January 22, 2014 | Written by: Doug Macdonald
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There is a gradual but inevitable evolution occurring in the priorities of the procurement organization; a current pushing towards an ever more active role for procurement in risk management.
There are many factors driving this evolution – and each has gained its fair share of media and analyst attention: (a) the growing importance of suppliers and service providers as businesses outsource and focus on core competencies; (b) the increasing complexity and globalization of supply chains; (c) expanding regulation impacting companies and suppliers; and (d) the heightened exposure to operational disruption and brand impact as a result of supplier error.
This, of course, has coincided with a steady evolution of the procurement function over the past two decades – an evolution that has been accelerating in the 2000s. As companies achieve increased cost competiveness, the stature and responsibility of the procurement organization has grown. That evolution has been assisted by the growing application of technology. As companies mature and excel in cost-cutting, aided by sourcing and spend analysis technologies, their focus has shifted to more complex categories and to optimizing Total Cost of Ownership (TCO).
Today, ensuring best value from suppliers is the preeminent focus of the procurement organization – but reducing the potential risk introduced by the supply base is perhaps the most pressing item on the procurement agenda.
Thus, the natural evolution of procurement priorities is towards proactively managing the supplier relationship by continuously measuring risk and proactively pushing supplier remediation, development and improvement.
As with other business processes that have been automated, supplier management – including supplier performance and risk management – often begins with departmental and siloed solutions. These solutions are often home-grown , developed internally by the business or consultants. As such, the impact is often suboptimal, as the solutions are typically not tightly integrated with other supply management processes . Many organizations have recognized the short-comings in their initial point-solutions, setting the stage for a shift towards fully-integrated supplier management solutions and processes.
A deep level of supplier visibility and insight can only be achieved when systems are able to share data about the supplier to deliver a 360 degree view across all key interaction points both operational and strategic.
Supplier transparency may often be thought of as a secondary priority, but it is precisely these cross-system insights that enable an organization to maximize supplier risk management efforts. Information transparency is ultimately the key to proactive risk avoidance and resilience.
Companies employing best-in-class supply risk management practices are leveraging solutions that enable:
- Global, cross-enterprise transparency of information
- Incorporation of both internal and external supplier information
- Coordination or integration across supplier management processes
Integrated processes and solutions will not be instituted overnight and will not prevent all risk scenarios – but they will ultimately, significantly elevate the organization’s resilience to risk.
The enhanced focus on supply risk management is no doubt a big challenge for procurement organizations, but with that challenge comes opportunities to build stronger and more collaborative organization – and stronger and more collaborative relationships with suppliers.
For a further discussion on risk management and supplier management, read Supplier Risk Management Moves Up the CPO Agenda or visit the Rethink Procurement site.