Assessing and Mitigating Risks in Procurement
I was very fortunate to spend some time “down under” in Australia recently and it made me think about assessing and mitigating risks since I enjoyed some trips into remote areas.
Fin was a local tour guide who taught me and the rest of my group how to know what risks are reasonable to take in the “bush”.
Many areas of Australia are so beautiful that it is easy to forget the danger.
Some quick examples:
- Australia is home to 21 of the 25 most venomous snakes in the world – Fin advised us to be vigilant on all hikes and wearing appropriate clothing is essential. Wandering off established paths can increase the risk of a snake bite dramatically. The good news is that there are many effective anti-venoms available.
- The salt water crocodile is a very dangerous predator. Fin advised us to never swim at night or if the water is cloudy, or if there are warning signs about sightings. Sounds like common sense but unfortunately people don’t always use it. Recently, two people went swimming at night and one paid the ultimate price.
When evaluating suppliers, I believe we need to be vigilant and keep our eyes open for performance warning signs.
Here are some questions and observations for your consideration:
How long has the supplier been in place? There can be a tendency to overlook performance issues when there is a long-term relationship. The expectation is that asking them to address the issues will suffice since they have responded in the past.
What percentage of the supplier’s revenue does our business represent? If your business is no longer important overall or to a business segment, you may not get the service or performance you once enjoyed.
Have you asked for a concession recently and had the request ignored or rejected? This could be an indication that they may be struggling financially and are unable to shave their margins.
Have they provided any ideas that would improve service or product performance? They might not be investing anything into this product or service especially if this is a shrinking part of their business.
How many other qualified suppliers have approached you about this product or service? Technological innovations can make the “old way” of doing things obsolete. Investigating alternatives can uncover a better way or leverage in negotiations with the incumbent.
Are corrective action requests languishing or glossed over? This is another potential warning sign of financial issues. They may not have the resources to make changes or maybe they don’t care if you take your business elsewhere.
Has the volume of complaints from stakeholders increased? It is difficult for a supplier to maintain service levels if they are experiencing turnover. This is a good topic to explore with stakeholders to determine the root causes.
Mitigating risk is a full-time job. We don’t always have the time to do it the way we would like.
Look for the warning signs and be prepared to investigate alternative suppliers especially if the service or product is important to your organization.
Ask better questions, make changes and 2018 will be your best year ever.
Action Step: If you are uncertain where to start the process of change, a procurement professional like myself can provide guidance and expertise to help your organization achieve the results you want.
If you want to go explore this topic in greater detail, please contact me. I invite you to request 30-minute discovery conversation. In my experience the next step will be apparent at the end of the call. I never assume that what I have to offer will be right for everyone, so don’t expect a sales pitch. You can reach me at 973-936-9672.
If you would like to know more ways to reduce costs without changing the way you do business, simply give me a call or send me an email with your contact information and the best time to reach you.
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Until Next Time, I Wish You Great Success in Your Business and in Your Life