Invest in your process and tools for risk

Invest in your process and tools for risk

By Jonathan Webb

By Jonathan Webb

16 April 2021

15 of the most progressive Chief Procurement Officers from both Australia and New Zealand, explored the issue of risk management in the future of the procurement function during a virtual roundtable hosted by Procurement Leaders.

2020 offered a year of both turmoil and learnings for the function. Almost every business has experienced disruption due to the pandemic, but despite this uncertainty, some of the more entrepreneurial leaders in the function have looked to enhance procurement’s role in the organisation. “We are interested in looking at both the risk and the opportunity,” stated a leader from the energy sector. “We are tracking missed opportunities as well as downsides to risk.”

This new thinking allows the leadership of the function to begin to deepen organisational impact – especially on a critical topic such as risk – by changing buyers’ as well as stakeholders’ thinking. To achieve this, risk must be continually invested in. It is not a set and forget part of the business.

“The process owners should know more where their risks are,” noted one participant from the public sector. “People think that they can just put it into a contract and outsource the risk. But we learnt the hard way that you cannot do that.”

1. Influence the appetite for active risk mitigation measures

The success of a risk management programme rests on proactive supply continuity plans. But few companies are placing serious investments here. On our roundtable, 50% stated that, despite the pandemic, risk appetite had remained the same – 21% reported that it has decreased. Despite this, 71% of the group reported that their business appetite for investment into active risk mitigation measures had not increased.

“Risk appetite is reducing, but we’re not seeing any more appetite or willingness to invest in risk mitigation,” as one director from the financial services observed. The first challenge for the leadership is to ensure that we invest in our capabilities not only in the early stages of the risk lifecycle (risk alerting, information gathering and evaluation) but also in the proposal phases (risk mitigation and continuity planning).

In many organisations, buyers struggle to win business cases to actively invest in their risk management capabilities. Irrespective of the degree of investment we make in elaborate risk technologies, if we cannot act on the data we are being fed, we are still protecting our organisation from supply vulnerabilities.

2. Manage new and emerging risks

Historically, risk management has focused upon supplier financial risk. This is a function of the solution provider space, which could more easily aggregate listed company financial data into predictive risk scoring. The pandemic, however, has illustrated that the financial information is only part of the risk dashboard. We must also include operational matters. As we shall see in the next section, this is a challenge that Australian CPOs are tackling head-on.

Most noticeably, it is the areas around reputational risk and sustainability that are impacting our thinking. “It is not just regulators that are bearing down on us, but it is our investors that are making active investments based on ESG considerations,” noted a financial services representative. Procurement, therefore, must broaden its evaluation of types of risk and ensure that its reporting is enriched by this more holistic account of assessment.

3. Centralise and convert data reporting into meaningful data

The majority of our roundtable invested (or are about to invest) in a new technology platform. This covered a wide area of use cases, but the principal focus was upon nonfinancial risk information. A key insight, however, is that leading organisations are looking to place their supply risk data into centralised platforms.

“To industrialise the approach to have a consistent approach to risk, you need a tool that adapts to new risk types as they emerge,” noted a leader from the financial services industry. “You need a single source of truth that reports on all your risk times and can accommodate new ones.”

Although systems are a critical component of risk management, it is still our ability to use this data that will secure the continued resilience of our supply base. Ultimately, this is our ability to manage and lead people, just as it is to implement technical processes.

“The tool is critical, but there is still a big education piece around people,” argued a CPO from the energy sector. “The tool itself will not solve everything, it’ll be the people that will.”

Procurement Leaders regularly hosts roundtables for senior-most procurement leaders to share insights about key trends impacting the function. Get in touch with us to discuss how you can join our membership.

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