Supply Risk: How Supplier Management Becomes a Risk Management Success Factore-Procurement Insights ● September 11, 2023

Online Procurement, lo strumento efficace di gestione del rischio per l'Ufficio Acquisti

Procurement processes, particularly the optimal management of the supplier base, are increasingly critical to the success of enterprise-wide risk management activities.

Looking at the rankings in the Risk in Focus 2023 report, which annually gathers the views of Chief Audit Executives from major European countries to identify the most critical risk areas for organizations, it is quickly apparent that suppliers play an essential role in business continuity, but also in sustainability, regulatory compliance, and cybersecurity.

The increasing complexity of global supply chains challenges procurement offices to find the proper measures to counter risks before they turn into more serious threats. Still, at the same time, it represents an opportunity to reinvent internal supplier management processes, finding the right balance between human factors and innovation, thanks to digital solutions that optimize results transparency and collaboration, such as Online Procurement.

Major risk factors for businesses

  • Cybersecurity and data protection (82%)
  • Human capital, diversity, and talent management (50%)
  • Macroeconomic and geopolitical uncertainty (46%)
  • Changing laws and regulations (44%)
  • Digital disruption, new technologies, and artificial intelligence (38%)
  • Climate change and environmental sustainability (37%)
  • Business continuity, crisis management, and disaster response (36%)
  • Supply chain, outsourcing and sub-supplier risk (34%)
  • Financial, liquidity, and insolvency risks (28%)
  • Corporate governance and reporting (25%)

Source: Risk in Focus 2023

How to Protect the Enterprise from Procurement Risk: The Role of Supplier Management

Optimal management of procurement risk begins with supplier management. CPOs and Purchasing Directors should work on both awareness, i.e., knowing the risk factors, their priority, and their estimated impact on business assets, involving the C-Suite, and readiness, i.e., playing in advance with an action plan that responds to different risks using classic risk management methodologies (eliminate, reduce, transfer and retain, depending on the type and urgency for the business).

The only way to do this is to start with data: a data-driven approach is the foundation of any risk management technique you choose.

Evaluate and document supplier performance – By structuring information and tracking supplier performance over time through an advanced supplier rating system you can quickly identify problems and select those that offer a better balance between quality and cost based on objective data such as delays, outages, non-conformances, quality gaps, and unexpected expenses.

Have a straightforward on-boarding and off-boarding strategy – By configuring the information required in the registration, qualification, and verification processes for each commodity category, along with mechanisms for determining suspension or removal of suppliers from the list, it is possible to achieve greater control over the entire supplier base.

In summary, a risk management plan aimed at increasing supplier reliability should include these five steps:

  1. Identify supplier risks through a quantitative risk assessment analysis (profile, geographic location, strategic importance, category, financial condition, compliance, contractual performance, etc.).
  2. Calculate the prioritization and impact of the identified risks.
  3. Establish an internal process that defines roles and tasks, involving risk managers and risk owners.
  4. Create an action plan with concrete measures to address the risks
  5. Ongoing monitoring and improvement/recalibration of risk mitigation measures

Mitigate supplier risk for 360-degree procurement control

Digital platform for supplier risk management with Online Procurement and SafeRisk

Risk Management and ESG

The path to sustainable sourcing is through suppliers: calculating the ESG rating, the score that expresses the quality of performance in the three areas of sustainability – environmental, social, and governance – is the starting point for fine-tuning a more responsible sourcing strategy.

By partnering with suppliers with the highest sustainability ratings, the company can effectively protect itself from fines, penalties, and reputational damage resulting from non-compliance, while ensuring business continuity.

A single business continuity disruption can cost millionsChoose Online Procurement, the effective risk management tool for your procurement department

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