Posted by  Lance Mercereau  Published on  25 Jan 2018
  • Risk & Compliance
  • Cost Savings

"The cost and risk of selecting poorly vetted suppliers can be greatly minimized by improving your onboarding process. Unfortunately, many procurement organizations neglect to focus on this important initial stage in the supplier lifecycle."

It's never been more important to have a detailed understanding of your supply chain.

Indeed, the worst case scenario for many organizations recently came true with the collapse of Carillion, one of the UK's largest facilities management and construction services companies, leaving its many thousands of customers in a bind. 

Carillion is an extreme case but it is a good reminder of the potential risks that may be lurking in your supply chain.   This is especially true as the rate of corporate bankruptcies rises.

George Putnam of The Turnaround Letter expects corporate bankruptcy activity in the United States to remain at a high level for at least the next few years, as the significant amount of debt that was raised during the exuberant markets since 2009 comes due.   Now is the time to get closer to your suppliers and understand their potential impact on your organization.

The need for procurement to check and double check the financial stability of suppliers, and to meet regulatory compliance obligations, is now paramount to safeguard the continuity of business operations.  But this will be an impossible task for procurement teams to attempt without better, timely access to supplier information.

Knowing as much about your suppliers as possible will not only minimize the risk of supply chain disruptions but will also lower the cost of managing suppliers, which can be huge for procurement organizations.  Gartner estimates that companies typically spend $1,000 managing a supplier, per year. For the majority of procurement teams looking to find innovative new ways to improve the bottom line, these sorts of costs are increasingly difficult to justify.

How do you safeguard your supply chain?

The cost and risk of selecting poorly vetted suppliers can be greatly minimized by improving your onboarding process.  Unfortunately, many procurement organizations neglect to focus on this important initial stage in the supplier lifecycle. Why? It comes down to relying on traditional approaches to engaging suppliers, including an overreliance on manual tools to manage a plethora of supplier information and documentation such as financial statements, product offerings, certifications and external credit scores.

The benefits of using modern procurement digital technologies to onboard and manage suppliers include:

  • Streamlining processes and operations by embedding supplier onboarding into your supplier performance and analytics capabilities
  • Increasing employee productivity by minimizing the amount of time your team needs to chase information from supplier
  • Enhancing supplier engagement and communications by setting and managing supplier expectations early on in the relationship
  • Improving and ensuring data quality, governance and compliance by collecting and keeping up to date supplier information for use in other procurement processes and tools such as analytics
  • A single global repository of supplier information including time dated documents with auto-generated work flows such as expiry alerts

And it’s not just for you, too.  Research from McKinsey cites that 80% of suppliers rate ease and speed of onboarding as highly important to their success.  In other words, a better onboarding process is a win-win for you and your suppliers. 

Tips and advice

So, where do you go from here?   Here are a few tips for you to consider:

  • Look at ways to enhance how your team is currently collecting and managing supplier information.  If you’re relying on manual processes, and/or supplier information is out of date, then you know there are areas for improvement. 
  • A logical place to start is to assess the performance of your current suppliers. If you have concerns, trace the root cause, such as a supplier not providing an updated certification, for example.
  • Use analytics to assess the performance of not only your suppliers, but your team in managing suppliers. This could include benchmarking supplier on-time deliveries, current cycle times and the cost of managing suppliers.
  • One of the benefits of linking your supplier onboarding process is improving the quality and accuracy of data for reporting and analysis.  Enable your suppliers to self-classify products and services to your defined spend analytics taxonomy or chart of accounts when they come onboard.
  • Reduce the cost of onboarding suppliers by establishing a single supplier selection process, which includes a self-service portal for your suppliers to easily use. This portal would also empower your team to engage effectively with suppliers, with all communications stored centrally for compliance purposes.
  • Embed supplier credit scores and other key business information into your pre-onboarding process so you can efficiently weed out risky suppliers from your supply chain.

Acknowledge that your suppliers are a great source of knowledge and expertise, which can help you create greater value for your company.  Effective supplier onboarding will transform your procurement organization.