26 May 2005 | David Arminas
Purchasers are expanding their responsibilities and now find themselves in the front line of managing risk, delegates heard at the Institute for Supply Management (ISM) conference in San Antonio, Texas.
Lisa Cooley, associate director of corporate purchases training at Procter & Gamble, cautioned that this greater role should not focus solely on avoiding hazards: "It's about creating options and choosing the risks to take."
In her view, most people assume risk starts and ends with marketplace issues, such as why consumers don't buy the product.
"Consider the risks if a new product starts to sell better than expected. What will be the effect on your supply base as it tries to cope with unforeseen demands?"
She said P&G had also identified risks in technical, government and trade regulations.
Cooley added the surest way to cover all potential dangers is to set up a cross-functional team that includes stakeholders such as sales, marketing, engineering and design, as well as research and development.
Steve Rogers, a former director of worldwide purchases at P&G, and now a consultant with the Cincinnati Consulting Consortium, said setting up these teams is not a short-term proposal: "It took five years for us and it's an ongoing process."
But even the best analysis can't foresee all government regulation changes, he added.
In Africa, P&G was making a product for the Nigerian market in a neighbouring country, then importing it. But when Nigeria passed a law demanding a higher proportion of local content in goods, P&G found the indigenous suppliers were already all working with other major firms, and had to abandon its product.
Purchasers sometimes need to consider risks to their suppliers, Rogers added. Demand for a low-priority product may be cyclical, he said, meaning a reliable supplier receives little business.
They should investigate whether a supplier can survive on the low volumes and not get into financial trouble, which could jeopardise other contracts.