Procurements Role in Integrated Risk Management

5/7/2018
Procurement’s Role in Integrated

Risk Management
Amy Fong
Principal & Senior Advisor
The Hackett Group
Supply risk management programs are designed to target several

complex factors
Principal Objectives of Supply Risk Management Program

(% ranking Med/High/Critical)
Ensure supply continuity 94%
Ensure supplier financial viability 91%
Ensure regulatory compliance 76%
Manage price fluctuations 24%
Mitigate geopolitical risks 15%

Risks are often interconnected, so mitigating an
early risk reduces the likelihood of further, more
significant impacts
© 2018 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 2016 The Hackett Group 2
1
5/7/2018
Procurement has been reactive to risk, and lacking resources, data,

and clout to drive real action
Principal challenges to establishing a supply risk management program
(% ranking Med/High/Critical)
Procurement is held responsible for supply

risk but lacks a mandate or resources to 94%
address the issues
80%+
Procurement mostly reacts to risk to ensure
regulatory compliance rather than get ahead 78%
of the problem are dissatisfied with
Procurement struggles to fund the supply risk their cost, quality, and access to data
"insurance policy" versus other "hard dollar 56% related to:
ROI" projects
Supply risk is too big a responsibility with too • Supplier performance details
many stakeholders and risk factors to 25% • Geography/ location-specific risk and
manage well
corruption reports
Procurement has not had major issues yet,
• News feeds
and until there is a significant event, will not 25%
invest seriously • Supplier stakeholder survey results
Procurement does not have an explicit
supplier risk measure as part of supplier 22%
scorecard
It starts with better use of data and analytics to effectively manage

suppliers, predicting and mitigating a many types of risk events
Internal ecosystem
FCPA, anti-bribery
FDA, ILS, EHS
Dodd frank, FFIEC
SUPPLIER RISK EVENTS

Suppliers and Sub-suppliers
Contractors (hourly)
Outsourcing providers
Other third parties
Taking advantage of new sources

of data, forecasting models have EXTERNAL MARKET EVENTS
improved An integrated
Joint ventures
view of risk
INTERNAL ORGANIZATIONAL
Alliances
But how do we apply that to our EVENTS

supply base?
TECHNOLOGY-RELATED
EVENTS
2
5/7/2018
Events with the highest risk exposure for all study respondents
1 Fiscal crises in key economies
2 Unexpected regulatory changes, non-compliance
3 Large-scale cyber-attacks
4 Environmental disasters (e.g., storms, floods, fires, power outages)
5 Supplier competitive events (acquisitions, mergers)
6 Purchase price escalation (including currency/inflation) effects
7 Price and supply volatility (sudden price and capacity changes)
8 Unfavorable currency movements
9 Loss/theft of sensitive/private data
10 Data loss/theft (i.e., the unauthorized modification or disclosure of confidential and/or personal information)
*Risk Exposure = (Probability * Impact) / Ability to Mitigate
Supplier risk events

High
Exposure of unacceptable supplier practices

Loss / theft of sensitive/private data
Quality failure leads to product recall or contamination

Supplier fraud
Supplier bankruptcy
Rapid degradation of overall supplier performance
Impact
Supplier competitive events

Failure of an outsourcing
Supplier relationship turns hostile strategy
Supplier unable to support introductions of new product/services

Supplier frequently enforces contract claims
Supplier unable to obtain trade finance
Low
Low Probability High
Events with the highest risk exposure (probability * impact)/ability to mitigate

3
5/7/2018
$500K is the median spend threshold that triggers a supplier risk

assessment; most reviews are conducted annually
Dollar amount that triggers a risk assessment Frequency of risk assessments
$1,000
19% 25%
6%
$500 6%
44%
$10
Once every 3 years Once every 2 years
Top Quartile Median Bottom Quartile Annually Every 6 months
Every 3 months
On average, it takes four days for companies to complete a supplier

risk assessment
Average number of days required to complete a supplier risk assessment
20
4
2
Top Quartile Median Bottom Quartile
4
5/7/2018
Key points in building risk management capabilities
Top 10 takeaways
1 Protecting supply continuity and ensuring compliance are the main drivers for investing in a supply risk management program.
2 Limited resources and the lack of a mandate are the main challenges.
3 Critical suppliers with high risk exposure trigger the majority of assessments.
4 Organizations are struggling to quantify the value that the risk management program brings.
5 Risk events related to privacy data are receiving an increasingly high level of attention.
Some practices are highly effective at mitigating risk. For example, setting spend thresholds and multi-sourcing reduce supplier bankruptcy
6
exposure by 90%.
In contrast, some practices are not as effective as expected. For example, supply chain network design does not appear to have an impact on
7
reducing exposure to supply disruption.
8 A wide range of technology solutions -- most commonly Microsoft Office -- support the risk management process.
A dedicated supply risk management team within procurement is increasingly common. Programs primarily leverage a fully centralized model
9
paid for by procurement.
10 The CPO has ultimate accountability for monitoring and reporting.
Contact information
Amy Fong
Principal & Senior Procurement Advisor
P2P Program Leader
afong@thehackettgroup.com
www.thehackettgroup.com
Amsterdam | Atlanta | Frankfurt | Hyderabad | London | Montevideo

Miami | New York | Paris | Philadelphia | San Francisco
Sydney | Vancouver
5
5/7/2018
PURCHASING SOURCE
34 Apps
INTELLIGENCE TO CONTRACT
TO BUILD YOUR
TAILOR MADE
ACCELERATE
IDEA TO PROCURE
PROCUREMENT
PRODUCT TO PAY
INFORMATION
SYSTEM
SUPPLIER
MANAGEMENT
11 | © 2018 Synertrade
Apps for your SRM needs
Accelerate Accelerate Accelerate Accelerate Accelerate Certificate

