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, which organisations often
find 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, 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
should 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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