By Susan Avery
How does procurement identify supplier risk if resources are limited? How do we track performance at mitigating risk? How do we get internal stakeholders to understand the value of managing risk? A panel of risk experts helped procurement and supply management professionals think through responses to these questions and others at the September member meeting of ISM-Greater Boston in Concord, Mass., recently.
The format for the evening event was a panel presentation followed by roundtable discussions with a light supper. ISMGB is a local affiliate of the Institute for Supply Management (ISM).
One critical piece of advice ISMGB members took back to work with them comes from The Boston Consulting Group’s Sheila Doyle: “Your supplier provides a crucial function. Know your supplier. Know who you are doing business with.” Doyle works in Third Party Risk Management at BCG.
The panel determined that procurement should “own” supplier risk management, by taking responsibility for risk mitigation activities or by being involved in every step of the process. Because of its role of managing supplier relationships in the company, “procurement is a huge gate” for risk mitigation, Doyle said. Other groups that may also be involved include legal, risk, Internet security and marketing or other departments that manage branding.
Procurement and supply management professionals attending the meeting were split on the definition of supply risk. Eliot Madow, Vice President, Client Services at Hiperos, President, ISMGB Board of Directors and member of the panel, asked whether they defined risk as “continuity of supply” or “what a supplier does that can get an organization in trouble.”
Either way, Madow suggested that for procurement to be effective at managing supply risk, it needs to share responsibility with the business. The discussion turned to engineering selecting a new supplier and the risk that goes with onboarding the provider. To mitigate it, the group would work with the engineers to create an understanding of risk and its consequences.
To Mitigate Risk, Segment Suppliers
From her perspective, Doyle said that at “the best of the best” companies, management addresses supply risk with the board of directors. “Clients are demanding it, asking what the company is doing to manage risk,” she said.
“Executives are looking for a short list of suppliers and the criteria procurement uses to manage risk,” added Panelist Randall Moore, Strategy Operations Director at Accenture and member of the ISMGB Board of Directors.
Managing supply risk is not something that can be done “ad hoc,” the panelists agreed. Procurement needs to have a process in place to do so, but it cannot mitigate risk of every supplier. The company first must determine its risk appetite, “know its tier-one suppliers and keep up with what they’re doing,” Doyle said.
To segment the supply base for managing risk, procurement may be tempted to use spend as a factor. It is a factor, but equally important is whether the product or service the supplier provides is critical to the operation of the organization. If the product can stop a line or shut down the business, then procurement must monitor the supplier for risk.
The risk mitigation process begins before the company has an agreement in place with a supplier. It starts with the Request for Proposal (RFP) step of the strategic sourcing process and does not end there. Managing risk must continue throughout the life cycle of the agreement with the supplier, with evaluations occurring at contract renewal or if necessary at annual or quarterly business reviews. The panel and meeting attendees agreed that site visits can play a key role in assessing risk of doing business with a supplier.
Ken MacCuish, Senior Vice President and Chief Information Security Officer at Intralinks and panel member, addressed the topic of cyber attacks, outside agents using software to “hijack” internal systems until the organization makes payments to get their data back.
“We must take this threat seriously,” he said, suggesting procurement do its part to prevent such attacks by ensuring suppliers “have maturity in this space” and “back-up systems.” He also recommended seeking out and working with cohort groups, as in the healthcare industry, that address the issue collectively.
More from the Boardroom
The next ISMGB member meeting is on Thursday, October 13 at the ISMGB office in Concord. Tania Seary, Founder of procurious.com, is the scheduled presenter. Her topic: Give Your Supply Management Career a Cardio Boost: Prescriptions from the Boardroom. For information and to register, please contact David Kriz, Managing Director at ISMGB by phone at 978-371-2522 or email at email@example.com.
ISMGB is a member of the New England Collaborative which is responsible for the New England Supply Chain Conference and Exhibition on October 3 in Marlborough, Mass. For information on attending NESCON and to register, please visit the website, www.nescon.org.
Also see the My Purchasing Center article, Wayfair Teaches Suppliers to Delivery Quickly and On Time
Susan Avery is Editor-in-Chief at My Purchasing Center. She writes articles, blogs and white papers and manages and creates other content for the online procurement and supply management publication. She produces and moderates roundtable discussions, podcasts, webcasts and video interviews. Susan has 30 years experience covering procurement and supply management for Purchasing magazine and Purchasing.com.
George E. Krauter
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