Where can Procurement Do More in the Area of Risk Management (Part 5)?

Please click here for the first, second, third, and fourth posts in this series.

In suggesting the most advanced area for procurement organizations to focus on to target supply risk, Novartis' Sammy Rashad believes that the "final frontier" is helping mitigate customer risks. Focusing on risks inherent to the customers is the most "innovative procurement involvement in risk management." Sammy suggests that "examples of this include collaborating with other client-facing functions (assist departments such as credit and accounts receivables with elements of the cash conversion cycle), getting involved across the entire value chain (apply natural hedging to mitigate exchange rates and volatility of demand), and building robust supply chains all the way to the end customer."

In certain industries with robust sales and operations planning (S&OP) programs that factor into account both supply and demand requirements and constraints, expanding a focus to risk is logical (beyond looking at near-term forecasts, inventory levels, unit costs, etc.) Yet we would argue based on the supplier management programs we've researched or helped shape, that few companies have reached a stage of supply risk maturity so as to overtly prioritize customer issues directly (indirectly, one could argue, this is the entire focus of supply risk management for direct materials -- keeping the line open, maintaining quality levels, etc.)

In looking at archetypes to focus on this area, procurement organizations should look at the role that historically has been occupied by 3PLs, value-added distributors and similar organizations that provide more than just a good or service to their customers. While the techniques for delivering additional risk insight, value and mitigation to customers may differ for those that are not simply intermediaries or brokers, the mindset is essentially similar.

One risk mitigation area that is starting to gather the attention of end-customers beyond quality, traceability, stock-out and related concerns tied back to supplier operational practices and stability is helping find ways to mitigate commodity price and associated input risk throughout the supply chain (including raw/base materials, ingredients, energy, shipping, etc.) But as with other areas of advanced customer facing supply risk programs, procurement-led adoption of such programs is minimal, at best.

Spend Matters would like to thank Sammy Rashad for sharing his thoughts via Procurement Leaders. We look forward to his continued contributions to the procurement community leveraging the great research he has been able to conduct (and is conducting) for Novartis.

- Jason Busch

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