What is Vendor Onboarding?

What is vendor onboarding?
Vendor onboarding, also known as supplier onboarding, is an external collaboration in which the new vendor is integrated into a company’s internal systems to ensure effective collaboration. It has two parts: vendor-facing activities, which are focused on collecting information from the vendor and providing training, and internal-facing activities, which are focused on configuring internal systems to support purchases and payments. 

Once a business has selected a new vendor to work with (perhaps via an RFx process), vendor onboarding begins. Businesses need to collect a great deal of information from vendors in order to ensure that orders go smoothly and that purchase orders, invoices, and payments can be issued on time and with accuracy. Additionally, multiple internal departments (e.g., purchasing, finance) will be working with the vendor, and each will need access to a different set of information from the vendor to make sure that their ongoing interactions will be smooth.

When done properly, vendor onboarding processes set the stage for successful and mutually beneficial partnerships. Well-executed vendor onboarding can reduce risks, improve efficiency, foster stronger relationships, save costs, and ensure compliance.

Vendor-Facing Activities

Depending on your vendor selection process, some or all of the following vendor-facing activities may take place during vendor onboarding: 

• Evaluation and Risk Assessment: Businesses assess the supplier's capabilities, reputation, and potential risks associated with partnering with them.
• Approval and Requirements: Both parties discuss and agree on terms like payment methods, delivery timelines, and quality standards. This is where contracts are finalized.
• Data Collection and System Access: Businesses gather essential information from the vendor, including contact details, tax information, and insurance details. They may also provide access to relevant systems like online portals for placing orders or submitting invoices.
• Training and Communication: This involves familiarizing the vendor with the company's processes, tools, and expectations. It might include training sessions on using specific software or following internal procedures.
• Setting Expectations and Next Steps: Both parties establish how success will be measured and how the relationship will be managed moving forward. This could involve setting performance benchmarks and outlining communication protocols.

Internal-Facing Activities

Vendor onboarding involves not just the vendor themself but also various internal departments within your company. The specific departments involved and the extent of their involvement will vary depending on the size and complexity of your organization, as well as the type of vendor being onboarded. Here's a breakdown of some key internal processes that happen during onboarding:

Procurement and Purchasing:

• Selection and Approval: This team works with the department requesting the vendor to review proposals, negotiate contracts, and finalize approvals.
• Setting Up Vendor Accounts: The purchasing team creates new vendor accounts in the company's systems, ensuring proper categorization and assigning payment terms.

Legal Department:

• Contract Review and Approval: Legal meticulously reviews contracts to ensure they align with company policies, mitigate risks, and comply with regulations.
• Intellectual Property Considerations: If intellectual property (IP) is involved, legal establishes ownership and usage rights.

Finance Department:

• Tax Information Collection: Finance gathers and verifies the vendor's tax information to ensure proper tax withholding and reporting.
• Payment Method Setup: The finance team establishes the preferred payment method (e.g., check, ACH transfer) based on the contract and internal controls.

IT Department:

• System Access Management: IT grants vendors access to relevant systems like procurement portals or collaboration tools, ensuring security protocols are followed.
• Training on Internal Systems: IT may provide training on how to use internal systems vendors need to interact with for tasks like submitting invoices or tracking orders.

Quality Assurance:

• Quality Assurance: If the vendor directly impacts product quality, QA may be involved in establishing quality standards and conducting initial inspections.

Information Security:

• Security: For high-risk vendors or those accessing sensitive data, the security team may conduct additional security checks

How is information typically exchanged during vendor onboarding?

While specialized platforms such as  Vendor Management Software (VMS) and Enterprise Resource Planning (ERP) Systems sometimes have vendor onboarding capabilities, the reality is that much of the exchange happens via email. Using email for vendor onboarding can cause a lot of problems. Security issues are the most serious concerns because so much of the content is confidential. In fact, there is a whole genre of cyberattacks called Vendor Email Compromise (VEC), also known as vendor impersonation or vendor spoofing, where a cybercriminal infiltrates a vendor’s email. Frequently, the cybercriminal uses content found in the inbox to impersonate the vendor so that they can collect payments from the vendor’s customers

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In addition, using email for vendor onboarding can also create a bad experience for vendors. Since multiple departments need to complete internal tasks to finalize the onboarding process, vendors are often plagued by redundant requests for information. Redundant messages exacerbate what is often already a confusing tangle of email threads.  

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So, what should you use instead?

Consider an external collaboration tool

Instead of email, consider an external collaboration tool, such as TakeTurns, for vendor onboarding. An external collaboration platform can help you transform your vendor onboarding from a disjointed process into an efficient, transparent, and secure experience. This benefits both your company by saving time and resources and your vendors by providing a clear and positive onboarding journey.

External collaboration tools like TakeTurns can significantly improve the vendor onboarding process in several ways. Look for tools with the following capabilities to improve your process:

• Keep everything in one place: Eliminate the back-and-forth of email and ensure everyone involved has access to the latest information in real-time.
• Structured process: Clarify ownership of tasks, prevent confusion and keep the onboarding process moving forward efficiently.

• Automated reminders: Set deadlines and automatically remind participants as they approach.
• Ease of Use: A user-friendly interface for both your internal team and vendors, simplifying adoption and reducing training needs.
• Add (and remove) participants: Reduce redundant requests by adding everyone involved in the onboarding process.

• Verified participants: Control who has access to sensitive data by verifying all participants the collaboration.
• Ephemeral storage: All sensitive vendor information exchanged during onboarding is deleted when the collaboration is done. 

Final Thoughts

Vendor onboarding is an essential step in building a successful partnership between your business and its vendors. It ensures smooth collaboration by collecting vital information from the vendor, setting expectations, and configuring internal systems for seamless communication and transactions. While email is often used, it can be inefficient and insecure. Consider external collaboration tools that offer a centralized platform, clear workflows, and robust security to streamline your vendor onboarding process and create a positive experience for both parties.

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