Thursday, 13 June 2013

The need for procurement risk management

I've a new debate piece in Public Money and Management which aims to raise awareness of the need to address supply risk management amongst key decision makers. We all recognise that risk has raised the profile of procurement in the media over the last year. Horse meat, supplier credit leading to cashflow problems and business closures, car recalls, and, more recently, the Dhaka factory disaster have placed procurement in less than a favourable light. The public sector also needs to avoid muddling through on procurement risk and develop a more strategic approach. Here's and extract from the paper and my suggestions for those who have decided to become proactive in the strategic management of supply risk.

The first stage should be a clear allocation of responsibility for supply risk management to a named and accountable individual. 
The supply risk owner should be responsible for the completion of an audit. The risk audit will be helped by spend analysis, a comprehensive contracts register and vendor rating. The audit should be then lead to a risk assessment and profiling.  For strategic procurements, regardless of the value, the risk assessment needs to go beyond first tier supply and include a trace to source through the various supply tiers.  
The completion of the risk audit should include key stakeholder input, it is too important to be left to the supply risk owner alone.  Nevertheless, it is unlikely that one person would be able to consider the many facets of supply risk.  Key stakeholders should also be active participants in the development of mitigation plans. 
The risk register needs to be critiqued and sign-off by the Top Team, who in turn agree the level of risk tolerances.  Management by exception is unlikely to be sufficient, instead, for strategic supply, a regular agenda slot needs to be allocated; in the current climate, that reporting could be expected to be monthly.  

If you would like to read the full piece there are a limited number of free access eprints available through this link.

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