Procurement plays an important role in an organization’s success since it encompasses acquiring services and goods necessary for operating a business. In today’s interconnected and globalized business environment, the process of procurement is becoming more complex, exposing organizations to various risks.
Experts at Gibson Consulting say that effective management of risks in procurement is important to protect an organization’s reputation, stay compliant with regulatory/legal requirements, ensure an uninterrupted supply chain, and maintain cost efficiency.
By identifying, evaluating, and mitigating risks in procurement, organizations can drive sustainable growth, improve operational efficiency, and protect their interests.
Supply Chain Risks
There are external and internal risks that disrupt the supply chain. So, it will be helpful to learn the difference between those two.
These risks come outside an organization. This means it is more difficult to predict external risks and to overcome them, you will need more resources. Examples include:
- Business risks
- Environmental risks
- Supply risks
- Demand risks
These factors are within your organization’s control, and you may monitor and identify them using risk assessment software, IoT capabilities, and roust analytic programs. While internal risks are more manageable compared to external risks, to some extent, they are inevitable. Examples are:
- Contingency and mitigation risks
- Control and planning risks
- Business risks
- Manufacturing risks
Risk Management and Why It is Important
Identifying, assessing, and minimizing risks has always been part of business operations since time immemorial. For that reason, running a strategic and successful business today has become challenging. Globalization has connected consumers and companies like never before, thus opening more opportunities for innovation, market share, and profitability.
The need to manage supply chain risks is to ensure procurement processes function optimally. Getting rid of blockers that come up streamlines managing vendors/internal processes/invoices and sourcing for supplies.
Strategies to Mitigate Supply Chain Risks
Supply chain risks are becoming pressing issues for manufacturing businesses in today’s interconnected and globalized world. Disruptions may arise from various sources, like unforeseen events, economic fluctuations, natural disasters, and geopolitical tensions.
These disruptions may result in reputational damage, production delays, supply shortages, and increased costs. To better navigate those challenges and ascertain the resilience of supply chains, manufacturing companies turn to risk management strategies, such as the following:
1. Conducting Risk Management Assessments
Risks, whether internal or external, are vulnerabilities existing in business operations and the organization’s supply chain. Expecting and handling those risks before they become tangible is important for the success and survival of a business.
2. Diversifying Suppliers
Having one supplier for critical services or components may leave your business susceptible to disruptions when that vendor experiences issues. With multiple suppliers, you minimize those risks and ensure you always have a constant supply of resources.
3. Automating Processes
It is vital to automate different processes in the supply chain to gain a competitive advantage in the market. If you are in the fashion industry, you can adopt different automation technologies, like barcoding and RFID, to track movement and inventory levels in the supply chain.
Successful procurement requires you to be vigilant about any potential risks. Through supply chain risk management strategies like automating processes, diversifying suppliers, and conducting an assessment of risks, you can prevent disruptions of procurement.