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 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:
- Framework Agreement or Contract signing.
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 that will detail the supplier's requirement in meeting the organisation's needs and is the most critical part of the supplier onboarding process that organisations often find to be the most difficult.
It is crucial that the service specification prescriptively specifies the commercial, legal or quality management system standards that 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 they allow 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 within 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.
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 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 supplier has the support of all stakeholders to maximise the success of the selected supplier 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.
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:
- 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.
It would be unfair to sully the reputation of a supplier if its ability to service the needs of an organisation were due to a national inability to recruit, for example. The critical issue is for both the organisation and 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 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.
A supplier must always deal with urgent supply issues as they occur. However, non-urgent supply issues of a severe nature 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 should never let suppliers dictate an organisation's relationship with its 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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