High performance in Procurement Risk Management

Abstract

Research on Procurement Risk Management has been conducted by Accenture and MIT in order to identify the best practices used to manage commodity price volatility and supplier risk. In today's increasingly turbulent market it is crucial for companies to have their procurement risk management capabilities developed. Risk Management becomes imperative for buyers in order to make the best business decisions and continue to drive their performance up. Risk Management is now becoming a major requirement for Procurement departments, and while most companies have risk-management expertise within their finance departments, only a few formally extend this capacity into the procurement department. Excellence in managing risks will be a key differentiator for procurement departments in the near future. The main risk categories today are suppliers and price risks. These risks can be managed by different sets of capabilities in an effort to reduce a possible impact. The risk management process contains three main stages; risk anticipation, risk identification and monitoring, and risk mitigation. As all stages are important to master, some capabilities have shown clearer correlation than others. By conducting an extended literature review, procurement top management personnel interviews, and brainstorming sessions with Accenture, a set of hypotheses were formed. This set of hypotheses was verified against the results of a survey. The survey contained an extended set of questions that revolved around each hypothesis. This survey was answered by 122 companies from various industries. The main conclusions are based on observations and detailed analysis of survey results. A lack of impact measuring and a lack of use of technology for the purpose of risk assessment were observed. It is believed that improving these capabilities will promote profitability, and prevent impact as a result of risky events. Based on the results analysis, the procurement performance level is heavily dependant on risk management measures, and that excelling at the procurement level can be reflected further on the overall success of the company.