How Procurement should leverage Risk Management to become a Business Partner
There is another way to become a Business Partner: leveraging risk management and apply its methodology to the end-to-end Procurement process. By identifying and assessing Procurement risks and deploying dedicated action plans, Procurement leaders will increase the added business value they can deliver to their organization.
By using a common language – Risk, the Procurement professionals will be able to engage with CEO, CIO and other C-level stakeholders, provide relevant insights, and be actively involved in the company global strategy.
Risk Management and Procurement
When it comes to Procurement, risks are immediately considered as coming from an external factor: the primary vehicle for bringing risks into the organization is the supplier. Risk of bankruptcy, risk of having a supplier using child labor force, risk of inventory shortage… On the one hand, it is not wrong and indeed suppliers are a major source of risks given the complexity of the tier N relationships and globalization of the economy. But on the other hand, reducing Procurement risk to Supplier risk equals missing the big picture. Who signed the deal with the Supplier that is today calling for bankruptcy or is caught in a child labor force scandal?
Whether the business bypassed Procurement because of a weak Procurement policy or because the buyer is not well-trained regarding negotiation or basic due diligence procedures, everything starts within the organization. The Procurement process, starting with the need analysis and ending with the supplier relationship management is a complex process with a lot of interactions. Procurement is a key entry point throughout the sourcing activity during which the company is entering in contact with external providers to do business and capture innovation. For instance, when an RFP goes out to the market, multiple risks have already occurred:
- Risk of having buyers not well trained (negotiation, file manipulation, …)
- Risk of having buyers overwhelmed by the issues raised by the prescribers
- Risk of buyers not being consulted by prescribers
- Risk that the company’s purchasing policy is not defined
- Risk that the procurement function is not aligned with the company’s Corporate Social Responsibility policy
- Risks are everywhere across the company, and Procurement owns a major part of them. But depending on how you manage them, there are not always threats but can become opportunities.