Understanding the importance of risk management in procurement

Risk management is part and parcel of procurement because organisations depend on suppliers for products…...

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Risk management is part and parcel of procurement because organisations depend on suppliers for products or services. Since supply is through a third-party, procurement needs to be prepared for any disruption to the supply chain, as it could affect the organisation’s ability to fulfil its commitments.

Importance of risk management

It is prudent to remember that risk affects different aspects of sourcing. So, you need to consider them while choosing your supplier. It is prudent to go with suppliers with minimal risks so that your work does not get disrupted.

With the right risk management in place, you can ensure that the purchase of materials goes through smoothly. When you get the required products, services or materials on time, you ensure business continuity. As a result, your organisation’s financial performance will be good which, in turn, creates wealth for stakeholders.

When risk is high, it can take up much of the organisation’s resources. So, with the right risk management, you can implement measures without incurring high costs. Also, proactive risk management shifts from crisis management to proactive decision-making, which works to avoid problems in advance.

The way forward

Procurement should anticipate events that could pose a problem to supply, preventing the organisation from meeting its objectives. Once this becomes the norm, risk management becomes integral to procurement processes, ensuring that the organisation need not worry about firefighting. Instead, all bases are covered. 

Risk management in procurement is imperative because it works to ensure effective and smooth business operation. CPOs and procurement professionals should have different risk management processes for each supplier, as risks can vary. When procurement understands the benefits of risk management, many uncertainties in the supply chain are automatically eliminated.

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