The Procurement Function and Risk
In the coming years many organizations will start to better manage their risk. Financial risk management begins and ends with trying to create value for a firm to manage a business’s exposure to risk. This means being able to identify risk, measure the impact, and develop strategies to minimize an organizations exposure to risk. The procurement function within organizations can provide valuable insight into risk management. Having a system to properly track, measure, and report upon procurement processes will allow companies to collect quantitative data that naturally exists within organizational purchasing.
The procurement process can become a powerful tool to recognize, analyze and develop strategies to steer an organization away from the pitfalls of unnecessary risk. Proper risk management will allow companies to develop policies that account for better cost savings, establish stronger suppliers and recognize issues long before they become major problems to the supply chain. Without leveraging the procurement process and tracking the data that naturally occurs with purchasing, many companies will experience missed opportunities to improve upon their inefficiencies. These inefficiencies are often the difference between profitability and loss.
Procurement Analytics: Untapped potential
The procurement process is often a neglected area when it comes to most businesses. We can probably blame the lack of proper procurement processes within organizations on nature. Newton’s Laws of Motion states that an object will remain at rest unless acted on by an external force that provides enough of a push to get it moving. Many companies only see the headache that can come with the initial implementation of a properly functioning procurement process. The failure to see beyond the status quo and make positive changes might be the biggest detriment to a company’s growth.
With the right tools and the right people the procurement process can provide unique and significant data to reveal saving opportunities within organizations, establish favorable suppliers, and reduce procedural inefficiencies. These improvements will lead to better purchasing decisions, more streamlined supply chain and approval processes, and real potential for improvement to the bottom line. A lot of companies have real and glaring gaps to their procurement process but are unwilling or uninformed to make the necessary changes to improve.
Companies are usually focused on revenue and keep a close eye on deadlines but fail to recognize the positive effects that cost management and process adoption can often provide to their organization. With technological advances, the right solution does not even need to be overly expensive or require extensive adaption. The time required and cost to implement solutions have dramatically gone down because of the advent of SaaS and cloud based software. For companies looking to make a change the first step usually comes down to finding the right tool.
Three Steps to Better Procurement Practices