Be risk aware, not risk wary
Procurement should focus on its purpose of “securing optimal supply to meet business needs” instead of limiting itself only to lowest cost and meeting compliance requirements.
The procurement function has evolved to manage spend and avoid uncertainties in supply. However, this has to some degree led to the undesirable side effect of it becoming overly compliance-driven and standardisation-focused to the detriment of the organisation’s objective and purpose.
Following this, procurement needs to better understand risks and leverage risk management within the function to enhance its role as a business partner to the organisation, from an organisational as well as a behavioural perspective. Without a balanced view of cost, risk and business impact altogether, procurement may limit itself to performing a role of procurement compliance and cost control.
Where procurement performance and targets are centred on managing spend, there is little leeway to examine trade-offs between short-term commercial savings and possible long-term costs from increased risk exposure. Procurement often does not have a clear alignment to the corporate risk profile and appetite. This results in an intolerance for any risks and therefore assumes that risks should be reduced to 0%.Also, a rigid supplier compliance policy or process reduces the organisation’s ability to capture business opportunities through procurement and may leave innovative suppliers out.
Interested in finding out more? We look forward to supporting you in balancing your risks and opportunities in procurement.
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The report is in Danish only.
Implement Consulting Group