Are you thinking of developing a new sourcing risk management plan?
Wondering how to better mitigate supply chain risk when sourcing?
Or just keen to explore some of the best risk management practices Chief Procurement Officers (CPOs) can adopt?
Keep reading, that’s what we’re going to talk about in this blog.
You see, risk management is an issue that has generated a lot of buzz since the start of the coronavirus pandemic.
This is evidenced by the volume of monthly searches in Google Keyword Planner as shown by the image below:
Clearly, the disruption caused by COVID-19 led many people to turn online seeking ways to mitigate risks.
And it’s not hard to see why.
Enterprises are operating in extremely complex environments with many variables. Uncertainty is the order of the day as economies scramble to recover.
These pressures force businesses into a state of continual evaluation and analysis of risk. Prompting leaders to seek turnkey principles and possibly a new sourcing risk management plan that can help reduce supply chain risk.
Before presenting you with five risk mitigation principles, let’s first define supply chain risk management.
What is Supply Chain Risk Management?
The Chartered Institute of Procurement and Supply (CIPS), adopting from Christopher, 2004 define supply chain risk management (SCRM) as:
“…the management of supply chain risks achieved through coordination/collaboration of supply chain partners to ensure profitability and continuity…”
Because the current global risk climate is at an all-time high owing to cybercrime, global events, and political instability, SCRM should be a top priority for enterprises.
Fortunately, CPOs aren’t left without recourse when drafting up a new sourcing risk management plan. The following supply chain risk mitigation principles will ensure your plan is resilient and responsive.
Risk Mitigation Principle 1: Diversify Your Vendors
Are your vendors all within the same geographical area? If so, what will happen if they are affected by similar regional or national shocks such as a natural disaster or political upheaval?
Are your vendors all sourcing from the same source? What happens when that source fails to provide for your vendors? You’ll find yourself in a very difficult spot.
Develop relationships with vendors from a handful of different geographical places, with alternate sources, whose costs are within your budget.
Risk Mitigation Principle 2: Plug Sourcing Leaks
It is often assumed that the biggest risk along the supply chain comes from suppliers. But the truth is that risk can come from any quarter – From the type of transportation used, handling of supplies, to the country of origin.
The late management expert Peter Drucker often said, “If you don’t measure it, you can’t improve it.” In procurement, if you don’t have visibility into these sourcing leaks, how then can you measure and improve them?
So, find the sourcing leaks (risks you may not be thinking about) and plug them.
After all, it is these small leaks that can indeed sink an entire enterprise operation.
Risk Mitigation Principle 3: Standardize Your Sourcing Criteria
Experience is the best teacher. Sit down and evaluate the criteria that you use to select and screen vendors. How precise is it?
The more accurate it is, the more concise, the better your ability to screen and pick only the very best vendors.
What requirements are on your list apart from cost? Quality? Innovation? Sustainability? Delivery times?
Having standard metrics against which to analyze supplier performance is imperative to making data-driven decisions that push the organization forward.
It is against the backdrop of such information that you can confidently make adjustments to your sourcing risk management plan.
Risk Mitigation Principle 4: Calculate Risk Into Your Contracts
What’s next after you have standardized your supplier requirements and assessed the risks that are oftentimes overlooked but still affect the supply chain?
It’s time to evaluate all of this against the contracts you will enter into with your vendors.
Leeway must be given and measures put in place that allows for the cost of risk to be included in the final contracts.
Being able to control your expenses across contracts will facilitate the improvement of the bottom line.
Risk Mitigation Principle 5: Automate the Supplier Management Process
Automation has dramatically improved sourcing processes for many procurement teams.
The integration of technology into procurement has seen CPOs being able to mitigate risk by gaining immediate visibility and connecting with suppliers from every corner of the planet.
Gone are the days of RFQ issues, contract management issues, or supplier communication breakdowns.
By adopting procurement software, buyers and sellers are able to work seamlessly through supplier portals to achieve the desired outcomes.
There you have it.
Mitigation principles to aid you in your efforts to develop a more robust sourcing risk management plan.
By studying what has worked for others, you can evaluate your own strategies and make necessary adjustments where needed.
You no longer have to worry about production disruption, slowed down productivity, or not being able to meet demand.
Armed with these principles and supply chain risk management software you’re well on your way to improving your sourcing campaigns.
If you’re looking for leading procurement software solutions look no further than ProcurePort. Trusted by enterprises and organizations such as UNOPS, HUD.GOV, and conEdison, our solutions are innovative and intuitive.