Vendor Onboarding in Indian businesses

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08 min read.

Developing relationships with a new vendor could be complicated. If an organisation doesn’t have an established process of onboarding vendors, 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. 

Benefits of Establishing Vendor Onboarding System 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.

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.

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