It’s Time to Take a Holistic Approach to Managing Procurement Risks

Holistic Approach to Managing Procurement

In what was traditionally a siloed function, separate from overall executive and organizational strategy, procurement professionals have more recently become integral to company operations and resilience. This prominence grew during the COVID pandemic, which broke down barriers between departments and raised attention to the importance of Chief Procurement Officers (CPOs) and other procurement personnel, and the work they do.

The Power of Procurement

The procurement team is at the interface between the enterprise and the extended enterprise: the organization and its suppliers. Procurement professionals are in the position to understand the risks and the wider ecosystems their suppliers operate in. They, like no other function, can make predictive connections and be able to quickly identify risks specific to one supplier or those endemic to the wider ecosystem, and quickly pivot alongside the business accordingly. And it’s not just risk, but opportunity and innovation for the enterprise, such as identifying new products, materials, capabilities and offerings.

With this greater inclusion of procurement professionals into organizational strategy, CPOs and similar roles need to begin to reframe how the function can best serve the organization, and how other departments can serve them. One key to this new way of thinking is framing procurement around holistic risk management, particularly when it comes to managing third parties, suppliers and the supply chain.

Best Practices for Taking a Holistic Approach to Procurement

While not everything in this shift can be implemented immediately, there are general aspects of agility that should be on procurement’s agenda, including:

Thinking holistically: CPOs should be focusing on collaboration and influence across job functions, not just as a spend relationship. Being involved in the entire supplier relationship management process ensures agility. This allows prioritization of suppliers who may pose higher risk to an organization, rather than relying on a one-size fits all strategy that may allow risks to fall through the cracks.

Company strategy: By shifting primary focus to long-term initiatives and goals, procurement professionals can gain a greater foothold in wider organizational strategy. This includes determining risk management priorities, and working with risk, legal, executive, and other teams to better manage supplier onboarding, relationships, and supplier risks.

Digital transformation: While it’s not a magic spell, a key step to take is tobuild scalable practices rather than one-off pilot programs. By prioritizing data clean up and investment in TPRM tools that can build efficiency, CPOs can see positive impacts across the organization that supports overall risk management.

Executive support: If there are challenges with incorporating digital procurement technology into an organization, gaining executive sponsorship is a critical way to garner support and investment in the tools that will assist in procurement and supplier data. Emphasizing both short and long-term goals and wins, and how these technologies will drive organizational resiliency and agility can be critical when approaching executives and build empowerment for procurement professionals.

Switching to Just-in-Case Strategies: One key shift that organizations should be implementing concerns inventory and supplier relationship management- namely, a shift from Just-in-Time to Just-in-Case strategies.

Just-in-Time (JIT): This is a system where supplies and parts were ordered from vendors on an as-needed basis. This system depends on accurate forecasting and can be complicated by supply chain disruptions.

Just-in-Case (JIC): Under this system, parts, supplies, and components are consistently maintained in inventory, reducing backorder and supplier reliability issues.

Under JIC strategy, procurement wizards can build organizational resilience through having contingency plans, and a better understanding of how the supplier landscape affects overall operations. In addition to supply chain disruptions that may be out of your control (such as the pandemic, or an extreme weather event), implementing JIC strategies also helps build resilience against concentration risk.

Moving Forward for Procurement

It’s clear that the best procurement professionals are those empowering fresh, more strategic approaches to succeed in new and dynamic risk landscapes. The ones focused not purely on cost-savings, but on saving (and growing) the business through laying the foundations for better organizational resilience.

Large, organizational changes are not always the easiest to implement, but the benefits to taking a holistic, risk-based approach to procurement are evident. Not only do procurement professionals feel more empowered, but company cost savings are generated, and everyone has a better understanding of supplier risks and steps to take to build resilience.

Hannah Tichansky, Marketing Campaign Manager, Aravo Solutions

Hannah Tichansky is a Marketing Campaign Manager at Aravo Solutions, the market’s smartest third-party risk and resilience solutions, powered by intelligent automation. Hannah holds over 10 years of writing and marketing experience, with five years of specialization in risk management, business continuity, and resilience topics. Hannah holds an MA from Monmouth University.