Vendor Onboarding in Indian Businesses: A Complete Guide

Developing relationships with a new vendor could be complicated. If an organisation doesn’t have an established vendor onboarding process, it could be risking a damaged vendor relationship from the start. Ensuring that vendor onboarding processes are streamlined helps an organisation get the vendor relationship off to the best possible start.

Meaning of Vendor Onboarding and Vendor Sourcing

Vendor sourcing and vendor onboarding are two separate processes that are closely linked and must be followed sequentially.

Vendor sourcing or source to contract refers to screening, validating and selecting vendors for procuring the goods and services an organisation needs for its business. On the other hand, vendor onboarding comes right after vendor sourcing and guides an organisation’s new vendors into its network.

Vendor Onboarding Process Explained

For different organisations, the vendor onboarding process could be entirely different. However, listed below are some standard steps that are always involved.

Understanding the Vendors

The vendor onboarding process begins with adding the vendor to the organisation’s database and collecting the necessary documents. It ensures that the organisation partners with professional entities and helps understand the vendor’s motivations. It reinforces the understanding that the upcoming vendors would follow the organisation’s internal policies and norms laid out by the regulating authorities.

Verifying Vendor Documentation

The next step in the vendor onboarding process is verifying documents provided by the vendor. The verification team would weigh the information and documents provided by the vendor, such as GSTIN details, bank statements, audited financial statements, etc., against their company’s standards and decide whether the vendor could work for the organisation.

Conveying Requirements and Expectations

The onboarding team would explain to the upcoming vendor the entire operational procedure. The team would convey the information and the organisation’s expectations from its vendors. It would ensure that the vendors abide by the organisation’s policies and provide substantial results. 

Introduction to Network and Software 

Once a vendor is approved, the onboarding team would add the vendor to its network, deploy the required software on the vendor’s system, and explain the working procedure. In case of a rejection, the onboarding team could ask for additional documentation and try solving the issue. 

Vendor Onboarding Process Example

Here's an example of vendor onboarding process at a glimpse-

Benefits of Vendor Onboarding Process in the Organisation

A systematic and smooth vendor onboarding process is crucial for efficient and effective vendor management and is highly beneficial for an organisation. So, just as an organisation gives due importance to managing the relationships with its clientele, organisations also recognise the importance of managing vendor relationships for building a strategic partnership with them.

Some of the key benefits of establishing vendor onboarding processes are listed below:

Strengthen compliance – Taking a structured and systematic approach to vendor onboarding helps an organisation comply with its internal policies and external regulations.

Mitigating vendor-related risks – The vendor onboarding process helps assess the risk factors up front, such as vendor credibility, reputation, previous litigations, etc., to avoid compliance issues, damages, and costly investigations. Also, it helps in appropriately categorising vendors to ensure the right level of due diligence is applied before onboarding them.

Enabling automation – With a proper vendor onboarding system in place, a business no longer needs to worry about different forms for different vendors or follow up with the vendor for their information each time while doing business with them. Automating the vendor onboarding process helps organisations establish a standardised, easily accessible, sole enterprise-wide process for adding a potential vendor into their vendor database.

Reduce duplication of data – With a vendor onboarding process, all details related to the vendor are fed to the system, such as vendor name, vendor’s address, vendor’s bank details, vendor’s contact details, vendor ID proof details, etc., Organisations that work with multiple vendors could prevent such data being duplicated or multiple vendor profile from being created for the same vendor by their other business units. They can record the vendor’s information once and then extend the same out to other systems.

Enhanced visibility – A vendor onboarding system would improve the organisation’s ability to search for and keep track of vendors. As a result, the organisation could also establish an audit trail for any data changes, providing complete visibility.

Vendor Onboarding Checklist

Finance teams find that an accurate supplier onboarding is crucial to reduce risk, detect fraud, meet compliance requirements and ensure strong accounts payable controls. So, a basic checklist will always allow businesses of any size to keep a good vendor relationship and ensure that accounts payable process functions smoothly. It will help businesses not miss out on important steps during the vendor onboarding process. However, this checklist may be modified according to the business needs. Here's what a vendor onboarding checklist broadly contains-

1. Identifying Requirements & Assessing Vendors

First of all, the organisation should understand and document its product or service requirements such as specifications, volume, frequency of delivery, etc. Thereafter, it must search for potential suppliers or vendors who can fulfill the requirements in the market. AP teams must weigh the benefits and risks of associating with potential vendors. You can reach out to peers in your industry, go through the association vendor listings, compare vendors on certain public platforms such as Capterra and finally document the research. Use Request for Proposal (RFP) and submit it for obtaining information or quotes and to line up demos/interviews.

2. Vendor Evaluation

After identifying potential vendors and shortlisting, evaluate each vendor for certain parameters. Creating a vendor evaluation scorecard should help. Parameters for vendor evaluation include the following-

• Service level agreement
• Keep a backup plan 
• Consistency and timeliness of Vendor compliance with applicable regulations
• Vendor's financial health and credit history
• Vendor must sign the ethical code of conduct
• Product or Service track record
• Vendor budget and cost-to-benefit analysis
• Vendor risk classification as high, significant or critical
• Review with the vendor options with buying committee formed

3. Vendor Due Diligence 

Conduct a thorough due diligence once you select the vendor. Note that higher the risk a vendor poses, the
deeper the due diligence should be. Some areas of due diligence review of vendor company include-

• General information
• Financial information
• Compliance information and status
• Reputation status in the market
• Insurance availability and coverage
• IT security
• Company policies

4. Vendor Approval & Contract Negotiation 

Next is the vendor approval process wherein joint discussions take place between the selected vendor and your team. You should set terms and conditions before entering into the contract. Long term vendor relationships call for a detailed documentation and onboarding approach. Hence, gather some details such as Address, Licenses, Banking details, Insurance, Documentation, Contact details, Registered supplier name, and Contact details of supplier representatives.

Before entering into a vendor contract, review it to ensure all essential elements are covered such as defined performance standards, access to reports and audits, data privacy and security, complaint/grievance resolution process, business continuity and disaster recovery plans, data ownership, clause on Intellectual Property rights, actions/provisions for default, termination and dispute resolution with remedies. After review, execute the contract and share details to vendors. Share the final approved contract to review before activating suppliers.

5. Implementation & Routine Monitoring 

Ensure that the vendor and your team are well-aligned on the implementation process and timing. Communicate to your Inventory control and warehousing, Purchasing and Accounts departments about the vendor onboarded, including logistical information.

The supplier should have details such as invoicing, agreed-upon terms for formal approval and contact details of personnel/representatives from your company.

Vendor Onboarding Documents

Following are some of the vendor onboarding documents-

• Company ownership 
• Tax information, forms and GST/Customs identification numbers
• Non disclosure agreements (NDA)
• Vendor insurance policy documents
• Vendor diversity certifications
• Subcontractors, and outsourced Third Party Agreements (TPA)
• Sustainable sourcing reports
• Financial records/credit history
• Security/ISO/SSP certifications
• Regulatory compliance details
• Required business licensing
• Banking information for payment

Challenges Faced During the Vendor Onboarding

Some of the key challenges associated with vendor onboarding are as below:

Manual Process

Many organisations are working on manual vendor onboarding processes that are ineffective and a burden for their IT teams. The IT team needs to create manual procedures to extract, validate, and standardise the vendor data. Vendor data includes their GSTIN, address with state & city details, vendor name, contact details etc. Such processes are prone to delays if the vendor changes input format or switches to a different platform. Delays & errors related to manual punching of invoices might arise when vendors share invoices in different formats with multiple templates.

Complex Legacy Infrastructure

As the vendor network expands, many organisations customise their existing ERP and accounting systems. In essence, legacy systems aren’t suited for working with different sources and systems. Usually, they require middleware for integrating data across systems. This creates a needless complex environment, requiring IT intermediation to manage incoming data and monitor key metrics for vendor performance.

Onboarding Backlogs

When a vendor changes the source data, such as vendor contracts, contact information, roles, etc., it results in broken dataflows. The data flow needs to be fixed manually. Also, identifying where such a break has occurred is a time-consuming task.  As the chain of onboarding issues begins, it generates onboarding backlogs disrupting the onboarding process, leading to delays in supply orders and production bottlenecks. This also delays in releasing payment for invoices to the vendors. 

How to Automate the Vendor Onboarding Process?

The vendor onboarding process is the cornerstone of strategic vendor management. Organisations have often looked at ways for enhancing their processes, and automation is one solution that stands out above the rest. Automation takes the average vendor onboarding process to a more productive and efficient level.

When it comes to collaborating with the vendors, organisations should choose a solution that is accessible to both parties. A central platform for organising and storing vendor records, all communication logs, and business information can help organisations prevent issues from becoming roadblocks.

Considerations for choosing a vendor onboarding solution:

• Size of the business
• Number of vendors 
• Future growth plans
• Price and scalability of the solution

An organisation must ensure that the chosen solution provides a compelling value proposition. Organisations should pick a solution that makes it easier for their vendors to get started and keeps their private data secure.

Vendor Onboarding Best Practices

Some of the best practices for vendor onboarding include-

• Involve the leadership- Having the sign off from the leadership team from the start allows the onboarding process to smoothly progress as the rest of the company is aligned with your vendor onboarding process.
• Assign the responsibility to a SPOC- Make sure to assign the management of vendor onboarding process and checklist to a single point of contact so that the SPOC completes the task end-to-end thereby avoiding any delays or communication gaps.
• Keep it flexible- Every vendor is different and accordingly, the vendor onboarding could take its own time and may involve additional steps during the onboarding process.
• Automate vendor onboarding- There are many hiccups if the vendor onboarding process is manual. Documentation could become difficult and onboarding could get delayed. So, automating the vendor onboarding process using SaaS-based tools allows teams to collaborate easily and faster.
• Set expectations before onboarding- Before the vendor is onboarded, set expectations with vendors about the expected lead time, price, payment terms, discounts, product quality, etc.

Vendor Onboarding Mistakes to Avoid

A business may not succeed in vendor onboarding due to certain avoidable mistakes. Disorganised supplier experience, unclear expectations and information loss may hurt relationship with vendors. Some common mistakes are as follows-

• Wrong choice of tools- Businesses may make a wrong choice in selecting the tool for vendor onboarding. They may wrongly gauge the volume of data shared, extent of collaboration needed from procurement stakeholders, and the extent to which you wanted to automate vendor onboarding and ease of use or user interface.
• Lag in communication- The procurement team may not communicate the requirements correctly to the potential vendors. It delays the process of onboarding.
• No training- New vendors must be trained during the onboarding process about the procure-to-pay process and the timelines, among other essential know how's of the partnership.

Conclusion

Vendor onboarding is therefore a very essential stage in building a long term and strong relationship with the vendors. Having a checklist will ensure no steps are missed out. With the ever-changing compliance regulations, there is a need to automate vendor onboarding process so that business stays compliant and its working capital does not get affected.