Risk-taking has benefits and might even be essential for success. However, it is the opposite when it comes to procurement, where the last thing any business wants is risk.
No individual or business can foresee specific risks in procurement. However, companies can and need to prepare for a volatile and uncertain future that entails tech disruption, climate change, data security issues, and threats to the global supply chain. Eventually, by understanding and managing risks, organizations can fine-tune procurement processes to address and curb them.
As seen during the COVID-19 pandemic, some contemporary business approaches including, just-in-time inventory management, comes with their own risks. And policymakers worldwide continue to evolve and broaden their scope, addressing matters such as data privacy and protection alongside money laundering and sanction breaches.
So, won't it be nice to have a risk management expert onboard dedicated to forging and deploying a proactive procurement strategy that diminishes risk and saves money?
It is possible when you partner with Beroe, a leading procurement intelligence firm. It helps you spot the risks related to your procurement strategies, devise a credible long-term blueprint, and facilitate implementation through cost comparison and contract negotiation. Take a look at Beroe’s market intelligence solutions today and see how they can power up your procurement risk management processes.
Why is risk management so important in procurement?
Risk management is part of procurement as businesses rely on vendors for services or products. Since supply is via a third party, procurement team needs to be prepared for any supply chain disturbances as it impacts the organization’s ability to fulfill its commitments.
With the right risk management in situ, companies can ensure that the purchase of the materials undergoes smoothly. Procurement of the necessary services, products, or materials on time helps maintain business continuity.
When the risk is high, it can soak up much of the business’s resources. So, with the right risk management process, organizations can implement measures without incurring high costs. Moreover, proactive risk management moves from crisis management to proactive decision-making, preventing problems well in advance.
The COVID-19 pandemic put a huge dent across the global market, compelling organizations to rapidly tweak their approach to marketing, operations, and, yes, procurement risk management – or crash from within. Likewise, climate change has led to natural calamities of unseen magnitudes. For instance, the Amazon rainforest fires created a sinking chain of logistical nightmares, costly material loss, international political clashes, and human rights breaches.
In such a volatile and complex ecosystem, a reactive approach to procurement risk management is not sufficient. Instead, proactive risk management in your procurement and supply chain is critical to pleasing shareholders, safeguarding and fostering business relationships, and keeping immune to supply chain disturbances that can thwart or even devastate businesses.
Steps to Manage Risks in Procurement
2020 was a clarion call for businesses, especially those in the procurement domain. While cost-cutting and spend management have always been the key drivers for that business function, the economic effects of the COVID-19 crisis have pressed several organizations, influencing procurement leaders to shift their focus to business risk management to alleviate supplier risks.
Here are some steps to build lines of defense in procurement risk management and create strong working relationships with existing vendors and new suppliers.
Identifying Relevant Risks
The first crucial step in managing the procurement and supply chain risks is to identify the risks that your organization is susceptible to. This should not only focus on the vendor but also the vendor’s service or manufacturing location.
Moreover, you need to ensure your direct vendor's required visibility and assurance regarding their pivotal supporting vendors (supply chain mapping) based on the possible risks they represent from disruption or reputational viewpoint. After all, your business is only as resilient as your chain of vendors.
Furthermore, the data you are utilizing must be adequately validated and up to date.
Analyzing and Prioritizing Risks
From the slightest to the most critical, every risk must be recorded and assigned a degree of possible effects on your business and its supply chain. You need to look into the human risks, strategic risks, compliance risks, operational risks, reputational risks, legal risks, and financial risks.
In addition, you need to be privy to any aggregation to understand individual risk factors. For instance, a supplier might be financially strong, but their manufacturing unit is liable to geopolitical risks or natural calamities.
Responsibility for handling these risks must be correctly defined and the document regularly assessed, with legal input (if possible).
Monitoring the Risks
This cannot just be a one-off event. We all recognize, especially in the existing business ecosystem, that risk is continuously evolving, and so are the requirements of your end customers. Most often, organizations turn to a specialist third-party provider to deliver an ongoing updated risk picture.
Mitigating the Risks
Having singled out the suppliers/supplies that reflect your highest financial risk and liabilities, it is critical that you carry out suitable risk mitigation measures. These can include improved and tested supplier business continuity strategies, select additions to the inventory, or discovering appropriate pre-screened substitute suppliers.
This procurement risk management strategy must apply to significant business activities, such as operations, sales, finance, and procurement, keeping the top management in the loop to get their feedback regarding relevant priorities, the overall appetite for risk, and resource allocation.
How Beroe Helps Mitigate Procurement Risks
Beroe’s procurement productivity suite is a one-stop solution for all your business risk management needs. The company fuses supply chain acumen with a deep understanding of industry-centered procurement suppliers and practices, echoing its robust sourcing and procurement heritage.
With a database of over 4 million vendors, Beroe lets you assess suppliers on different benchmarks, including industry, geography, revenue, category, and certifications. In addition, its future-ready solution will help you figure out the impact of event-led disruptions (from pandemics to natural disasters) on your supply chain.
