10 Ways to Better Procurements #2 - Mitigate Risk

#2 - Mitigate Procurement Risk

Risk exists and can never be eliminated but it can be mitigated through effective management and knowledge application. All of the articles in this series address risk issues, this is a summary. Procurement risks can be sorted into two general categories: contracting process and supply chain risks.

Laws relevant to the procurement contracting process continue to evolve as a result of case law initiated because one party to a tendering or contracting process was offended by the actions of another party. Involvement in these types of court cases is a huge risk to be avoided. This type of risk can be mitigated by application of equal, transparent and ethical treatment of all respondents to a procurement request. Easily said, but considerable diligence is required to implement. Professional procurement and legal expertise can assist.

It is possible to transfer risk from the purchasing organization to the supplier, however risk transfer comes with its own risks. Transferring too much risk will add to the cost of the procurement and/or may reduce the number of quality respondents. Use a fair balance and only assign risk to the party that has the most opportunity to control it.

Any organization’s supply chain can and likely will break from time to time. A sole supplier may lack capacity, a product may have quality variables or a disaster may close a key supplier’s facilities. These risks can be mitigated through understanding and knowledge of your organization’s supply chain (see #8 in this series). This includes knowledge of your supplier’s supply chain as well. Identification of the weak links such as geographical and/or corporate concentration of supply sources of critical components will assist in the formulation of supply chain risk mitigation strategies.
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Other Posts in the series: How to Add Value to Your Procurements
• Be Proactive
• Analyze what is required – bring clarity to the specification
• Understand the supply chain
• Align procurement strategies with corporate strategies
• Apply the highest standard of ethics
• Use the right tool for the job
• Plan contract management before there is a contract
• Learn from what was done
• Mitigate procurement risks
• Utilize the skills of supply management professionals

Over the coming year, Rusty Joerin, guest blogger, will expand on the above. Your comments are welcomed.

Rusty James Joerin, C.P.P. is a Supply Chain Management Professional and accredited by the Purchasing Management Association of Canada as a Certified Professional Purchaser. He offers procurement services primarily to public sector organizations that do not have a professional supply manager on staff and provides additional capacity to assist with project related supply for those organizations with purchasing specialists on staff.
Information about his experience and qualifications may be found at:www.woodsgift.com