How to manage procurement risks

Proactive management of procurement risks helps protect an organization’s reputation, keep its supply chain intact, and stabilize its financial position. It is a critical component of supply chain resilience, which includes activities such as identifying inherent risks through real-time monitoring, thoroughly assessing them, and developing mitigation strategies. Technology tools can also help with proactive risk management.

Procurement leaders can begin by mapping out all potential risks in the procurement process, including supply chain disruptions, price volatility, financial risks, quality issues, cybersecurity threats, and ethical considerations. Once risks are identified, it is essential to evaluate the likelihood of their occurrence and assess the potential impact. This helps focus on high-impact risks that have a high probability of occurring.

Now that risks have been identified and evaluated, it is time to develop risk mitigation strategies, such as diversifying suppliers, contingency planning, optimizing contractual clauses, supplier development, hedging, and insurance. After implementing risk mitigation strategies, stakeholders must continuously monitor and review risk management plans to ensure optimal performance.