Risk and Procurement/Supply Chain — The Wedding Invitation is in the Mail

Today, Spend Matters would like to welcome back Richard Rich.

With increasing frequency, procurement/supply chain management and risk management are becoming more involved. Call it dating today, but I think they'll be married soon (no word yet on what the pre-nup looks like). Watch your mailboxes for the wedding announcement. Everyday, in several ways, I am seeing more of the critical thinkers from Supply Chain Management talking more and more about this relationship.

Recently, David R. Butcher, in a piece on thomasnet.com, dated January 19th, made the point that "A volatile economy will make risk management more of a permanent factor for supply chain managers, and, moving forward, the usual approach to possible disruptions simply won't do." I am totally allied with Mr. Butcher regarding that point. I am also a firm believer this is not the latest rage in SCM or Risk. It is here to stay. As globalization shrinks markets, companies will need to be more innovative, adaptive, and quick to see the strengths, weaknesses, opportunities and threats in their supply chains.

The renowned collegiate football coach Bear Bryant used to say that he wanted his players "hostile, mobile and agile". Supply chains, in order to support their companies in the near and long term, need those characteristics as well.

But how do we move to a more adaptive, light and competitive supply chain? I submit that answer is a marriage ceremony to which SCM and Risk Management professionals will collectively take their vows. The core of the sermon, to my way of thinking, will focus on tactics of risk management periodically applied to the components of the supply chain.

To become more adaptive (mobile), light on their feet (agile) and competitive (hostile), I believe that on a periodic basis, supply chain professionals, risk management people and their internal and external customers will need to analyze their processes, their strategic alliances/vendor relationships and all the SCM components with the tactics offered in risk analysis. And they'll need to do this across their projects and programs -- not just selectively. The result of this effort will be a more agile, mobile and hostile (competitive) supply chain.

In this effort, risk and supply chain professionals will need to look at all key areas of the supplier engagement and supply chain lifecycle. This effort may start with initial supplier qualification inquiry but it will also progress to purchasing/contracting methods used in examining the market, contract administration (e.g., T's & C's, templates) as well as pricing and price adjustment methodologies. And that's just naming a few areas. There are more. Individual and organizational priorities may differ due to the economy, company's mission, emergency response. Regardless of exact mix and focus, the result will always be improved processes and planning if done right.

At its core, procurement and supply chain groups will need to adopt risk management tactics as a central component of their activities -- no matter what face and form that change decides to wear on a given day. Just as in a marriage, all parties involved will need to adapt to the road as necessary, ideally as quickly as possible. This might not be easy for all companies, but for those that succeed in walking up to the alter together, I think the chance of a divorce will be slim.

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