Where Can Procurement Do More in the Area of Risk Management (Part 2)?

Please click here for the first post in this series.

Over on Procurement Leaders Blog, Novartis' Sammy Rashad recently suggested that there are five specific strategies for procurement organizations to deploy to expand the "breath and depth" of their contributions to the practice of supply risk management. Further segmenting this list, he suggests each step beyond the previous brings "increasing complexity and benefits." Within his analysis, the second step (and second level strategy) is to: "move from assessing to actively mitigating risk." This requires "Going beyond the basic steps of supplier on-boarding and annual review process by taking concrete actions to minimise the impact once risk has been exposed."

Further, "This can range from amending T&Cs and having key categories supported by back-up suppliers, to providing operational support, offering financial assistance, and even taking an equity position in the vendor firm." On this side of the Atlantic, we've seen companies deploy a range of strategies that would fit well under this umbrella. These include segmenting a supply base of direct materials suppliers during periods of restocking following a downturn to provide early payment financing at a negligible APR (or zero APR). It also includes purchasing raw materials for suppliers as well.

But actively mitigating risk requires knowing where to look rather than just taking a blanket approach. For this reason, companies we've observed that actively manage supply risk not only track the financial considerations of their suppliers using reporting agencies such as D&B, BvD and others, but also relying on operational indicators to know that problems could be brewing. There's also a closed loop process inside many of these firms to measure the success of corrective action requests/procedures as well. Moreover, firms that actively mitigate risk often take the long-view of supplier relationships by looking to develop at-risk vendors to avoid potential risk scenarios down the line (or to exit relationships as smoothly as possible in cases where intervention is not desired).

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

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