Risk management is one of the top issues facing procurement professionals today. Geopolitical concerns, natural disasters, and other causes of supply disruption, have procurement teams looking to establish their company’s risk profile. But knowing where to start with such a huge undertaking is a challenge into itself.
In ‘Risk Management, the method’, Daniel and Anna review a straightforward approach for getting started with a category risk assessment. Professionals new to risk assessment and management will be relieved to see that it is very much like an opportunity assessment, where spend categories are identified and prioritized for sourcing and negotiation. The only difference is you need to look at your categories with a ‘glass is half empty’ perspective to see the potential problems rather than the savings or efficiency opportunities we look for when we build and prioritize a sourcing pipeline.
There are three primary phases identified in the risk management methodology:
- Identify – What are the potential risks associated with this category?
- Assess – For each identified risk, what is the potential impact, severity, and likelihood?
- Control – What reactive measures can be put in place to mitigate disruption?
One of the key points of the segment is how to keep your risk management plans viable once you have put them in place. Re-evaluation of the risks, assessments and controls is critical, particularly after a risk has materialized. Even without a disruption, suppliers, markets, shipping channels and raw materials are fluid elements that must be regularly revisited to ensure that the risks have been identified and properly assessed and the mitigation plans put in place will still be effective.