One definition of a successful purchase is the right product or service, delivered in the right place, at the right time, of the right quality, for the right price. There is scope for failure in each one of these elements. Managing procurement risk means understanding what can go wrong and having plans in place to avoid unwanted outcomes. Many organizations are not fully aware of the many types of procurement risk they are exposed to and are therefore not ready when supply chain disaster strikes.
Types of Procurement Risk
A robust risk management plan ensures that your procurement process remains efficient and productive when crisis occur.
1. FAILURE TO SUPPLY
Suppliers can fail to fulfill their obligations for many reasons. They may have insurmountable cash flow problems causing financial failure, problems with sourcing materials or services to fulfill procurement’s order or be experiencing resource constraints. This constitutes a real problem where it is a sole supplier of that product or service. As a member of a GPO, you can bypass a lengthy tender or RFP process and immediately access a replacement supplier. Speed is vital, the more quickly you can recover the better, you can resume normal service to customers.
2. POOR SUPPLIER SELECTION AND VETTING
Proper and comprehensive pre-qualification of suppliers is an expensive and time- consuming process. Failure to complete it adequately introduces procurement risk elements. Potential suppliers may be non-compliant with regulations or ethical standards, they may be unable to fulfill their promises within defined time frames. A member of a GPO can rest assured that supplier verification and pre-qualification of suppliers is an ongoing process which protects them from exposure to these risks.
3. INADEQUATE CONTRACT MANAGEMENT
Ongoing management and monitoring of contractual obligations are often a neglected function in procurement management. Contracts and service level agreement are still paper based in many organizations. This means poor visibility of terms and conditions, so performance is difficult to monitor. Well-managed contracts provide the basis for long-term mutually beneficial supplier partnerships. As a member of a GPO, you have access to a dynamic database of pre-negotiated contracts with stable and pre-qualified suppliers.
4. CUMBERSOME COMMUNICATION AND ADMINISTRATION
Supplier relationships are built on the efficiency of transactions and the supporting communication processes. Error-ridden documentation, lost invoices and slow resolution of issues waste time and money. Automation of the procure-to-pay process and the channels of communication is fast becoming the norm. As a member of a GPO, you have the benefit of cloud-based procurement solutions that manage the data and the administrative processes supporting your purchases.
5. EMPLOYEE CONSTRAINTS
There is a high demand and therefore a shortage of well-trained procurement professionals. Risks are inherent in using poorly trained staff or over-stretching other employees with extra tasks. Membership of a GPO provides access to all the expertise you need to manage your procurement operations.
What a modern GPO can do for you:
- Work with you to identify your risk areas
- Provide you with solutions to mitigate your risks
- Give you access to preferential pricing through its supplier contracts
- Help you develop solid supplier relationships
- Help you create a procurement risk management plan specific to your supply chain
The year 2020 highlighted the importance of identifying and managing procurement risk. By partnering with a modern GPO, like OMNIA Partners, procurement will benefit from the added security in their supply chain. No matter how great the disruption GPOs help by eliminating sources of risk and enabling procurement to establish a robust risk management plan. The pandemic disruption proved that not only does the GPO model works, GPOs should be considered a best practice for any procurement professional’s risk management plan.
Future-proof your procurement strategy by extending your resources through a group purchasing partner.