Where Can Procurement Do More in the Area of Risk Management (Part 1)?

Over on Procurement Leaders Blog, Novartis' Sammy Rashed recently offered some observant words of advice focused on how procurement organizations can do more to manage supply risk. Referencing workshops he has held with various internal clients and stakeholders, Sammy opines that there are five separate areas where procurement can expand the "breath and depth" of its contribution to the practice of supply risk management. Further segmenting this list, he suggests each step beyond the previous brings "increasing complexity and benefits."

In a series of posts looking at Sammy's recommendations, we'll share each of his succinct points and provide additional insight and commentary based on our own experience in the field. The first recommendation Sammy has, which by his order is the least complex and comes with the fewest benefits, is to "strengthen verification process[es] by ensuring it's not only applied with top vendors by volume but rather deployed consistently to address all critical risks areas and with all suppliers where vulnerability or impact is considered high."

In Spend Matters' experience, there are multiple ways to strengthen verification processes -- from basic onboarding to certifications/accreditations to financial risk to labor practices to diversity status (and far beyond). Among these are:

  • Outsourcing to a provider such as an Achilles (in the case of industry-specific supplier management such as in oil and gas or utilities) with a consortia of similar companies interested in gathering and validating the same information; an increasing number of providers, including Deloitte, are also offering similar services, albeit on a more targeted basis (e.g., management of IT and BPO-type vendors).
  • Using an automated supplier information management toolset like Aravo, Hiperos, HICX, RollStream/GXSEmptoris, Lavante CVM Solutions, etc. to gather supplier information and/or perform validations (e.g., TIN look-up confirmations, denied party checks)
  • Dividing the supplier management function internally between the strategic (the rollout of the category/supplier management including supplier development, joint cost-take out, etc.) and the tactical (focused on validations, audits, etc.)

The key, as Sammy notes, is not to apply an 80/20 rule to validations and related supplier management activities. Short of 100%, you're exposing yourself to unnecessary risk.

For further information on supplier management strategies, tools and processes, we recommend the following Spend Matters research briefs on the topic:

Leveraging Supplier Management Platforms for Multiple Goals: Risk Reduction, Supplier Diversity and CSR

Supply Risk Management – Segmenting the Technology and Content Landscape and Choosing the Right Category of Solutions

Beyond Basic Scorecarding – Supplier Performance and Development Approaches to Drive Competitive Cost and Risk Advantages

Supplier Management Market Observations: Recent Trending, Musings on SAP's Core Offering and General Deployment Pitfalls (for all Solutions) to Avoid

Sourcing, Contract Management, and Supplier Management Cloud – Business Users Benefit From Savings Enablement

- Jason Busch

First Voice

  1. Alis Sindbjerg Hemmingsen:

    I think it is important that the buyers are educated in the company´s verification process. There should be a "verification" ambassador/manager in every company. What I often see is that the verification typically happens after the purchase has taken place and very often there are no clear guidelines or gates. This will definately reduce supply risk and create a dialogue internally.

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