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Risk. The biggest challenge for procurement - where do the answers lie?

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Risk. The biggest challenge for procurement - where do the answers lie?

By Jon Hansen

“If you can’t measure it, you can’t manage it” is a saying attributable to the great Peter Drucker. I say “attributable” in that it may not be an exact quote but, that aside, the meaning of his words is clear; actionable information is critical in effectively managing risk. 

Besides stating the obvious, there is an often-overlooked part of the unknown or hidden data dilemma, which is the focus of this post.

Blindness to data risk: circumstance or choice? 

When I think about the difficulties related to accessing actionable knowledge to improve risk management (and overall decision making), the words “hidden in plain sight” immediately come to mind.

While there have historically been significant challenges associated with accessing timely information, with today’s emerging digital technologies, getting accurate and actionable data on a real-time basis is no longer an issue. If you disagree with that statement, ask anyone with over a decade or two in our profession about their ability to access data. Back then, procurement had to wait months to get information that was ultimately outdated on receipt.

As a result, we must ask ourselves, “What is the problem?” Why are so many companies still flying blind – or, at best, with limited insight and vision? Why does risk go undetected, and why is the resilience to respond to the unexpected so difficult?

It starts with ownership

“Procurement has changed significantly – from a cost-cutting process to a strategic one that has a direct impact on the bottom line. And with this change comes great risk, which demands a robust risk management strategy.” – Top 5 Things Every Procurement Officer Should Know (Prewave)

Standing before 100 senior procurement executives, I asked the question: who “owns” risk management at your company? Of those hundred in attendance, only three raised their hands, indicating that procurement was responsible for managing risk.

I then asked the question: when something goes wrong, on whose doorstep do the consequences of unmanaged risk land? 98 of the 100 raised their hands, indicating that procurement had to deal with the fallout.

Based on the above, it seems that risk and risk management isn’t a “procurement problem” until it becomes a procurement problem. The question for all procurement professionals – especially leaders – is: do you wait to react to a risk event, or do you anticipate and proactively manage it? Or, to be more succinct, do YOU own it before it owns you?

Where does the answer to this question lie?

Actionable knowledge IS power

How does your company identify, assess, and manage risk in your supply chain?

Beyond ESG compliance and legislative imperatives, how do you get ahead of the risk curve to minimize immediate impact and longer-term disruption?

The answer brings us back to the Drucker “measure and manage” quote. Actionable knowledge that is based on something other than static – and ultimately outdated – information is critical.

Part of a robust risk management strategy is the ability to access real-time information and trends to identify vulnerabilities before they reach crisis stage.   

“Data analytics and AI can help companies manage semiconductor supply chain issues. AI can predict a range of unexpected events, such as weather conditions, transportation bottlenecks, and labor strikes, helping to anticipate problems and reroute shipments around them.” – CNBC (Oct 19, 2022.)

While the above excerpt from a recent CNBC article makes specific reference to the semiconductor supply chain, you can apply it to all supply chains regardless of product or service.

Once you remove the blinders of risk management ownership, you will have a clear and direct sight into emerging digital AI technologies. These intuitive technologies will enable you to anticipate problems and respond to them coolly and effectively, limiting risk event impact.

As someone who has been in the high-tech / procurement world for many decades, this is the most exciting (and opportune) time for procurement to take the reins of their organization’s risk management program.