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Q: My board want to review my procurement risk management strategy. How best to present it?
You have already analysed risks present in physical supply chains. You have also looked at procurement process, management controls, market behaviour and the agility of your team when responding to unexpected events. This is good work. Use the upcoming presentation to ensure the board fully understands the breadth of procurement risk and the company’s exposure to it.
Start by reminding them of the scale of procurement activity: supply expenditures, categories, number of suppliers. Then apply the Kraljic analysis. Now refer to your company’s corporate strategy and show what it requires from supply markets in future, for example: volumes; source locations; cost levels and product development. Illustrate the supply chains for four or five critical categories, showing potential risks and why they cause concern. Describe how these risks can be mitigated and, if necessary, seek approval for any resources or mandates for action. Conclude with observations on your team’s overall risk management capability and what you plan to do by way of continual improvement.
Q: How can we reduce the
number of ‘urgent’
purchase requests?
While not a strategic issue in itself, your question still applies, as too many such requests divert buyers’ time from more important issues. The problem may reflect
ill-disciplined requestors; an absence of
user-friendly purchasing systems, and maybe even lack of user confidence arising from previous supply problems.
We can learn from an accident prevention programme successfully applied in the petrochemical industry. People noticed that when many minor injuries occurred it was more likely that a major one would follow. Efforts focused on preventing the minor occurrences. Reporting them was encouraged and there was widespread awareness of the details and remedial action. Individuals were not penalised, but there was a factory-wide reward scheme for an injury-free period. It worked well.
The parallel is that the more ‘urgents’ you experience, the greater the possibility of a major supply problem. So, establish an incentive scheme to reward good behaviour. Give daily ‘tweet’ publicity when urgent POs appear and provide fortnightly reports to show when different departments are improving. However, start with a general meeting where you explain why ‘urgents’ are a problem; acknowledge that some are genuine while others are avoidable, and admit some might have been due to past supply problems. Daily emergencies will persist, but the awareness plan will buy you time to put more permanent measures in place and gain wider understanding of procurement’s role.
Q: Procurement is often talked about as being synonymous with supply chain management. Is this a problem?
Unfortunately, yes. Any enterprise that views procurement as a physical activity is likely to be at risk, at a competitive disadvantage, and haemorrhaging money. Many business leaders come from fact-based disciplines such as finance or manufacturing and tend to see supply chains as cost-consuming physical entities rather than as sources of opportunity or risk. Accounting conventions focus attention on the cost of business rather than the processes that enable business to be done and the management of physical assets presents daily challenges. So it is understandable why C-level executives are preoccupied with ‘managing what the company has become’, rather than ‘managing what the business was created to do in the first place:
to buy, to transform and to sell’. In the public sector, this reads ‘acquire value, add value, and deliver value’. This positions procurement as one of the key commercial enablers of enterprise with cross-functional reach and dealing as much with behaviours and relationships as it does with bids and RFQs. I do not subscribe to the view that one aspect of business is more important than another since any high-class organisation will seek excellence throughout and will understand how the parts add up to the whole. That said, best practice is recognised where the whole is greater than the sum of the parts.
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Dr Richard Russill is a business adviser and writer, specialising in supply, cost and relationship management
