Risk Management in Procurement

In case we’ve forgotten, let’s define what RISK IS:

• Webster’s Dictionary: Exposure to the chance of injury or loss.
• APICS/ASCM: Decisions and activities that have outcomes that could negatively affect information or goods/services within a supply chain .

IN OTHER WORDS, PAIN!!!

WHAT CAN CAUSE THE PAIN IN OUR BUSINESSES?

• FAILURES – ATTRIBUTED TO:
  • Supply – within the operation or process – in turn caused by:
    • People
    • Organizations not aligned/structured – lacking authority
    • Technology and facility failures
  • Product and Service design failures
  • Environmentally caused

RISK EXAMPLES IN PROCUREMENT:

Planning & perceptions: examples:

• Unrealistic time/cost expectations, limited access to necessary information, conflict with existing contracts/supply arrangements
• Delays in obtaining approvals, legal complications

Product/Service: examples:

• Limited availability because of its complexity to make and/or source
• Delays in delivery, testing, installing, the final product/service doesn’t meet expectations

Purchasing Process:

• Changes to scope and/or specifications
• Processes are not followed, risks are not managed

Suppliers:

• Limited number of suppliers, lack of capacity of individual suppliers
• Poor performance, disputes, complacency in relationships

Management & Stakeholders:

• Responsibilities not clearly defined, lack of communication amongst team/facilitators
• Expectations and objectives not clearly defined, contract is poorly managed
• Conflict among stakeholders, public sensitivity, and media scrutiny

Contract:

• Errors & omissions in contracts, payments made in advance of goods/service received
• Lack of proper records, poor management of sub-contractors, unplanned changes to scope and/or technology

RISK MANAGEMENT:

It is the systematic identification, assessment, and quantification of potential supply chain disruptions with the objective to control exposure to risk or reduce impact on performance.

The best way to deal with risks an enterprise is exposed to is noted below:

• There are four (4) ways to combat risks:
  • AVOIDANCE – is reactive strategy
  • CONTROL – take control of various risk events
    • Quality issues, delivery delays
      • Dealt with via technology & inventory investment
  • COLLABORATION – using technology & processes
    • Permits risks to be spread out among trading partners networks
      • Distributing the ability to control risks
  • AGILITY – works with COLLABORATION
    • Using techniques like multi-sourcing, postponement

These practices will enhance an enterprise’s ability to manage/deal with risk!!