This is the fourth in a five-part series discussing the obstacles and potential paths forward to achieve visibility – essential to any Procurement organization. The article was initiated based upon the following Ardent paper – HERE. In the first, second and third installment overall Spend and Savings were discussed. Let’s examine the third key area or leading indicator of procurement success: Risk.
For the past couple of years, I have been talking to prospects and customers about the topic of Supplier Risk or Supply-base Risk. I have often been confronted with those who say that the problem is so large they are just plain paralyzed. What is it anyway? How to measure, where to invest and how to create a business case for something that is difficult to quantify are common challenges. Procurement leaders often retort that since they can’t solve all risks, they won’t solve any. Hmm…. Yes, this is a common response among leaders in the global 2000. This stance, however, is no longer tenable. There are too many examples where incremental progress has been made, methodologies furthered and technology solutions implemented.
Getting started is not as hard at it would seem. Getting started can mean recasting activities you are already engaged in. Reining in the use of maverick suppliers is already a responsibility assigned to procurement. Historically, preventing bypass of preferred suppliers and contracts was primarily concerned with the achievement of savings goals, but now it’s also about ensuring compliance – compliance to corporate policies and government regulations. That is, of course, if you can track, document and manage the compliance status of those suppliers. The power of coupling Spend Analysis and Supplier Information Management!
Another more straightforward approach is to extend your Supplier Performance Management program slightly to include some external data indicators in the scoring methodology; a worthy initial step that can act as an early warning signal for the enterprise.
Clearly, the management of risk requires a more evolved and holistic program, but these small advances are critical first steps to build the muscle memory of information collection, scoring, risk remediation planning and the careful consideration of syndicating information to the enterprise.
For those who are leaders having solid programs in place for visibility spanning Spend, Savings and Risk, we congratulate you. And it’s my bet that your investment in future visibility and new types of analytics is even greater than those with nascent programs. Visibility drives a quest for even more. A trend we are seeing across our customer base is a continued investment to extend visibility. One common domain of pursuit we are seeing is the area of better visibility to contracts.
* Read this paper to learn about how procurement contributes to bottom-line savings, which tools are best to track reduced costs, and new ways to increase profitability.