Procurement risk management facing ‘major shift’

21 January 2016

Procurement risk management is expected to “undergo a major shift”, according to the Institute for Supply Management (ISM).

Just managing compliance will no longer be enough for procurement functions; instead risk management must be more holistic and address risk exposure, risk mitigation investments and risk transfer pricing, according to ISM CEO Tom Derry.

Derry, who has highlighted nine current challenges that CPOs face, said the prevalence of security issues had pushed risk up the agenda.

“Given the sensitivity of information that flows through a procurement team, it is very likely that such information could be under attack regularly from outsiders,” he said.

“Procurement teams will need to work closely with internal and external IT security professions to make sure data is secure, remains accurate and is still readily accessible by stakeholders."

Technology must also be better utilised by the procurement function, given the evolution of spend analytics, e-sourcing, supplier and contract management and other technology that supports procurement. 

In a related, but separate way, many procurement teams will need to expand their expertise in engineering, design and new product development as well, which could be its own challenge,” Derry added.

Expertise will also be needed by procurement teams in finance and business acumen. “CPOs need to continue broadening their expertise and the skill sets of their collective team to address the challenges of managing the global supply base,” said Derry.

“It’s not enough any more for the CPO alone to have a strong financial background, as metrics become more prevalent and complex. A higher level of financial and business acumen will be needed, and stronger relationships with internal finance teams will need to be developed."

However, building the ideal procurement team with the appropriate skills and experience will be harder than ever before, and professionals will need a more multidimensional approach to managing the supply chain.

“There is a greater need to assess intellectual capabilities and the likelihood a possible team member could adapt to the changing marketplace,” said Derry.

“As procurement teams expand, what backgrounds would be the most desirable for new hires? Geographical shifts and emerging markets may require a more diverse workforce.”

ISM’s top challenges for procurement:

  1. Managing risk
  2. Adhering to policies of sustainability
  3. Better utilisation of technology
  4. Greater prevalance of security issues
  5. Building the ideal procurement team 
  6. Managing spend creep and cost containment
  7. Understanding and providing visual metrics to track success
  8. Increased financial acumen
  9. Planning to address the need for transparency
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