Every procurement professional wants to mitigate as many procurement risks as possible, but before taking the risks head-on, you need to understand what you are up against. We have identified and put together a list of the top 5 procurement risks that all procurement professionals should be aware of.
All procurement activities are prone to risks, and any procurement professional knows the value of the art of juggling these risks. Because, at the end of the day, it's all about safeguarding your organization from any problem that can arise during the procurement process. This article will discuss the significance of controlling procurement risks and how those risks can be prevented, identified, and controlled.
What are Procurement Risks Procurement risks are best understood as opportunities for something to go wrong or not happen as planned. Risks are essentially events that are uncertain in terms of their occurrence or impact on an organization's ability to achieve its goals and objectives. They also include events that have already happened but haven't had enough time to play out yet (known as "delayed consequences").
What Does Risk Management in Procurement Mean In procurement, every purchase is infused with numerous risks. There are issues related to quality, supplier reliability, customer expectations, cost, delivery, and more. Sometimes the risks are generic, but they can also be specific to a sector, geography, or industry. Risk management refers to closely monitoring and circumventing these risks.
Why It's Important to Manage Risks in Procurement Present-day procurement isn't the same as it was a few years back. Blissfully, procurement has changed its stance from being just a cost-cutting process to a strategically significant one that directly impacts the bottom line.
Proper and responsible use of resources Enhanced service Improved supplier and client relationships Increased appetite for innovation Better customer service A data-driven culture that puts business-altering insights at your reach Five Most Common Procurement Risks
1. Inadequate Needs Analysis Having a clear understanding of your needs, when and why you need them, and how you will source them is critical to the success of any procurement organization. So, before starting the need analysis process, document the reasons like:
who needs the goods or services how the goods or services you plan to buy will benefit the people you are buying them for when these goods or services are needed geographical locations that need the goods or services Throughout the need analysis process, ask your stakeholders, customers, clients, and suppliers the relevant questions. Go through your existing contracts to detect anything similar you are doing to get the information you need. Check if your needs are stated accurately and within a realistic schedule and budget.
2. Inefficient Contract Management When it comes to contract management, we've all heard the horror stories. The contracts that get lost in translation, the ones that never get executed and the ones that are never followed up on. It's frustrating, but it's also preventable.
3. Poor Supplier Selection Selecting the right suppliers is one of the most critical aspects for the success or failure of any procurement organization. Not just that, any imprecision in the supplier selection process paves the way for supply chain disruptions, poor supplier performance, and ultimately, business process inefficiencies.
If you don't have a robust supplier selection process in place, you're at risk from a host of environmental, social and governance (ESG) issues.
Procurement processes are changing in the wake of this pressure, so it's important to make sure you're ahead of the curve when it comes to ESG considerations.
ESG considerations affect the economy and all industries, from manufacturing and mining to IT and government. And no business is too small to be affected by this upsurge in ESG consideration.
A good example of this is a supplier that cannot guarantee fair labour practices could get you into trouble with the authorities and disrupt your production processes.
In order to avoid such risks, you need to:
Carefully examine and select your suppliers Understand how ESG affects your business processes Review your current supply chain practices Look for ways to embed ESG throughout your organisation Manage potential risks identified during this process. If you're interested in learning more about sustainable procurement or how to evaluate your suppliers, you can check out the following resources: "Sustainability Made Easy Supplier Evaluation and Assessment: The What, How, and Why
4. Unorganized Supplier Relationship Management Supplier management is a big responsibility for any procurement organization; after all, the most looked-through relationship in a business is the one with its vendors. If a company wants to deliver quality services, it must have a streamlined vendor evaluation and management in place.
Not going through supplier's past and current projects track records Communication problems or gaps that lead to the supplier not understanding your strategic objectives Not considering or overlooking the supplier industry's business culture Lack of transparency Failing to maintain relationship harmony at critical times Inefficient supplier training and relationship nurturing Unfavorable contract terms and resulting conflicts When it comes to supplier relationship management, cloud-based tools can help you gain a good understanding of the reliability of your suppliers, any conflicts of interest, commitments to sustainable procurement, and most importantly, whether their work ethics match yours.
5. Supply Chain Disruptions The supply chain is the beating heart of our global economy. It's what makes it possible for us to buy a pair of shoes and have them delivered to our door in ten days or less. And right now, it's being disrupted by all sorts of things.
Super Charge Your Procurement With Reduced Risks You've probably heard the old adage: "What you don't know can't hurt you." But, in the world of procurement, that's not always true. In fact, ignorance can lead to big problems—especially when it comes to managing your spend and mitigating risks.
Quite clearly, technology is a harbinger of good change and a risk-free environment in procurement. By leveraging a spend management tool like Ignite Procurement, your procurement teams can make data-driven due diligence a usual and effortless part of your procurement process. Our interactive dashboards and reporting help you stay well-informed of any risks. At the same time, our contract management and supplier relationship management services deliver the powerful insights you need to mitigate risks and elevate your procurement efforts to the next level.
By leveraging our solution, you can:
Make data-driven due diligence part of your procurement process. Uncover every dollar you spent and where it went. Manage and ensure healthy relations with suppliers, and choose them carefully. Communicate pressing issues and ESG policies with your suppliers and make sustainability a part of your procurement practice. Stay well-informed of any risks through interactive dashboards and reporting. Analyse spend patterns and create reports. Deliver the powerful insights you need to mitigate risks and elevate your procurement efforts to the next level. It's easier than ever to reduce procurement risks and uncertainties for your organization. Want to learn more about how our solutions can help your organization achieve this objectives! Try Ignite with your data – it's the fastest, most effective way to quickly discover insights about your data.
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