The document provides an overview of procurement risk management. It discusses the basic approach to risk management including identifying risk areas, avoidance, reduction, sharing and mitigation. It also covers supplier risk events, taking an integrated view of risk across the supply chain, and the benefits of risk management services. The document outlines the key steps in a procurement risk management program and challenges to establishing such a program. It provides recommendations on mitigating supplier risk and protecting the supply chain.
2. 2
Basic Approach to
Risk Management
Supplier
Risk Events
Integrated
View of Risk
Procurement Risk
Management Program Steps
Risk
Management Process
Challenges to establishing a Risk
Management Program
Mitigating the Supplier Risk
and protecting Supply Chain
Conclusion &
Recommendations
Benefits of opting for Risk
Management Services
Content
3. Basic Approach to Risk Management
3
Strategic
Compliance
Financial
Operational
Identify areas of Risk
Risk avoidance
Risk reduction
Risk sharing
Risk Mitigation
Disruption in upstream suppliers
Geo-political risks
Commodity risks
Currency risks
Corrupt practices
Force majeure
Bankruptcy
Legal issues
Environmental issues
Labour issues
Identify Critical Risk
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Risk management should be a continuous & evolving process that addresses all the risks associated with the organization’s past, present & future activities.
Some global companies have developed in-house risk management departments establishing specific objectives pertaining to their organization & have aligned the risk management initiative
to meet the organization’s business goals.
4. Integrated View of Risk
4
FCPA, anti – bribery
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Technology – related events
Internal organizational events
External market events
Supplier risk events
Suppliers
&
sub-suppliers
Alliances
Joint
ventures
Outsourcing
providers
Contract
(hourly)
Other
third
parties
Internal Ecosystem
An
Integrated
View
of
Risk
As an integrated view of risk takes root in more businesses, executives are thinking more broadly about the risks their company faces. Many of the most significant ones
are driven by relationships with other entities, such as service providers, alliances and joint ventures
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5. Supplier Risk Events
5
Supplier inability to support
new product/service
introductions
Supplier inability to
obtain trade finance
Cost
Service
Response time
Rapid degradation of
supplier performance
Violations of immigration law
Sweatshop conditions
Unsustainable environmental
waste
Tax evasion
Unacceptable Supplier
Practices
Unmet expectations on costs
Customer satisfaction
Productivity
Quality
Failure of an outsourcing
strategy
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6. Benefits of opting for Risk Management Services
6
Greater lead time in the event of a risk materializing
Central platform for all the information
Minimize downtime & increase preparedness in the event of a disaster
Monitor the effectiveness of the program
Understand future risk
Reduced Cost
Eliminates training cost – by managing risk with ready – trained skills & proficient personnel
Readily available information – risk management firms have access to experts who are spread across
the numerous industries & who provide their expertise real-time
Risk management tools – developing in house or acquiring external tools for monitoring risk effectively
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7. Step 1 Establishing the overall goals of the program
Step 2
Gathering the data needed to manage the process (e.g., supplier spend levels, performance
data, price & cost trends, demand forecasts, upcoming contractual milestones).
Step 3 Monitoring the supply base for problem & opportunities.
Step 5 Prioritizing risk mitigation efforts by segmenting supply categories by complexity & importunate.
Step 7 Measuring overall risk exposure level, taking into account the maturity of the market, complexity of the solution, etc.
Step 9 Refining the plan through consideration of the impact of knows events
Step 4 Creating mitigation plants for the types of events that might leave the company exposed.
Step 6 Identifying potential risk events by supply category.
Step 8
Assigning a monetary value to the potential impact of each risk event (e.g., margin at risk, cost of
lost productivity, cost of schedule changes.
Procurement Risk Management Program Steps
7
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8. Risk
Evaluation
Identification Critical
Categories & Suppliers
Business
Continuity Plans
Continuous
Monitoring
Risk Management Process
8
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9. Overview of the Process
9
Identification of critical
categories & suppliers
Financial impact
Supply dependencies
Source of competitive advantage
Risk evaluation
Supply chain mapping & risk analysis
Supplier risk analysis
Disruption monitoring
Business continuity plans
Alternate sourcing locations
Alternate supplier identification
Continuous monitoring
Real time or periodic monitoring of
suppliers, category & other supply
chain entities
Beroe
Risk Management
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10. Identification Critical Categories & Suppliers
10
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Low High
Low
High
Supply Complexity
Profitability
Impact
Medium critical categories
Commodity high profitability impact
substitutes available many
equivalent suppliers
Medium critical categories
Unique product specs limited supply
base difficult to substitute limited
profitability impact
Highly critical categories
High profitability impact unique product
specs critical technology limited supply
base difficult to substitute
Low critical categories
Commodity substitutes available
many equivalent suppliers limited
profitability impact
Supplier
criticality
criteria
Total Supply Base
Medium critical
suppliers
Highly
Critical
suppliers
Low critical
suppliers
11. Risk Evaluation
11
Supply chain mapping & assessment of following parameters across all
the tiers
Supply chain mapping & risk
analysis
Supply & price risk of downstream raw materials Key risks in the supply chain
Risk from alternate demand segments Critical lower tier suppliers
Geographic dependency risks Critical lower tier materials
Your text here Critical sourcing locations
Your text here Critical logistics hub
Supplier risk analysis
Your text here Key risks faced by the supplier
Historical supply disruptions & impact
Financial & qualitative risk score with the supplier categorized into low, medium or high
risk bucket
Risk management practices with respect to raw material price volatility, interest rate
fluctuations, currency rate fluctuations etc
Your text here
Adherence to quality standards Your text here
Your text here Your text here
Your text here Your text here
Disruption monitoring Monitoring of suppliers & supply chain entities Real-time or periodic alerts on disruption or supply market developments
Risk Evaluation Key Outputs
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12. Business Continuity Plans
12
Following the risk evolution phase, business continuity plans can be created based on the risk profile of supplier for
