How Procurement Professionals can add value to business performance: Shared concern around risk

In this first in a series of articles looking at how procurement can add value to business performance, Gerard Chick, chief knowledge officer, Optimum Procurement examines a number of key areas where procurement professionals can make a difference. We are delighted to feature his post in which he looks at risk management.

CFOs are not the only senior executives concerned about risk. Continuous developments and changes in the business world require business leaders, including CPOs, constantly to rethink the way they organise and manage their businesses. Today’s deepening realisation regarding the impacts of globalisation and greater supply chain interdependence, I would argue, is a sign of a world of elevated risk, where supply managers must know in detail the range of contingent supply chain market circumstances they might face.

Through my discussions with leading procurement professionals, the consensus seems to be that the way we measure risk needs to become more standardised, with readily available third-party information and data pooled for operational assessment and shared amongst networked communities. And yet today through our desire to always get things cheaper, jobs disappear from high-cost countries and end up in low-cost countries, only then to be moved to a region with even lower costs.

As a consequence of this and the burgeoning globalisation of markets, it seems that regulation and a firm handle on risk is becoming almost impossible. To the point where, for some of the largest firms, things like paying taxes have become practically a discretionary act. Other consequences bristling with risk include child labour, clothing factory fires, gross exploitation, all of which are defended by mantras about cheaper goods and long-term development advantages. The dream being, one assumes, that one day we will run out of cheap labour markets and suddenly everyone will be better off. This of course will never happen.

In light of this, conscientious supply managers must take responsibility for third-party risk management and centralised governance. They also need to provide business segments with the tools to assess and monitor risks, developing oversight and reporting on the entire supply base to identify undue concentrations of risk within a segment, process or supply industry.

Risk as we know takes many forms; and as supply chains become increasingly complex and interdependent, risk management must become more comprehensive, not less, extending far beyond what any one enterprise can control. Our increasing knowledge of risk issues is more than additive; what we learn when we bring aspects of our knowledge together is much more than the sum of each alone.

And yet whilst having programmes in place to monitor compliance is commonplace, there is a clear need to take risk management a step further. Technological improvements may make it easier to gain access to the intelligence available but in truth, due to the nature of complexity, we do not know what we will discover next.

As a consequence risk management has to become everybody’s business as capacity and demand soar and complexity dominates our thinking. In order to anticipate scenarios and be as prepared as possible for any form of risk, procurement professionals need to consider:

  • How is risk factored into their operational decision making and contingency planning?
  • How well can they detect potential supply chain disruptions before they occur?
  • How can they keep progressing against long-term goals even in times of economic uncertainty?

As converging trends are likely to make supply chains even riskier in the future, cross organisation communication will help increase awareness around supply risk and expand the perception of where risk lies.

 

Please note that opinions expressed in guest posts are those of the author and not necessarily those of Spend Matters

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