Risk Management Strategy in Procurement and Supply Chain
Risk is inevitable; it is something managers have to deal with on a daily basis. Some risks are totally unpredictable like weather-related incidents, such as typhoon in the Philippines, flooding in India, and recent polar vortexes in the US. Such risks can cost companies a lot of money and disrupt their procurement process and the […]
Risk is inevitable; it is something managers have to deal with on a daily basis. Some risks are totally unpredictable like weather-related incidents, such as typhoon in the Philippines, flooding in India, and recent polar vortexes in the US. Such risks can cost companies a lot of money and disrupt their procurement process and the supply chain. Additionally, political instability such as Brexit, Trump administration in the US, and political unrest in the Middle East can negatively impact the supply chain of an organization. As a result, the management has to put in place risk management strategies to deal with numerous risk factors and maintain corporate performance, governance, compliance, and sustainability.
Supply chain and procurement function decisions are taken at a relatively low level; whereas, risk management is considered at a strategic level. The differing priorities complicate the integration of risk management strategies within the supply chain and procurement function.
Procurement and Supply Chain Risk Management Strategy
Careful Design of Supply Chain
In an ideal world, supply chain designs are done considering the regular working environment and usually do not account for anomalies or special events. The management must develop their supply chain carefully in terms of shipping routes, supplier location, and warehouse location. Integrating risk mitigation techniques and compressing global shipping time and cycle time variation within the supply chain will deliver the cost and performance responses that customers demand.
Even today, most organizations look at procurement and supply chain functions as a cost-saving department rather than looking at it from a strategic viewpoint. With a view to increasing cost savings, companies can compromise on response time, product quality, and logistics expediency. They can eventually bring down the procurement costs but will take a hit on supplier relationship; thereby, hampering the overall profitability and operational efficiency. A good supplier relationship can help companies cope with cyclical pressures, sustainability issues, and drive product innovation.
Use of Visibility Tools
One of the most overlooked supply chain risk management strategy is the one that involves visibility tools to monitor global shipments and take actions whenever necessary. Many companies have opted for supply chain event management technology that sends alerts to key personnel to address potential delays and take corrective actions.
Predictive modeling challenges the traditional personnel management practices by analyzing hundreds and thousands of data points that can predict anything from consumer demand to credit scoring. Such models can identify key trends, patterns, and potential disruptions within supply chains. Predictive models analyze risks at each point in origin, intermediary point, and transportation link to predict possible disruptions so that managers can efficiently allocate resources to protect themselves against vulnerabilities.
For more information on how your organization can implement risk management strategy for procurement and supply chain functions: