How Can Procurement Enhance Risk Management?

Sep 5, 2022 | Impact of procurement

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Sep 5, 20224 min read

Organizations can minimize the potential for costly errors and increase their chances of long-term success. By adopting technology and incorporating risk management protocols into their procurement strategy, organizations can ensure a secure, efficient, and compliant procurement process that minimizes risk and maximizes success.

Procurement is an essential part of any organization's risk management strategy. It involves the acquisition of goods and services from external sources, which can result in a variety of risks. These risks can range from financial to operational and must be managed effectively in order to ensure success. By understanding, mitigating, and evaluating risks associated with procurement, organizations can reduce the potential for costly errors and increase their chances of long-term success. 

Understanding the Risks Associated with Procurement 

These risks can include financial risks such as overspending, compliance risks arising from non-compliance with regulations, operational risks due to the failure of suppliers to deliver goods and services on time, and reputational risks resulting from negative customer service experiences.  

Organizations should also consider the potential risks associated with the procurement process itself. This includes the risk of fraud or corruption, the risk of inadequate supplier selection, and the risk of inadequate contract management. Additionally, organizations should consider the potential risks associated with the use of technology in the procurement process, such as the risk of data breaches or cyber-attacks. By taking the time to identify and assess these risks, organizations can ensure that their procurement process is as safe and secure as possible. 

Mitigating Risk Through Effective Procurement Strategies 

This includes careful and thorough research into potential suppliers, establishment of clear and specific requirements around pricing and quality, and development of an effective contract management system. Additionally, organizations should consider implementing a vendor risk management system, which can help identify and assess potential vendors in order to reduce the risk of an unfavorable outcome. FactWise empowers procurement organizations with dynamic, holistic supplier performance analytics across key supplier metrics like price, on-time delivery, quality, etc. so that buyers have a high degree of decision intelligence. Finally, organizations should also adopt a flexible procurement strategy that allows them to easily adapt to changing market conditions. 

Organizations should also consider utilizing a third-party risk management service to help identify and assess potential vendors. This can help to ensure that the organization is selecting the best possible supplier for their needs. FactWise features a unique supplier selection algorithm that enables supplier discovery so that teams can expand their supplier network with pre-vetted, well-rated suppliers across categories. Additionally, organizations should consider the potential risks associated with new technologies or processes that may be used in the procurement process. By taking the time to evaluate potential risks, organizations can ensure they are making informed decisions and are prepared to handle any issues that may arise.  

Organizations should also consider implementing a comprehensive supplier management system to ensure that all suppliers are meeting the organization's standards and requirements, and implementing a supplier scorecard system to track supplier performance. This system should include metrics such as on-time delivery, quality, and cost. Additionally, organizations should consider conducting regular supplier audits to ensure that suppliers are meeting the organization's expectations. By taking these steps, organizations can ensure that their suppliers are meeting their needs and minimizing risk. 

FactWise enables improved collaboration between buyers and suppliers, using smart dashboards and notifications, simplified RfX management and order tracking workflows, and holistic real-time supplier performance analytics across all above-mentioned metrics and more. 

Ensuring Compliance Through Procurement 

Organizations must also ensure compliance with applicable regulations in order to minimize risk. This includes understanding and adhering to relevant government regulations such as those related to anti-bribery and corruption legislation, data privacy laws, and employment standards. Additionally, organizations should ensure that all suppliers are compliant with applicable regulations, such as those related to environmental standards. Finally, organizations should conduct regular audits of their suppliers in order to verify compliance. 

Organizations should also ensure that their procurement processes are transparent and that all suppliers are treated fairly and equitably. FactWise increases visibility and governance by up to 31%. This includes having clear and consistent policies and procedures in place for selecting and evaluating suppliers, as well as for managing supplier relationships. Additionally, organizations should ensure that all suppliers are provided with the necessary information and resources to meet their contractual obligations. 

Leveraging Technology to Assist with Risk Management 

Organizations can also leverage technology to assist with risk management. This includes implementing automated procurement systems to streamline the procurement process and quickly identify potential risks. Additionally, organizations can use predictive analytics to identify weak points and better understand supplier performance. Finally, organizations should consider using artificial intelligence (AI) technologies to help assess supplier risk and identify areas for improvement. FactWise uses Artificial Intelligence, Machine Learning, Natural Language Processing to transform the procurement journey for product manufacturing companies globally.  

Organizations should also consider using blockchain technology to securely store and share data with suppliers. This can help to ensure that data is secure and that suppliers are held accountable for their performance. Additionally, organizations can use data analytics to monitor supplier performance and identify any potential risks. By leveraging technology, organizations can better manage risk and ensure that their supply chain is secure and efficient. 

Developing Risk Management Protocols for Procurement 

Finally, organizations should develop protocols for managing risk associated with procurement. This includes creating clear policies for identifying and managing risk and establishing a system for reporting any issues that may arise. Additionally, organizations should create procedures for conducting risk assessments and monitoring supplier performance. By creating a comprehensive risk management strategy and establishing clear protocols, organizations can ensure they are properly prepared to handle any risks that may arise during the procurement process. 

Procurement is an essential part of any organization's risk management strategy. By understanding the various risks associated with procurement, implementing effective strategies for mitigating risk, evaluating risk in the procurement process, minimizing risk through supplier management, ensuring compliance with applicable regulations, leveraging technology to assist with risk management, and developing risk management protocols for procurement, organizations can reduce the potential for costly mistakes and increase their chances of long-term success. 

Organizations should also consider the use of third-party risk management services to help identify and manage risks associated with procurement. These services can provide valuable insights into the potential risks associated with a particular supplier or procurement process, as well as provide guidance on how to best mitigate those risks. Additionally, third-party risk management services can help organizations stay up to date on the latest regulations and best practices for managing risk in the procurement process. 

  • Conducting regular supplier risk assessments: Many companies, such as Amazon, conduct regular assessments of their suppliers to identify potential risks and prioritize their management. These assessments can be based on various factors such as financial stability, operational efficiency, and ethical practices. 
  • Implementing supplier diversity programs: By working with a diverse set of suppliers, companies like Microsoft can reduce their dependence on a single source, and minimize the impact of supply chain disruptions. 
  • Implementing contract management processes: Companies such as Coca-Cola have implemented robust contract management processes to ensure that their suppliers comply with agreed-upon terms and conditions. This includes regular monitoring and reporting of supplier performance and taking corrective action when necessary. 
  • Establishing strategic partnerships: By establishing long-term partnerships with key suppliers, companies such as Apple can benefit from increased stability and improved risk management. Through these partnerships, companies can collaborate with suppliers to identify and mitigate potential risks. 

Procurement professionals work to ensure the stability of the supply chain by identifying potential risks and taking proactive measures to mitigate them. This includes conducting due diligence on suppliers, negotiating contracts that include provisions for managing risk, and implementing ongoing monitoring and reporting to ensure supplier performance meets expectations. By doing so, procurement helps to protect the organization from potential financial losses, reputational damage, and disruptions to operations. 

FactWise is committed to helping organizations improve risk management to minimize the potential impact of supply chain disruptions to the organization and ensure a stable supply of goods and services to meet the needs of the business. 

About the Author

Stawan is the founder and CEO of FactWise. Before founding FactWise, Stawan was the NA TMT-Procurement Leader at McKinsey. Passionate about procurement, Stawan has 15 years’ experience in enabling clients of all sizes to achieve business impact via procurement.


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