The aim of any risk management system is to identify risks at an early stage and to minimize or hedge the effects of known risks. It is part of a natural course of action, in private and business life. And it is the business model of insurance companies: To describe risks, to calculate their probability of occurrence and to calculate premiums for the insured.

So even if you don’t operate an institutional risk management system, it is part of our daily routine to identify, assess and hedge against possible risks.

The suppliers in focus

In strategic procurement, the selection of the right supplier is at the center of our activities. The best possible supplier must be selected for the internally defined requirements in terms of production capability, costs and supply chain requirements. And the risk management procurement is not to be forgotten. Especially for articles and services that have a direct influence on the turnover and profit of a company, an examination of the supplier is already standard in all procurement departments. However, the extent to which such an audit is carried out as part of risk management procurement varies greatly. From a basic examination before the creation of a creditor (tax number, letterhead) as an entry point to an examination via a supplier audit including financial status. Risk management procurement means a continuous evaluation of a system-relevant supplier.

Which suppliers are system relevant?

In general, all suppliers are relevant for the success of a company. The smallest screw, if missing, can stop a production. But, e.g. in the case of a screw, there is certainly a stock for a defined time. In such a situation, the loss of a supplier can certainly be compensated by an alternative supplier without affecting production and thus turnover and profit. From the point of view of the risk management procurement, it can be assumed here to minimize the risks of a failure or even to secure them by an approved alternative supplier. Whether one calls them system-relevant, strategic, core or key suppliers, important for procurement in terms of risk management is to identify those suppliers for whom risk minimization or hedging by an alternative supply source does not work within 4 weeks.

What do I consider in risk management procurement?

If one deals with a holistic risk management for procurement, one inevitably comes across the dimension’s supplier, supply chain, raw materials and production / procurement. The dimension supplier includes all risks that can be directly associated with a supplier. The supply chain considers the country of origin (the region) as well as the logistics up to the own plant. For raw materials, the focus is on availability, price developments and possible competition from other industries. The dimension risk management procurement looks at the management of own production capacities and the direct handling to the supplier. For all dimensions, the risk areas must then be identified, evaluated and stored with key figures for all dimensions, depending on the company’s own value chain, in order to be able to guarantee hedging or minimize risks.

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.

 

Oliver Kreienbrink

Managing Director, ADCONIA GmbH