Monitoring Supply Risk — The Procurement and Finance Connection

It seems a day does not go by these days that I do not talk to someone about supply risk. I'm writing this post from the CAPM Forum in New Haven, having just given a talk a couple of hours ago about supply risk and a number of other topics. Shortly afterwards, one of the managers in attendance told me that my presentation had prompted her boss, who also listened to the presentation, to tell her to monitor their supply base more closely for signs of financial distress. Earlier in the week, I spoke to two organizations on the phone (Fortune 500 companies) who had a new objective to investigate options for more actively monitoring and managing supply risk. Clearly, this is not just a hot topic -- it is the number one topic on everyone's mind in the Spend Management world these days (or perhaps the number two, behind cost savings).

But it's not just procurement's responsibility to manage supply risk. In many of the more advanced organizations I've interviewed and spoken to in the past year, I've often observed that supply risk is a team effort. Operations and quality people are involved. Business unit heads are involved. But most important, finance is beginning to get involved. Whether it is having an internal audit function take a closer look at supply risk or better monitoring and looking for risk indicators in P2P systems data (especially downstream), finance is beginning to play an integral role in the supply risk equation, helping procurement's efforts. But finance is often getting involved for different reasons -- and in different ways -- across industries. And they're also getting involved at different levels, with some initiatives focused on the A/P area (and A/P monitoring) while others are taking even some of the CFO's time (especially in crisis management situations).

This involvement has fascinated me for some time now. A few months ago, I really started to explore the procurement and finance supply risk link. And what I've discovered is at worst, finance can be an enabler of supply risk programs by providing funding. At best, finance can be an integral tactical partner to procurement in driving supply risk visibility and mitigation efforts. But how best to bring both parties to the table, and above all, what are useful strategies for enlisting the support of finance in our supply risk management goals? Next week on Tuesday, I’ll be speaking at an ISM webinar on the topic and will hopefully shed some more light on the subject. Even though it will be something like my twelfth presentation in the past month, I'm more excited for this one than most (even though I'll be using material that I'm just in the process of creating and will be trying out for the first time). Join me if you're curious about the topic. And if you'd like me to explore anything in particular, drop me a line.

Personally, I'm particularly excited about the topic because I believe supply risk management is actually a backdoor way of getting finance more involved in Spend Management issues, in general. However, it will most likely have a short- to medium-fuse (I reckon that until the end of the year, there's going to be a lot of interest in the subject -- perhaps longer if the recession lasts). But regardless of whether another area displaces it as the top procurement and supply chain issue going into 2010, one thing is clear. And that's supply risk is here to stay as a C-level topic. Sometimes it takes a crisis to drive people to action. Finally, we have a crisis on our hands. Let's capitalize on it, letting the fire burn just enough to get a few more engines on the scene. So let me ask you -- how can procurement best take advantage of supply risk when it comes to getting attention and results for all of our programs? The spotlight won't shine here forever.

Jason Busch

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