Risk Management as a Procurement-Lead Function
An effective risk management regime goes beyond daily operational risks like workplace safety and bad press relations; companies face risks to their businesses all throughout their supply chains from the availability of critical products to bad acts on the part of their suppliers that could impact their brands. Procurement is particularly well-positioned to mitigate and manage supply chain risks not only by managing costs, but also by ensuring supply availability and ensuring suppliers meet all applicable ethical and legal standards.
The complexity of modern business arrangements, often including complex arrangements with a low level of transparency, requires companies to implement ways to lower their risk profiles. In order to do this, a company must gain visibility across its supply chain and segment its risk by supplier, identifying applicable risks by supply category or even supplier. These risk areas most often include:
- Commercial Risk – loss of revenue or cost overruns through mismanagement
- Reputation Risk – diminishment of a firm’s brand equity and public perception
- Regulatory Risk – compliance with the law, often in many US and international jurisdictions
- Technology Risk – database breaches, ecommerce stability, and customer privacy challenges
An effective supplier risk management framework incorporates these and any other applicable risk areas, regularly collects and analyzes data to evaluate them, and produces actionable insights for reducing or eliminating these risks. Many companies incorporate third party data monitoring services or software to manage or inform this process.
Forward-thinking Procurement organizations can lead the way to partner with a cross-section of stakeholders to develop, implement, and manage an effective risk management framework.