Supplier Onboarding is the
process of introducing a new supplier to an organisation where a need has been
identified that needs to be fulfilled at the least cost or where an opportunity
exists to maximise profitability. Requirements can exist because they are
critical to the organisation's existence for legal or statutory reasons, or
they can be discretionary where the need is to fulfil the requirements of
external parties to the organisation, such as customers. The supplier
onboarding process includes the following stages:
- Identification of needs.
- Specification drafting.
- Specification signoff.
- Supplier negotiation.
- Framework Agreement or Contract
signing.
- Supplier introduction.
- Supplier review.
To ensure the success of the
supplier onboarding process, an organisation needs to ascertain the key
critical success factors the supplier will need to fulfil. The success factors
will form the foundation of the specification for service delivery, which will
detail the supplier's requirements in meeting the organisation's needs. This is
the most critical part of the supplier onboarding process that organisations
often find to be the most difficult.
The Criticality of
Specifications
The service specification
must prescribe the commercial, legal, or quality management system standards a
supplier must adhere to. However, the specification should not be so
prescriptive that it fails to stimulate service growth as supplier
relationships become partnerships or prevent solutions to supply issues from
being adopted, as this allows suppliers to avoid their obligations.
The key critical success
factors will differ between different parts of an organisation, often including
the need to maximise profitability and customer service at the least cost. The
procurement role is to gain a consensus on the final specification draft. It is
crucial to ensure that all stakeholders sign off on the specification before
the negotiation stage of the supplier onboarding process.
The negotiation stage of
supplier onboarding is dependent on the amount that will be spent with the
supplier. Areas of high spending within markets with little or no entry
barriers may benefit from tendering. In contrast, low areas of spending or
market sectors within monopoly supply situations might be better negotiated
with a limited number of suppliers.
Selecting Suppliers
A formal supplier selection
process will enable the selection of suppliers within an auditable procedure
that eliminates any bias towards specific suppliers, products, or services. In
most cases, the process is based on price and quality. However, cost can be the
primary determining factor where quality is of little or no concern. Quality
considerations should be marked within a list of predetermined success factors
by an evaluation panel, whose marks are averaged and added to the price score.
Group evaluation of products
and services allows suppliers to be considered by key stakeholders, ensuring that
suppliers meeting the evaluation panel's consensus criteria are selected.
Suppliers must be chosen mutually in a way that stakeholders will accept, to
ensure that the selected supplier has the support of all stakeholders to
maximise the chosen supplier's success in fulfilling the organisation’s needs.
A Framework Agreement or
Contract should be awarded to the highest-scoring supplier from the evaluation
stage of the supplier onboarding process. Other suppliers within the
negotiation process will appreciate any feedback that can be given to them for
not being awarded any business. The input will help suppliers succeed in their
future negotiating endeavours and keep the channels of communication open for
an organisation to re-engage with unsuccessful suppliers, should the need
arise.
Onboarding Suppliers -
Setting Expectations
Once an organisation and a
supplier have agreed and signed a Framework Agreement or Contract, both parties
must agree on the operational key success factors that will govern their future
working relationship. Framework Agreements or Contract Terms and Conditions are
generic to maintain the parties' flexibility to agree on how they will function
operationally, which may limit profitable trading opportunities.
The critical step of the
Supplier Onboarding process is for both parties to understand what each other
requires in maximising the service offered whilst minimising the costs and
risks related to operating under the Framework Agreement or Contract. Communication
is key between the parties in the early stages of forming a mutually profitable
relationship. An initial meeting with the supplier should be held to
explore and ensure that the supplier fully understands the following:
- Expected trading volume.
- Order process that will be
utilised.
- Operational processes and
procedures to be used.
- How costs will be managed.
- Service Quality and Standards to be
achieved.
- Delivery process and lead time.
The critical issue for both
parties is to identify, review, and, where possible, eradicate any potential
problem or bottleneck that might occur to prevent both parties from maximising
the value that can be extracted from the Framework Agreement or Contract.
National issues such as an inability to recruit staff must be considered by an
organisation and its suppliers, as with staff, an organisation’s suppliers will
be able to function to fulfil their obligations to their customers.
Defining Service Levels
It would be unfair to sully a
supplier's reputation if its ability to service an organisation's needs were
due to a national inability to recruit, for example. The critical issue is for
both the organisation and the supplier to identify the key issues preventing
the fulfilment of service delivery. Supplier management is a crucial skill in
identifying and overcoming issues often outside the direct control of an
organisation and its supply base. Both sides must form a partnership approach
to overcoming these issues.
It is imperative that organisations proactively manage suppliers to ensure that commercial, legal, or quality management system standards are achieved. Communication is critical to achieving this and must be formalised so that an organisation and its supply base can track and trace their progress towards full service at the least cost. In the case of being unable to employ staff, for example, it is in the vested interest of both parties to seek a solution that resolves the issue. There would be little to be gained from the organisation transferring the issue to another supplier, only to find that the problem continues because it is a national labour issue.
Supplier meetings should be held monthly for major suppliers (annual spend
levels above £100K), quarterly for intermediate suppliers (annual spend between
£50K - £100K) and biannually or annually for suppliers whose annual spend falls
below £50K but whose service is crucial for an organisation to function. The
timing of meetings and respective spend levels may vary between industry
sectors.
The Urgency of Supply Issues
A supplier must always deal
with urgent supply issues as they occur. However, severe non-urgent supply
issues should be noted between supplier meetings and form the basis of the
agenda for the next meeting to ensure that all service issues are captured and
dealt with. A supplier can only improve its service offering if it knows where
it needs to meet an organisation's expectations.
Supply issues must be
resolved to benefit an organisation's stakeholders, customers, and suppliers.
Setting impossible targets for suppliers to achieve will only increase costs or
lower an organisation's service offering. Organisations must be fair to suppliers,
but never let suppliers dictate their relationship with their customers.
It is common for
organisational contract managers to want to avoid upsetting suppliers. However,
assertiveness is essential when suppliers try to obviate their obligation to
resolve poor service levels. The contract manager must ensure they hold the
supplier to account for their poor service, as failing to do so will
inadvertently contribute towards an organisation's poor customer service.
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