It’s a great and worthwhile pursuit for Chief Procurement Officers to invest in their people, so, in that vein, over the next few weeks we will be analyzing the key skills and capabilities (or higher-level competencies) that a procurement professional (and department) should have in place in order to execute successfully. We will be using Ardent Partners’ Procurement Staff Competency Matrix that we developed with our CPO audience. This competency matrix established industry-wide capability measures for the average procurement organization.
We hope this series will help professionals and their managers to better understand and communicate what the required capabilities are for specific job roles within the procurement department and thereby help identify, develop, and deploy the people with the right skills into the most suitable positions. Professionals can also use this series to better identify where current gaps exist in their organization or within their own skill sets so that they can take action to improve or move into roles with greater responsibility (and pay).
Today’s Competency: Supply Risk Management
What is Supply Risk Management?
Supply risk management is the implementation of strategies to manage both every day and exceptional risks of supply based on continuous risk assessment with the objective of reducing vulnerability and ensuring continuity. It is not the elimination of risk, but rather the proper identification of it so that it can be weighed, evaluated, managed, mitigated, minimized, and/or accepted.
Importance to the Procurement Department
Supply risk is clearly important to procurement, but the attention procurement teams pay to it tends to ebb and flow with business cycles (because, when we’re down-cycle, financial risk increases) and after high-profile disruptions. for example, in the midst of the last credit crisis, supply risk management and contingency planning gained significant traction within procurement ranks. Chief Procurement Officers tasked with huge savings targets often had to strike a balance between negotiating significant cost reductions and triggering a potential supplier bankruptcy. Sourcing strategies were reviewed in the context of supply risk as well as savings. Contingency planning, something never contemplated by many procurement organizations, came into vogue.
I recently mentioned one Chief Procurement Officer who has been working with his team fairly aggressively over the past few years to develop and prioritize a supply risk program. The team has developed a screening process that regularly evaluates suppliers and leverages outside services to deepen its market knowledge and awareness of changes in supplier risk profiles, all in support of the program. With a supply risk management process designed to minimize the likelihood for problems and a series of planned responses or approaches for when they do arise, this group is more than a few paces ahead of the crowd.
Importance to Career Advancement
Managing supply risk is just one part of the greater procurement picture (others include getting more spend under management, negotiating and capturing the savings from the sourcing process, and managing supplier performance). Thus, it behooves aspiring chief procurement officers to understand the importance of effectively managing supplier risk, and then to embark on a long and consistent record of doing just that.
Since past performance is a strong indicator of future performance, having a track record of successful supplier risk management – and other facets of procurement – will help advance any procurement officer’s career from worker bee to CPO.
The CPO’s Grade
The supply risk management competency received a C- from Chief Procurement Officers, meaning that their staffs are passable, but not strong, when it comes to managing supplier risk. This is a core competency for procurement, which means that companies or procurement teams need to do it well. It’s extremely critical to monitor current and future suppliers for any signs of financial stress, and also be prepared in the event of a supply chain disruption. As a result, procurement teams must ensure that they have a “Plan B” in the event a complex service or contractor is unable to fulfill its duties. With so many projects that utilize contingent labor tied to the overall goals of the greater enterprise, supplier risk management is an effective strategy.
How to Improve
Procurement pros seeking to improve their supplier risk management skills should stay current on industry basic best practices. They should also volunteer to join or lead a cross-functional team focused on an area of supply risk. Professionals can also work to make sure they understand how to identify and properly assess the wide-range of supply risks that exist for your employer including all relevant types of risk like financial, operational, reputation, regulatory, business continuity, political, etc. To extend the development of your suppler risk skills, get involved in developing and understanding business continuity and crisis management strategies and how leading procurement teams develop the right preparation, response, and recovery activities for different risks/events/disruptions. Finally, remember that understanding supplier/supply risk is a moving target – you cannot “set it and forget it” – you must stay vigilant and current on your suppliers and the business environments in which they operate.
RELATED ARTICLES
Supply Risk Management: A Best-in-Class Value Driver
Toward an Intelligent Supply Risk Management Paradigm
The Business Case for Supply Risk Management in 2019: By the Numbers
