In some situations, taking risks can bring benefits and even contribute to business success, but in the Purchasing area, risks can mean losses and this is the last thing that professionals in the sector want. A risk-free Purchasing process means that the company has a good relationship with its suppliers and can trust them. Therefore, efficient risk management simplifies processes in order to make them easier to manage.
And the risks for the sector are many, including economic and environmental crises, natural disasters and, as we saw in 2020, a health crisis that disrupted very strong global supply chains. The lesson to be learned from these crises is to use adversity to strengthen and make supply chains more resilient and prepared to face these risks.
And how can this be done? Although it is not possible to predict what will happen, it is possible to anticipate and reduce the possibility of risks. It is important to understand that the purchasing process requires the company to understand the risks at each stage of the process. With the exception of global disasters, such as the Covid-19 pandemic, everyday risks involve delays in deliveries, quality problems and even choosing the wrong supplier, factors that can be avoided.
Risks that cannot be ignored
But what are the risks that cannot be ignored in 2021? Obviously, these are different risks than those faced five or ten years ago. Today, companies need to be vigilant about cybersecurity, supply chain transparency and sustainability.
Cyber Security
Data theft and exposure of critical company information, data lost or hijacked by hackers who demand a ransom payment to return the information. The truth is: a company can suffer an attack at any time – a study by the A. James Clark School of Engineering, linked to the University of Maryland, shows that every 39 seconds a company suffers a cyber attack.
And a large part of these attacks are caused by people, either through negligence regarding security rules, such as clicking on a dangerous link, or through the improper use of company resources (Kaspersky).
It is then up to the IT team to implement the appropriate technology to prevent intrusions and create a robust security policy that must be followed by all employees. But it is the responsibility of the company as a whole to educate its workforce about the risks and how to avoid them, and to hold suppliers accountable for their data security processes.
Sustainability
Many companies claim to be sustainable, but are they really? For a company to be sustainable, its entire supply chain must also be sustainable. Without a complete and transparent view of its entire supply chain, which includes suppliers of suppliers, it is impossible to make this claim. A meatpacking plant, for example, that is supplied by cattle raised in deforested regions cannot be considered sustainable.
The Purchasing department needs to have greater control over all stages of the acquisition process and include sustainability as a purchasing policy, a policy that must be clear to its suppliers. After all, it is their reputation that is at risk, regardless of whether a third-party company was responsible for purchasing the cattle.
Supply chain transparency
Likewise, a lack of transparency in the supply chain can negatively impact a company’s reputation. Cases of slave labor are regularly reported in the media, and it is up to the Purchasing department to demand that its suppliers be socially responsible and guarantee the best working conditions for their employees.
Strict criteria must be monitored regularly while the company carries out independent checks on its suppliers to ensure that best labor practices are being strictly followed, and the supplier must be open to this monitoring being carried out and understand that they also have responsibilities.
A collaborative effort
It is important to understand that none of this is possible if the Purchasing department does not know the suppliers and share its risk management with them. Identifying risks can be a huge challenge when it involves suppliers of suppliers.
Therefore, risk management needs to rely on a collaborative effort, with information that needs to be shared throughout the supply chain and this sharing must be done as a two-way street, with suppliers themselves disclosing data about their supply chains.
In other words, risk management involves continuous work that requires the company to work to anticipate potential problems and avoid financial and reputational losses.
Obtaining accurate and reliable data helps companies reduce risks in their supply chains, and COSTDRIVERS has a complete platform for supplier management. Get in touch and get to know our platform.