2020 has been a wake-up call for companies–especially those in the procurement department. Reducing costs and controlling spend have always been the main drivers for that business function, and will remain, but with the economic impact of a global pandemic putting pressure on a lot of organizations, procurement leaders have shifted their focus to supplier management to help mitigate supplier risks.
For many in the procurement space, this is a new strategic area that they have yet to become well-versed in. In a recent Deloitte CPO Survey, only 37% of participants reported that they felt well equipped to manage their supplier risk. That said, here are four steps every procurement team should consider when trying to optimize supplier management while mitigating risk:
Some suppliers play a more critical role in your organization than others and require a higher level of engagement. By classifying suppliers into different segments of priority, your organization can:
Now, there are various ways that organizations can segment their suppliers. One of the tried-and-tested ways to segment suppliers is by using the Kraljic Matrix. The model was created by Peter Kraljic back in 1983 and it takes into consideration the importance of risk and the impact it has on your business’s profits.
Many risks can affect supplier management, whether it’s natural disasters or even risks from the supplier. Although it is hard to predict what type of risk may affect your business tomorrow, it is key for procurement organizations to be proactive and develop a playbook or a contingency plan for suppliers that can pose a risk to minimize the impact. These plans could include alternative sources of supply or a second source of manufacturers. Some possible questions that your organization should ask when creating these plans are:
Procurement organizations should assess their global value chain and look at their critical nodes and tiers. For example, if your company has moved some of your operations offshore, you should consider if there is an opportunity to bring your operations back to your home country. Not only could this potentially increase savings, but it can also decrease your organization’s exposure to risk.
As supplier risk management becomes an increased priority for procurement, many organizations are still behind when it comes to using a modern solution. Implementing an automated solution that provides insights to enable real-time, data-driven decision making and increases supplier collaboration, provides organizations with the agility they need to mitigate risk and create a strategic path.
Implementing a supplier qualification solution provides organizations with the insight they need into their qualification activities and also highlight the areas that require attention, such as requalifying suppliers. Oracle Supplier Qualification Management Cloud provides users with a systematic way of qualifying suppliers. The solution uses an online survey mechanism that is completely customizable to organizations’ specifications, allowing users to collect the necessary information they need to qualify their suppliers. Internal stakeholders can weigh in on the assessments, allowing them to provide feedback on their experience working with a specific vendor and score suppliers. Users receive automatic alerts when a qualification is about to expire and all of the supplier information becomes part of their profile, ensuring they have the most up to date information for their suppliers.
Managing contracts is also a critical task as it creates a barrier against risks because of the language within it. Oracle Procurement Contracts Cloud guides users through a step-by-step process to standardize contracts that are specific to an agreement and supplier type. The clause library provides pre-approved language that has already been approved by their legal team to help streamline the drafting process and ensure compliance. During the negotiation process, suppliers can download the contract in Word so they can easily evaluate and make edits to the contract. After, users can upload the contract back into the solution, where it automates and analyzes the redlining by highlighting any deviations that were made to the document, so users can focus on the areas that have been edited on the contract to easily review and sign off.