4.3 Vendor Onboarding + Framework Agreements (LTA/SLA)

Treating indirect suppliers as transactional vendors invites volatility. A facilities management company or an IT service provider is an operational dependency. If they fail, the lights go out or the network crashes. You must onboard them with the same rigor as a component manufacturer, but with different verification criteria focused on liability and service continuity rather than physical part specs.

Onboarding Requirements (The Intake Gate)

Do not add a vendor to the ERP simply to pay an invoice. A vendor master record is a trusted relationship.

Legal & Financial Verification

• W-9 / Tax ID: Mandatory for tax reporting.
• Bank Verification: Validate wire instructions via a secondary channel (voice call) to prevent Business Email Compromise (BEC) fraud.
• Insurance (COI): Vendor must provide a Certificate of Insurance listing your company as "Additional Insured."
  • Minimums: General Liability ($1M), Workman’s Comp (Statutory), Cyber Liability (if handling data).

Commercial Terms

• Payment Terms: Default to Net 60. Do not accept Net 30 or "Due on Receipt" for indirect services without Finance Director approval.
• Incoterms: DDP (Delivered Duty Paid) for supplies; DAP (Delivered at Place) for equipment.

Operational Scope

• Service Level Agreement (SLA): Define the "What" and "When."
• Escalation Path: Who is the 24/7 contact for emergencies? (Name + Mobile Number required).

Framework Agreements (LTA / MSA)

Stop negotiating every transaction. Use Long Term Agreements (LTA) or Master Services Agreements (MSA) to lock in rates and liability rules for recurring spend.

When to Trigger an LTA:

• Recurring Spend: > $10,000 / year.
• Critical Service: IT Support, Calibration, Facilities Maintenance, Logistics.
• High Volatility: Consumables with fluctuating commodity costs (e.g., corrugate/packaging).

The Blanket PO Strategy:

• Action: Issue a single PO for the full fiscal year (e.g., $12,000 for Jan-Dec).
• Mechanism: Vendor invoices monthly against this PO number.
• Benefit: Reduces administrative overhead by 92% (1 PO vs. 12 POs). Eliminates "late payment" risk due to PO processing delays.

Service KPIs & Performance Management

An LTA is useless if you don't measure compliance. Embed these metrics into the contract.

1. Response Time (SLA)

• Metric: Time from Ticket Creation to Human Acknowledgement.
• Target: < 4 Hours (Critical); < 24 Hours (Standard).
• Penalty: Service Credit (e.g., 5% discount) for missed SLAs.

2. On-Time Delivery (OTD) / Uptime

• Metric: % of deliveries on promised date OR % of system availability.
• Target: > 98%.

3. Warranty & Rework

• Metric: "Callback" rate.
• Clause: "Vendor shall re-perform any defective service at no cost within 48 hours of notification."

Contract Renewal & Expiry Logic

Contracts rot. Active management prevents auto-renewals at unfavorable rates.

The Renewal Protocol:

• T-90 Days: ERP Alert triggers "Contract Review."
  • Action: Check market rates. Is the vendor still competitive?
• T-60 Days: Issue Termination Notice if switching.
  • Constraint: Most contracts have an "Auto-Renewal" clause if not cancelled 30/60 days prior. You must kill it before it rolls over.

The Vendor File & Contract Register

Maintain a "Single Source of Truth" for indirect relationships.

The Contract Register (Dashboard):

Vendor Name	Category	Contract Type	Start Date	End Date	Notice Period	Owner
CleanCo Inc.	Janitorial	MSA + SOW	Jan 1, 2023	Dec 31, 2025	60 Days	Facilities Mgr
TechOps LLC	IT Support	SLA	Jun 1, 2023	May 31, 2024	30 Days	IT Dir
Pack-Right	Packaging	LTA (Fixed Price)	Jan 1, 2023	Dec 31, 2023	NONE	Logistics Mgr

Final Checklist

Control Point	Requirement	Critical Threshold
Financial Security	Bank Details Verified (Voice)	Mandatory
Liability	COI (Insurance) on file	Current (Not Expired)
Payment Terms	Standard Alignment	Net 60
Blanket POs	Used for Recurring Spend	> $10k/yr spend
Review Cycle	Contract Expiry Alerts	T-90 Days
SLA Definition	Response times defined	In Contract