mitigating risks. The business continuity plans cover alternate sourcing locations & suppliers based on the requirement
of the business. Some of the criteria used fir shortlisting alternate suppliers or sourcing locations are listed below
Alternate sourcing location
Regional production volumes
Net exports volumes
Business environment
Macro-economic scenario
Your text here
Your text here
Availability of grade/service level
Available capacities
Comparative risk
Your text here
Your text here
Alternate supplier identification
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13. Continuous Monitoring
13
It involves real-time or periodic tracking of the critical
supply chain entities for developments. This in addition to
improving the visibility also enable the companies to
reduce the ‘Time to Respond’ & ‘Time to Recover’ in
case of any supply disruption. It would also help in
building intelligence on supply markets
Critical supply market developments
Supply chain entities
Critical suppliers
Critical low-tier suppliers
Critical logistic hubs
Critical sourcing locations
Monitoring
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14. Challenges to establishing a Risk Management Program
14
Procurement is held
responsible for supply risk
but lacks a mandate or
resources to address the
issues
Procurement does
not have an explicit
supplier risk measure
as part of supplier
scorecard
Procurement has not
had major issues yet, &
until there is a
significant event, will
not invest seriously
Procurement struggles to
fund the supply risk
“insurance policy” versus
other “hard-dollar
ROI”projects
Supply risk is too big a
responsibility with too
many stakeholders & risk
factors to manage well
Procurement mostly
reacts to risk to ensure
regulatory compliance
rather than get ahead of
the problem
85% 65% 55% 45% 35%
25%
30% 26% 22% 19% 12%
5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Critical challenge Major challenge
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15. Integrate risk mitigation and dependency into the sourcing process
Certify
Choosing a supplier has inherent risk. A strong sourcing process mitigates that risk, and
incorporating risk into your current metrics can help ensure that suppliers coming into your
organization can meet business requirements and will be able to successfully deliver their
product or service
Identify the suppliers that have the most impact on your business
Monitor
Not all suppliers are of equal value in your supply chain. Stratify them into categories that
make sense for your business
Enrich internal data with third-party information to increase visibility
and create actionable intelligence
Analyze
Technology in today's marketplace combines the data automatically to reduce the amount
of time and resources required to manually analyze and create reports
Develop disaster recovery plans in the event of supplier failure
Mitigate
One cannot predict supplier failure with 100 percent certainty. But one can protect your
business by planning for it. Proactively prepare for these potentially damaging supplier
disruptions by having alternative source strategies in place. Develop supplier contingency
plans by documenting competitive suppliers and continually researching for new suppliers
Mitigating the Supplier Risk
and Projecting Supply Chain
15
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16. Identify and leverage the
burning platform
This helps obtain support from the
business for the new or revised
process, whether it’s safety,
security or some type of business-
continuity platform
Measure and monitor the
changes and benefits from the
new process
Make sure to document successes and
use them to continue the momentum.
Again, make sure that the measurement
systems are updated in order to keep risk
management top-of mind
Use supply intelligence and
scenario planning
These tools identify the universe of
potential supply-risk events (including
both frequency and severity. Formally
document the findings and, more
important, ensure that key stakeholders
understand and accept the findings
Identify potential risk
mitigation and contingency
steps required
This will help avoid or at least
minimize the frequency and severity
of the risks. Know the risk position
and associated costs by developing
options with associated timelines,
resourcing & costs
Conclusion & Recommendations
16
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18. Coffee
Break
18
We’ll come Back In 10 Min
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20. Area Chart
20
0
10
20
30
40
50
60
70
80
90
100
FY '13 FY '14 FY '15 FY '16 FY '17 FY '18 FY '19
Sales
In
Percentage(%)
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Product 01
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select “Edit Data”.
Product 02
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21. Column Chart
21
1
1.5
2
2.5
3
3.5
4
5
6
0
2
4
6
8
10
2011 2012 2013 2014 2015 2016 1017 2018 2019
Expenditure
In
($
Billions)
Years
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Product 01
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changes automatically based on data. Just left
click on it and select “Edit Data”.
Product 02
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23. 23
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Mission
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Vision
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Goal
Our Mission
24. Valued Clients
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Target Audiences
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Preferred by Many
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About Us
24
25. Name Here
Designation
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Name Here
Designation
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Name Here
Designation
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Our Team
25
26. 26
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Goal 1
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Goal 2
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Goal 3
Our Goal
27. Financial
27
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Maximum
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Minimum
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Medium
50% 70% 90%
28. 28
Idea Generation
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01
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02
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03
29. Puzzle
29
01
04
03
02
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30. Venn
30
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0
1
0
2
0
3
0
4
31. Timeline
31
201
6
201
7
201
8
201
9
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32. Swot
32
Strengths
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S
Weaknesses
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W
Opportunities
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O
Threats
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T
33. Magnifying Glass
33
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35. Comparison
35
Maximum
90%
Minimum
45%
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36. 36
Mind Map
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