Taking Risk out of Procurement

Externally supplied products and services from third-party suppliers will always carry risks.  An effective Risk Management Strategy is therefore essential.  But what questions should Purchasing, Category Managers or your team be asking?

Recent events regarding Covid have affected the supply of items such as PPE and vaccines.  Halts in essential transport routes have also catapulted supply chain risk into public awareness.  Recent events have shown that ALL potential risks should be considered, discussed and managed throughout the procurement process from business need analyses, sourcing, negotiation, contracting and ongoing management.  Even the the most unlikely of events should have a considered response if it will have a significant impact to the business.

In today’s world, more than ever, risks evolve, grow, diminish and rapidly change, with the increase in cyber-attacks, many are “invisible”.  An effective Risk Management strategy will ensure these risks are all considered throughout the sourcing process

As a starting point, Procurement should be asking questions such as:

  • What are the major risks?
  • What are the causes of risk?
  • What are the sources of risk?

 Perhaps the first and most important consideration driving the resulting actions is:

 What is the risk impact on the organization?

 Risk can be analyzed by assessing where the impact of failures will be experienced.  Will the impact effect the customer, employees be operational, or tarnish the brand or reputation?  Will the impact effect sustainability programs?  Would it be time-related, and what would be the financial impact?  What is the risk probability?  Can the risk be mitigated?

These questions should form part of your Risk Management Process, enabling Risk Prioritization to be calculated (Severity x Occurrence x Detection), and should be a standard approach and methodology used across the organization, raising awareness of Risk Management, generating discussion, prevention and capitalizing on competitive advantage.

Risk Management is just one of the topics covered in our eLearning for Procurement.  If you would like to discuss this in relation to your organization’s requirements or that of your team’s, please contact us.