Risk management – 2014 priorities for procurement leaders (part 4)

What should CPOs and other senior procurement practitioners be focusing on in 2014? A difficult question because of course every organisation is different, and you really need to ensure that your priorities align with your wider functional, business unit and organisational strategies, goals and objectives. But we’ve got five suggestions that are likely to apply in the vast majority of organisations, we suspect.  Here is the fourth.

4.            Get to grips with supply chain and supplier risk management

We hesitated about including this because it has become such a common topic over the last few years, we didn’t want readers going, “yeah yeah yeah, supply chain risk, we know all about that” and not reading on!

And yet we have included it because there is just such a big gap between the rhetoric and the amount of coverage the topic gets, compared with what most organisations actually do in this space. Every time there is another problem, whether it is horsemeat or unsatisfactory conditions in manufacturing locations in Asia, we hear the usual things – we can’t control where our first tier contractors buy their materials from, we can’t inspect every factory...

Indeed, many firms don’t have the basic supplier information on which you can start building a proper risk profile. What do you really know about your suppliers? Their capabilities and track record? Wwhere they manufacture? Their current financial stability?

Even risk elements much closer to home leave a lot to be desired in too many cases. How many procurement risk registers include the risks associated with internal off-contract or maverick buying? Or of fraud committed by staff abusing the supply process, or staff and suppliers working together? And yet we know that pretty much every major organisation has suffered or will suffer from this at some point.  Generally, risk management processes are primitive, if they are in place at all.

And there are real potential positives for procurement leaders here. I may have mentioned it before, but I was impressed to hear a CPO recently say that on his first appearance in front of the Board in his relatively new role, he told them  “I cannot guarantee that supply chain issues won’t cause us severe business disruption, cost issues, or reputational damage”.

He used that burning platform to move procurement related risk, and procurement itself, right up the Board agenda, and gain investment in tools and resources in order to be able to manage risk better.

So, our three take-aways today:

  • Analysing supply chain and supplier risk requires some careful thought and a perspective going beyond the ‘usual suspects’ of risk events.
  • Basic supplier information processes need to be in place as a foundation for risk management.
  • Consider both  the macro risks (global events, natural disasters) and those closer to home or even  internally focused.

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