Because no one knows suppliers as intimately as procurement, they have the unique ability make predictive connections between their suppliers and the risks they may pose to the enterprise, says Hannah Tichansky, a Marketing Campaign Manager at Aravo Solutions. She highlights four heightened risk areas that procurement needs to monitor to be the champion of supplier relationships.
It’s time to rethink the role procurement professionals hold in organizations, and this shift is critical to reducing organizational risk and boosting resilience. While the traditional approach to procurement centered on margin impact and the management of suppliers from an operational perspective, there is an evolution taking place that requires forward-thinking organizations to focus on the long-term strategy and impacts the role of procurement is playing in today's world.
The Traditional Role of Procurement is Evolving
No longer can procurement professionals solely focus on cost savings. They must also be aware of risks introduced by key suppliers and armed with the appropriate tools and technology to proactively manage them before it’s too late and the risks negatively affect the organization.
Heightened risk areas that are leading this necessary shift in procurement’s functions include:
1. Elevated Supply Chain Risks
Supplier risks that have emerged during the pandemic are (for obvious reasons) a critical component of new and elevated risks facing procurement professionals. Lack of awareness of supply chain risks has been exposed, and the perceived level of risk has continued to rise. According to Axios research, 75% of businesses reported a supply chain disruption related to the pandemic.
2. Hidden Risks
According to Deloitte’s 2021 Chief Procurement Officer Survey, only 18% of CPOs had formal tracking processes in place to determine direct (tier 1) risks within their suppliers, and only 15% were aware of risks further down their supplier base. In addition to the vendors that you have direct contracts with, it is also important to know your fourth parties and “nth parties,” who are your third parties’ subcontractors.
3. Isolated or Siloed Procurement Functions
Traditional procurement departments were de-centralized and focused on transactional, short-term initiatives. Organizations that still exemplify these silos face challenges when it comes to thinking holistically and managing risks from all angles. Driving collaboration and strategic initiatives between departments is a critical way to begin to eliminate these silos, while still managing a daily workload of financial responsibilities.
According to Deloitte Insights, high-performing CPOs spend 63% of their time on operational and transactional tasks, spending the rest of their time on more strategic, long-term work (most CPOs who are not as high-performing spend a higher amount of time (74%) on operational/transactional tasks).
4. A Multitude of Unorganized Data Points
Procurement professionals deal with a huge amount of data points related to personnel, financial, operational, regulatory, contracts and more. When this type of information is stored on different platforms, unorganized or incomplete, procurement cannot gain proper insight into potential risks facing their organization.
Transforming Chaos into Clarity
As the role of procurement has evolved, procurement professionals are moving from transactional managers to strategic relationship managers, focusing on developing and managing a wide variety of data points across all aspects of their supplier relationships. Just a few of these data points include personnel data, financial health, GDPR/CCPA, ABAC compliance, operational and reputational risks, virtual/on-site audits, performance and quality management, corrective action plans, banking and tax info, contracts, diversity classification and more.
To understand the riskiness of suppliers and third parties, procurement professionals need to wade through all of this information with efficiency and ensure alignment with both company strategies and global regulatory mandates.
In addition, it is imperative that procurement maintains healthy, collaborative internal relationships to ensure that organizational teams like IT, compliance, finance, sustainability and others are well informed, with real-time visibility to potential risks, and are able to sustain positive working relationships with suppliers.
Procurement Professionals: The Champions of Supplier Relationships
Maintaining healthy supplier relationships is not just about onboarding, it also must include managing risk, quality and performance of suppliers, assuring compliance where needed, while still managing the transactional responsibilities that are at the foundation of this role historically. This increased recognition into the vital position of procurement is seen across all industries, and according to Deloitte Insights:
“CPOs are successfully navigating… complexities while delivering across a greater breadth of KPIs. Although there are still heavily focused on costs, they have expanded their value propositions to influence demand, drive innovation and work closely with strategic suppliers and partners to foster commercial compliance, increase speed to market, accelerate M&A integration/divestiture programs and drive continuous improvement.”
The procurement team is the bridge between the enterprise and the extended enterprise: the organization and its suppliers. No one knows suppliers as intimately as procurement. They, like no other function, can make predictive connections between their suppliers and the risks they may pose to the enterprise.
In addition to mitigating risk, procurement has the unique opportunity to drive innovation for the enterprise by partnering with suppliers to identify new products, materials, capabilities and offerings.
To manage these responsibilities, drive efficiency and take a risk-based approach to procurement, this function needs to recognize its strategic value to the organization and step up to help manage the full lifecycle of their organization’s supplier and third-party relationships.
In today’s age of elevated risk, procurement professionals need to take the chaos that these many different data points present, and transform them into clarity through a consistent, process-oriented approach to managing suppliers and third-party relationships.