Supplier Self- Supplier Database Supplier Assessment Supplier Development Management
Registration
is the unique place allows you to is a collaborative tool for helps you collect, archive,
is an open and customizable where all the information collaboratively assess the implementing and store and follow the
web portal that allows new dealing with your performance of your monitoring any kind of expiration dates of your
potential suppliers to get in suppliers are suppliers thanks to web Procurement action plan supplier certifications and
touch rapidly with your consolidated and shared questionnaires sent to your related to your suppliers. important documents.
Procurement team and start with the Procurement internal stakeholders.
an on-boarding process. community. .
6
5/7/2018
Your Benefits
Increased supplier data

quality and accuracy Less time for Deeper relationship
onboarding
Facilitated
performance and
risk assessment
Improved
Easier collaboration at
compliance with
your policy each step of the Better risk
procurement process mitigation
Who We Are
RapidRatings is the global SaaS company

pioneering financial health.
We challenge leading commercial, industrial, and financial service
firms around the world to build business relationships founded on
new standards in financial transparency.
We offer clear, complete, and accurate knowledge of the financial

health of third-party partners, suppliers, and credit counterparties.
© 2018 RapidRatings 14
7
5/7/2018
Evaluating Financial Risk
Third Parties Bring Risk to Your Organization in Many Ways

Financial health reveals how well your suppliers are positioned to be a strong partner &
their ability to react to unforeseen events.
Cyber Attacks
Business Continuity
Natural Disasters
Financial
Brand Reputation
Geopolitical Risk
Financial Health: Key Risk Indicator
Risk Control Areas are Intertwined

Studies reveal companies with poor financial health experience
issues in supplier performance
8
5/7/2018
About EcoVadis – Solving the Challenges of Responsible Procurement
Buyers Suppliers
CO2 footprints
● Time‐consuming ● Duplicate efforts
● No reliable indicators ● No standards
● Not scalable ● Little feedback
A Fast-Growing Network of Buyers and Suppliers Aligned on Sustainability
280+ enterprises using ratings 47,000+ rated businesses
Overall 0 – 100 point

EV ScoreTM
Scorecard Themes:
Environment
Labor & Human Rights
Business Ethics
Sustainable Procurement
12,000 buyers ● ~1Tn$ spend 70% SMEs ● 190 categories ● 150 countries
9
5/7/2018
Delivering Clear Value for Procurement and Across the Business
Manage Risks Reduce Costs Increase Revenue
• Brand protection • Reduced administration • Product/service differentiation

• Supply chain disruptions • Vendor rationalization • Access to new markets
• Fines & litigations • Total cost of ownership • Drive innovation
NOW IS
THE TIME
WE ARE CREATING THE FUTURE
EcoVadis Confidential - Restricted Use (EcoVadis - XXX)
10

Procurements Role in Integrated Risk Management

Uploaded by

Copyright:

Available Formats

You might also like

Procurements Role in Integrated Risk Management

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Procurements Role in Integrated Risk Management

Uploaded by

Copyright:

Available Formats

5/7/2018

Procurement’s Role in Integrated

Supply risk management programs are designed to target several

Principal Objectives of Supply Risk Management Program

Ensure supply continuity 94%

Ensure supplier financial viability 91%

Ensure regulatory compliance 76%

Manage price fluctuations 24%

Mitigate geopolitical risks 15%

Procurement has been reactive to risk, and lacking resources, data,

Procurement is held responsible for supply

It starts with better use of data and analytics to effectively manage

FDA, ILS, EHS

Dodd frank, FFIEC

SUPPLIER RISK EVENTS

Other third parties

Taking advantage of new sources

But how do we apply that to our EVENTS

1 Fiscal crises in key economies

2 Unexpected regulatory changes, non-compliance

4 Environmental disasters (e.g., storms, floods, fires, power outages)

5 Supplier competitive events (acquisitions, mergers)

6 Purchase price escalation (including currency/inflation) effects

7 Price and supply volatility (sudden price and capacity changes)

8 Unfavorable currency movements

9 Loss/theft of sensitive/private data

Supplier risk events

Exposure of unacceptable supplier practices

Quality failure leads to product recall or contamination

Supplier competitive events

Supplier unable to support introductions of new product/services

Low Probability High

Events with the highest risk exposure (probability * impact)/ability to mitigate

$500K is the median spend threshold that triggers a supplier risk

Dollar amount that triggers a risk assessment Frequency of risk assessments

On average, it takes four days for companies to complete a supplier

Average number of days required to complete a supplier risk assessment

Top Quartile Median Bottom Quartile

Key points in building risk management capabilities

10 The CPO has ultimate accountability for monitoring and reporting.

Principal & Senior Procurement Advisor

P2P Program Leader

Amsterdam | Atlanta | Frankfurt | Hyderabad | London | Montevideo

Apps for your SRM needs

Accelerate Accelerate Accelerate Accelerate Accelerate Certificate

Increased supplier data

RapidRatings is the global SaaS company

We offer clear, complete, and accurate knowledge of the financial

Evaluating Financial Risk

Third Parties Bring Risk to Your Organization in Many Ways

Financial Health: Key Risk Indicator

Risk Control Areas are Intertwined

About EcoVadis – Solving the Challenges of Responsible Procurement

A Fast-Growing Network of Buyers and Suppliers Aligned on Sustainability

280+ enterprises using ratings 47,000+ rated businesses

Overall 0 – 100 point

12,000 buyers ● ~1Tn$ spend 70% SMEs ● 190 categories ● 150 countries

Delivering Clear Value for Procurement and Across the Business

Manage Risks Reduce Costs Increase Revenue