and product quality to avoid friction further down the line.

A standardized onboarding model is useful here; that is, a specific set of requirements that you can also tweak according to the vendor you’re working with.

Equally as important is being an attentive listener. All too often, buyers fall into the trap of dictating terms to new suppliers, instead of understanding that taking time to better understand their business and value proposition could actually benefit both parties.

For example, maybe different payment terms could motivate them to go above and beyond their usual service. Find out what terms work best for both businesses, and then be upfront about what the payment term expectations are.

Can there be a delay in payment? And by how much time?

Here, it's important that there are no blind spots. If everyone is singing from the same hymn, then both companies are more likely to reap the rewards.

In other words, be open to compromise while clearly setting expectations.

Visual tools are also a great way to keep the supply process clear to everyone. Sharing a communal dashboard via platforms like Trello and Mavenlink lets everyone see the state of play at a glance, avoiding misunderstanding and conflict. Most of these tools are low-priced, if not free, so they’re easy on the business bank balance, too.

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3. Set up communication channels

Supplier onboarding doesn’t stop with selecting the right vendor and making sure everyone is on the same wavelength. The right communication systems must be in place to ensure smooth and streamlined transactions over the course of the contract.

The first step is integration.

Do you share the same communication tools, like video and messaging platforms, so that you start off on the right foot?

Are you in the same time zone? If not, ask yourself when your schedules best overlap for meetings.

Do both companies have access to the same data via sharing platforms? If not, how can you help share data to ensure all parties benefit?

Next, there has to be a plan in place to optimize ongoing communication, and this will likely vary according to each vendor. How often should you hold meetings? What’s the agreed procedure in case of issues?

Having an agreed communication strategy optimizes efficiency and reduces the risk of miscommunication that could result in costly delays. It also shows that you’re a company that values creating positive relationships with your suppliers.

4. Create a separate process for strategic suppliers

It’s a simple fact that some suppliers are more important than others.

Strategic suppliers are vendors that offer more value than normal, whether through pricing, product quality, or outstanding service and are vital to maintaining your business’s bottom line.

It makes sense, then, to allocate more time and resources toward onboarding potentially crucial companies to your system. Going beyond simple checklists and approval processes, integration with these supplies may be slower, more cautious, and require a significant amount of manpower.

A sensible practice is to dedicate a separate onboarding procedure just to them, one that deviates from the standardized process you have installed. It might mean having more specific guidance parameters for approval or less automation as you want to personally vet them yourself.

This doesn’t need to be limited to just new vendors, either. You may want to upgrade existing suppliers to the role of strategic partners, which would require them going through a mini-onboarding process to the next level of the business relationship.

The goal is to create a value system of suppliers, so you and your staff know how to allocate your resources toward the companies that bring the most value and growth.

5. Automate where possible

We can streamline most of the methods that we’ve spoken about through a growing area of technology: automation.

Automated processes, including Artificial Intelligence (AI), allow you to focus on higher-value tasks, eliminate human error, and speed up task completion.

Take the vendor vetting process we mentioned earlier. We can automate the first stage of this by using Vendor Risk Management (VRM) software, which performs background checks on new suppliers.

Potential candidates sign up and apply to work with you via a supplier enrollment portal and fill out a range of information fields. The software automatically validates the entered data, comparing it to sanctions lists and checking it for authenticity. It then filters out unsuitable candidates, saving you the time and hassle of doing it yourself.

Vendor portals also act as a centralized location where you can access this data later in case of invoice or payment issues. Having everything in the same place saves the time and effort of searching through reams of files to locate what you need.

It’s not just routine tasks that automation can streamline and improve.

New AI analytic tools have the ability to assess vendor behavior so that they can flag up or even eliminate underperformers. Conversely, they are also able to highlight the most efficient suppliers and pick out potential new partners to optimize the inflow of goods and services.

This method of supplier performance management is underused.

According to BCI’s Supply Chain Resistance Report (2021), 44% of businesses don’t have any solutions in place to combat the threat of supply chain disruptions. Employing such a tool in your operations, then, might prove to be a serious competitive advantage over rivals.

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