This puts Beroe in a unique spot to help clients balance opportunity with risk as they analyze, rationalize, and optimize their supplier ecosystems. Being the leading global provider of procurement intelligence and supplier compliance solutions, Beroe has been in the industry for over 15 years. The company is a trusted source of category intelligence for over 10,000 companies globally, including 400 of the Fortune 500 firms.
2021 Procurement Risk Management Updates
The COVID-19 pandemic has taught procurement and supply chain professionals a valuable lesson in business risk management. The global health crisis has tested the adaptability, flexibility, and resilience of supply chains. This has triggered risk management service providers to go back to the drawing board and innovate their existing offerings.
Read on to know what is happening in the supply chain realm.
(Note: We’ll update this section regularly. So, bookmark this page and visit again!)
Oracle Adds New Capabilities to its Procurement Solution
Oracle has added several new features and capabilities to its Oracle Fusion Cloud Procurement product suite to facilitate procurement customers with better operational efficacy, optimized resources, and seamless operations. The cloud tech firm shared more details about the new updates and other product innovations during the Oracle Cloud SCM Virtual Summit held on August 11, 2021.
Oracle's integrated procurement solution updates include Spend and Procurement Analytics, Complex Procurement, DataFox Supplier Intelligence, Spend Classification, Supplier Qualification Management, and Project-driven Supply Chain. These innovative additions will help the customers step up efficiency, cut down on costs, monitor buying activity, analyze vendor performance, ensure contractors (and subcontractors) conform to the agreed payment conditions, and utilize machine learning (ML) to minimize human error.
“As organizations chart their paths to post-pandemic growth, cost reduction still remains a top priority…Now that procurement professionals are measured on their ability to control costs, manage supplier risk, and enforce environmental policies and compliant spending, they need to have full visibility into supplier performance and company spend,” adds Rick Jewell, senior VP of Applications Development at Oracle Corporation, in a column listing new Oracle Procurement updates.
Gartner® Magic Quadrant™ 2021 Picks Prevalent as “Leader” for IT Vendor Risk Management
Prevalent Inc., third-party risk management (TPRM) service provider, has entered the “Leader” list in the 2021 Gartner Magic Quadrant for IT Vendor Risk Management (IT VRM) Tools – for the second consecutive time.
Prevalent reckons its Magic Quadrant acknowledgment supports its key determinants, including:
The most complete solution: Prevalent equips its customers with a solution that automates supplier analyses, facilitating them with the most extensive system of completed, standardized supplier surveys and insights for speeding up risk detection and management, and the capability to contract out the supplier risk management patterns to its expert panel, backed by a fully integrated, 24/7 tracking solution to complement supplier analyses.
Proven return on investment (ROI): Prevalent helps users spot risks 44% faster, slash manual labor by half, and boost productivity by 3X.
Holistic use-case coverage: Prevalent not only analyzes supplier cybersecurity and data privacy threats but also deals with non-cyber security issues, including ESG, supply chain resilience, and anti-bribery, integrating findings into a unified solution for holistic risk assessment.
"We believe being positioned in the Leaders quadrant, due to our Ability to Execute and Completeness of Vision, further validates the strength of our vendor risk management approach," asserted Kevin Hickey, CEO of Prevalent. "With constant third-party data breaches, supply chain disruptions and new regulatory requirements to meet, it's more important than ever for companies to implement a vendor risk management program that combines execution against today's threats and a strong vision for the future. Prevalent delivers the intelligence and programmatic process to help companies mitigate today's risks."
Frequently Asked Questions
What is risk management?
Risk management is the process of spotting both external and internal risks to your business supply chain. It protects your business from any challenges that come up during the procurement process. While risk management appears simple at first glance, it is a highly complicated aspect of the organizational and procurement strategy. Managing and alleviating myriads of risks related to business functions is one of the critical pillars for success.
Why is risk management in procurement important?
Risk management helps companies ensure the smooth and successful running of purchasing and supply operations. Also, it contributes to the robustness of the overall supply chain and business continuity. Furthermore, effective prevention and management of procurement risks ensure good financial performance and stakeholder wealth.
Due to the pandemic and trade conflicts between nations, the global supply chains have taken a hard hit over the past few years. Planning for disruptions caused by elements beyond a business’s radar is what procurement risk management is all about. Having a solid approach results in many benefits - some are straightforward, while others take time to come to fruition.
What are some common procurement risks?
Procurement can be demanding, particularly with lots of potential risks littered along the supply chain. Here are some common types of risk management in procurement:
- Operational mismanagement
- Poor management of the supply chain
- Non-conformity and ineffective contract management processes
- Poor vendor selection
- Frauds and Duplicity
- Ignoring data risks
- Not adopting innovative tools
- Exceeding the company budget
How can organizations manage supply chain risks?
Risks come out in any form of processes in business operations. However, there are some generalized steps to manage risk in procurement and supply chains. While the actual process might differ from company to company, a proper risk management strategy comprises of the following steps:
- Risk identification
- Risk analysis
- Risk monitoring
- Risk mitigation
Avoid business losses, damaged competitiveness, and dented reputation by equipping your procurement strategy with automated risk management. Check out Beroe LiVE.Ai™.