How to mitigate procurement and supply risks

Procurement and supply won’t experience the same risks, but it’s important to identify ways to mitigate them

How do you mitigate risks in procurement?

Risk mitigation in procurement and supply will vary in every organisation, as some organisations may not experience the same risks as others. It’s important that risk mitigation is part of your overall strategy, as without it, it can affect the whole supply chain. Take a look at some common risks within procurement and supply and how to mitigate.

Choosing your supplier

Supplier relationships

Legal requirements

Inaccurate data

Choosing your supplier:

It’s important that your supplier is both reliable, cost effective and brings value to your organisation. Poor quality products and late delivery times will have a negative impact on your customers, meaning a decline in profits and brand reliability. Go through a rigorous selection and evaluation when choosing who you want to work with, researching their level of compliance, success stories and financial documents.

Supplier relationships:

Having a strong supplier relationship is the key to help mitigate risks in procurement and supply. Take a detailed look at your order and supplier relationship management process and use technology to help automate and smooth the process out. This helps prevent delays within the procurement process and help to avoid manual processes. Offer feedback to suppliers regularly, so any challenges can be addressed quickly.

Legal requirements:

Particularly in public procurement, adhering to rules and regulations is critical to avoid fines and compliance risks. Check on your supplier contracts to make sure they’re correct and legal and regularly keep up to date with changing legislations. A good contract management process will help mitigate these risks.

Inaccurate data:

Over or underestimating the products or services required can cause huge risks throughout the whole supply chain. Incorrect forecasting will result in wasted time and money, which causes a ripple effect of incorrect decisions down the line. Digital technology can help mitigate these risks. By supplying good quality data, quickly to all parties, enabling them to take positive steps to mitigate the risk.

What are the four types of risk mitigation?

It’s important to choose a risk mitigation strategy that works for your organisation. There are four types of risk mitigation which include:

Treat: This involves acting on high risk activities and looking to resolve likelihood or the limit the consequences.
Tolerate: Tolerating a risk, means you’re accepting that there is little that can be done to change the risk. This often happens if the likelihood and impact of the risk is low.
Terminate: If the risk is too high and will have a severe impact on your organisation, it’s best to terminate the contract or withdraw a product or service from the market.
Transfer: You can transfer your risk activities to a third party; however, you’ll still be liable if things go wrong. Consider the use of insurances to mitigate the risk exposure certain activities bring.

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