Too often, the work being done to ensure the security and compliance of vendor payments is seen as a logjam to business. However, the data within your supplier file is relied upon by your entire organization — from procurement and risk to finance and business owners. Decisions are made and risk is assessed — or not — based on what has been entered into your enterprise resource planning (ERP) system.
With so much at stake, why do so many construction companies consider vendor onboarding and management as a tactical, clerical function rather than a strategic opportunity?
This article discusses the strategic importance of your supplier file and the need to transform vendor management from a tactical function into a strategy for better business.
The Foundation Is Broken
Consider how your organization sets up a new vendor in its ERP system, especially one to which you may be paying millions of dollars. The process likely involves creating a vendor form, exchanging sensitive information via email, and passing all of this information through several sets of internal and external hands. The information on the form may or may not be verified against third-party sources. In addition, the process for setting up a new vendor likely isn’t documented.
This is the foundation of your organization’s entire peer-to-peer process; systems, processes, and functions depend on the output of this effort.
Club Fraud
A broken foundation leads to human error, and social engineering fraud relies on human mistakes to succeed.
Think about your ERP system as a foyer to a club that everyone wants to join. In that foyer, you have employees who are checking IDs while they are also paying all of the bills and answering hundreds of questions each week by phone and email about who is entering the building, why the line is so long, and if they could let someone in the back door “just this once.” Also, the club has six other entrances besides the foyer, an unlocked window in the restroom, and an open loading dock to the kitchen.
While this scenario might seem extreme, it’s the reality of vendor desk staff in companies of all sizes. Vendor desk personnel are juggling too many inputs to maintain a tight and trackable process.
It’s Time to Change the Paradigm
Bad or incomplete vendor management processes create three very real pain points:
- Friction
- Fraud and compliance risk
- Incomplete payables strategy
Friction
Automating the largely manual vendor onboarding and management process can have an immediate impact on your entire organization, not just the vendor desk staff. Automation can also eliminate phone tag between vendors and your accounts payable (A/P) staff by removing them from the responsibility of collecting and submitting vendor documents.
A digital supplier onboarding platform can help automate the vendor management process. Many supplier portals collect and update vendor data, but keep in mind that unless that portal is vetting the information submitted, you still have a manual “paper form” process to support it.
Look for a platform that has application programming interface (API) integrations with third-party sources like the IRS to check tax IDs or the Early Warning System to vet bank accounts. Ensure the platform can automate updates to your existing suppliers, not just the new ones.
Automating as much manual effort as possible gives your vendor desk staff time to be thorough, identify problems, and solve them before they get to your ERP system.
So how important is the time that automation can save? Exhibit 1 shows the benchmarks related to vendor desk time spent on single, issue-free new vendor onboarding.
Additionally, as shown in Exhibit 2, the customer-provided data includes the time spent on vendor onboarding by employees outside of your A/P and procurement teams.
Overall, 71 minutes were spent on each new vendor onboarding event.
An additional aspect of friction-related costs is rooted in visibility — or rather, the lack of visibility. If vendors and business owners don’t have a way to check on the status of their onboarding at any given time, then they take up even more of your vendor team’s time and energy by calling and emailing.
Ask your vendor desk staff to spend 1-2 weeks tracking how many queries they have to answer regarding status updates on onboarding as well as invoice payment status. Multiply that number by 3-5 to get the number of minutes spent dealing with these issues. This will help you quantify how much company time is being spent on tasks that don’t actually move work forward, which will provide you with a pretty strong start to your business case for automating the onboarding process.