A Short Guide to Procurement Risk

Book excerpt: Increasingly, top executives view supply markets as sources of competitive advantage and as means of achieving strategic objectives. Procurement is the management activity that makes this happen, and this process depends on superior risk management capability to be totally effective. And yet, despite its importance, PRM is surprisingly under-developed. The 'Global Risks 2008' survey report has pinpointed Supply Chain Vulnerability as one of the four key global risks for the next decade. But what is less well known is that this is only half of the story ... risk exposures also exist inside the company and can be just as damaging. Recent events prove that the unexpected and the inconceivable do happen. High class companies, be they public or private sector, may run their own affairs in an insightful, prudent and responsible way to the extent that they feel more able than others to survive such tumult. But no company is an island. It needs suppliers as well as customers. Conventional wisdom puts great emphasis on managing certain aspects of business such as customers; operations; strategy and finances. Typically, however, much less regard is paid to external suppliers and the risks present in dealing with them. As a minimum suppliers are the sources of materials, services and expert attention which enable the company to feed its business model. When done well though, a high-performance risk-aware procurement process provides the bonus of competitive advantage, with the ability to capitalise, rather than suffer, from the occurrence of unexpected events. This short guide explains how to do it.