In changing times – Risk Management Procurement
„After the lockdown in spring, we were able to continue production without interruption. Due to a sufficient amount of material in the consignment stores, we had the corresponding flexibility. Since then, we have been monitoring our delivery quantity on a weekly basis in order to avoid the risk of running into production downtime due to individual missing parts“. Risk management although procurement is part of the daily job for many buyers and dispatchers, it is too rarely seen as an important component of risk management per se.
Risk Management Procurement
An integrated risk management for procurement and supply chain covers various risk areas and is intended to enable procurement to deal with risks at an early stage while avoiding potential risks. In many procurement departments, the risk of a supplier default is the first priority in this context. In some procurement departments even only this risk. When we consult with procurement departments about risk management, we are always asked the first question: How do I recognize early on that a supplier is going into insolvency?
Very often we then talk about financial information assessments, certainly an important component for the long-term evaluation of a supplier. In the short term, however, risk management Procurement is an important, perhaps even the most important indicator for a risk assessment. Suppliers who have established processes and have the necessary experience in production processes and quality measures, deliver the announced quantities in the right quality at the right time during normal operations. And not only the deliveries are flawless, but also all order, delivery and invoicing processes run without any special features.
Recognize disturbances in the daily processes
Companies that are in economic difficulties often experience disruptions in their daily operations. This can result in an extended reaction time in an ordering process or in the adherence to delivery dates or quantities. I.e., not only individual orders are to be examined for their cycle times and characteristic numbers, which happens surely in each procurement department, but over a risk management procurement are to be examined always for characteristic numbers on week or monthly basis. If once or twice expected values are not correct with a supplier, who supplies for years constantly well and completely, this is surely caught up in the daily business. If, however, the frequency of these errors increases, this is not necessarily noticed in day-to-day business. And if, in addition, there are deviations from the standard in the area of invoicing, linking existing data and information can form the basis for risk management procurement.
Newly link existing data
Key figures of a risk management Procurement are usually only evaluated and presented in a supplier evaluation. Individual deviations are ironed out in the daily business and discussed with the supplier. But for an active risk management procurement the fewest procurement department use these characteristic numbers regularly. The small disturbances, which cannot be directly assigned to a problem source (e.g. an unusually high order quantity or a very short delivery date) are often an indication for disturbances at the customer.
ADCONIA has already established pragmatic risk management systems for many procurement departments. And often by logically linking existing data into one system. Please contact us.
Managing Director, ADCONIA GmbH