Procurement is one of the most vital aspects of a business, serving the goal of obtaining goods and services for an organization at a cost-effective rate. It is widely agreed in the business world that procurement must be reliable and secure. In order to maintain this high standard of security, the mitigation of risks is crucial.
Procurement risk management is intended to anticipate risks and safeguard businesses from any problems that can arise during the procurement process. Each purchase brings with it a set of critical factors: product quality, vendor reliability, customer satisfaction, company reputation and more. All of these should be monitored to avoid all types of procurement risks.
Having an effective procurement risk management strategy will save costs for your business and help avoid any unwanted setbacks. It will ensure that your business’s procurement process remains efficient and productive.
What does procurement really mean today?
In the modern business world, procurement has evolved from being a simple cost-cutting process to being an integral strategy designed to advance an organization’s bottom line. As businesses continue to adapt in the midst of a global pandemic, risk management in procurement has even stronger implications for the future success and reputation of a business.
Majdi Sleimen, co-founder of Tradogram, describes how the importance of procurement now extends to every part of an organization. “The rapid transformation of the procurement function from the back office to the boardroom has proved that procurement objectives are far beyond just cost control. Procurement plays a vital role in strategically aligning company values while managing the supply chain. Now more than ever, companies are turning to procurement to mitigate supply chain risk and maintain business continuity.”
Common types of procurement risks
Below is a list of the common types of procurement risks that nearly all companies experience in one way or another.
Inadequate needs analysis
Knowing your needs, when you need them, and how you will satisfy them, is critical to the success of any supply chain. For instance, if your needs are overstated or understated, if you’re following an unrealistic schedule, or if you’re operating on an inadequate budget, as the procurement process begins there are several areas where issues have the potential to arise. These can have adverse effects and result in wasted time and added expenses. In addition, connecting accurate budgets to actual spending behaviour will be difficult.
Poor supply chain management
Poor supply chain management can quickly make itself apparent if an organization doesn’t have a transparent, easily accessible vendor evaluation method, as well as a clear, carefully audited method for making purchases, requests, approvals, and payments. In this case, maverick spending can easily pass unchecked and drain a company’s finances. Disorganized supply chain management can also result in precious time being lost searching for invoices or terms and conditions.
Inefficient contract management
In the modern business world, contracts are often simply treated as an agreement to buy. However, if contracts are approached carefully and thoroughly, there are opportunities for mutually beneficial partnerships to be made between your company and vendors, mitigating risks and saving costs. Without dependable vendors facilitated by stable and well-considered contracts, a company’s needs can go unfulfilled and projects can be delayed.
Mitigating supply chain risk
Analyze spending patterns
To avoid misinterpreting your business’s needs or using budgets that don’t match actual spending patterns, utilize the modern automation technology that procurement software offers. A strong procurement software package gives you the ability to track and analyze transaction data for every purchase and to assess usage patterns. This gives you valuable insights into how your business’s procurement strategy can be adjusted and optimized.
Streamlined vendor evaluation and management
The implementation of automated procurement software allows for the easy set-up of a vendor portal, and offers streamlined, fully automated vendor evaluation and management, which helps greatly with mitigating supply chain risk.
Another valuable feature of procurement software is its ability to reduce or eliminate maverick spending, by defining and assigning roles for each facet of the procurement process: requests, approvals, and purchasing. With such implementation, you can also expect to see streamlined strategic sourcing to negotiate better deals with suppliers.
Easy contract management
Investing in effective contract management software can go a long way. With a centralized document library in a procurement software solution, it is simple to view the contracts for each of your approved vendors along with thorough transactional data. This can easily be translated into reports for finance and upper management, which streamlines contract negotiations.
Procurement is becoming an increasingly important function of many businesses and risk mitigation is critical during the process. There is no doubt that process automation and the use of innovative technology can play a very important role in mitigating risk. Considering the volatility of today’s economy, an effective procurement software solution can provide a welcome boost to many businesses, cutting costs, and improving efficiency and transparency.
Take this opportunity to streamline your procurement strategy and avoid unnecessary risks with the seamless automation and data analysis of our procurement software solution. Contact us at Tradogram today to learn more.
by Logan Price, Marketing and PR, Tradogram