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4 Ways Procurement Can Help Reduce Supply Chain Risk

Risk can be lurking around the corner at any step of the procurement process. Here are four ways to mitigate it before it turns into a real problem.

A supplier that skirts safety regulations, a vendor that outsources to illegal third parties, or the media reports that broadcast these scandals globally can all keep procurement professionals up at night. But let’s face it, managing risk in supply chains can be difficult. With countless variables outside of the buyer’s control, it’s easy to feel overwhelmed by detailed regulations and ever-changing risk factors.

The good news is that procurement can play a leading role in reducing these risks—a process that doesn’t necessarily have to be arduous, expensive, or time-consuming. According to a new report from Coupa, there are four actions that all buyers can start taking today to help reduce financial risk, legal risk, cyber risk, and fraud risk.

“Many organizations are trapped in a pay-and-chase model for fighting supply chain fraud,” Deloitte’s Mark Pearson said in Coupa’s “4 Spend Management Decisions to Cut Supply Chain Risk” report. “This way of managing fraud risk could add up quickly and cost your business money.” Here are four more ways buyers can step up to the plate and start reducing supply chain risk in 2020:

  1. Use automated compliance verification. To reduce risk in the supply chain, procurement must make sure that its organization is audit-ready and fully compliant. It also must ensure that every vendor is compliant with relevant standards and the organization’s tolerance for risk. “This process includes checking vendor credit ratings, legal judgments, financial liabilities, and other details,” Coupa advises, which acknowledges how difficult it can be to do this for every single vendor. By automating these tasks, purchasing can expand the verification process beyond just its top tier suppliers.
  2. Leverage insights from the business community. When shopping online, consumers often read reviews of suppliers and their products to determine the risk of making that potential purchase. What if you could do this when procuring goods or services at work? Coupa says that while organizations complete regular checks on their vendors or obtain credit reports from third-party sources, business spend management technology includes algorithms that quantify the financial, judicial, and public sentiment health of each supplier based on sources such as income statements, court documents, and news articles. These resources can all prove valuable for buyers who are trying to put together risk profiles on their prospective or current suppliers.
  3. Push yourself out of the “rear-view mirror” approach to risk. “Trade sanctions, natural disasters, currency fluctuations, and hackers won’t wait for you to be ready,” Coupa points out. “You need to be able to keep up with these changing factors at a moment’s notice.” By integrating this live data with procurement and payment processes, procurement can instantly see what’s happening right now—versus taking a “rear-view mirror” approach to these assessments. With this visibility, for example, buyers can pinpoint the most vulnerable purchase orders (POs) and invoices, and then take the appropriate steps to mitigate the associated risks.

Strive for high levels of supply chain visibility. Supply availability is critical for most companies, but if you don’t know there’s a problem with a shipment until it fails to show up on time, then procurement is sent scrambling to find alternative solutions. By identifying these types of risks before they materialize—a goal that’s enabled by good supply chain visibility—buyers can protect their businesses while also providing stakeholders and customers with top-notch products or services. “As a leader in your business, your first priority is delivering superior results for your customers,” Coupa states in its report. “This means you need to have visibility and control of the risk in your entire business. And since supply chain is the highest cost after labor, its risk is critically important to manage.”

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