Industrials

Top Procurement Risks And Mitigation Plan

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<p>What dangers does your supply chain face?</p><p>Here are some of the top procurement risks and action plans to mitigate them.</p><p>&nbsp;</p><p><img style="display: block; margin-left: auto; margin-right: auto;" src="https://kradminasset.s3.ap-south-1.amazonaws.com/ExpertViews/Manojpic1.PNG" alt="procurement risks" width="724" height="199" /></p><p>&nbsp;</p><h2><span style="font-size: 14pt;">Price Fluctuations&nbsp;</span></h2><p>Price risk means the risk of an unmanageable price increase. Many commodities, like steel, aluminum, food grains, etc., undergo price revisions from time to time. &nbsp;</p><p>It is the financial risk on an entity's financial performance/profitability upon fluctuations in the prices of commodities that are out of the entity's control as they are dependent on external factors, like demand-supply gap, forex changes, etc.&nbsp;</p><p>Fluctuations in commodity prices affect production costs, product pricing, profitability, earnings, etc.&nbsp;</p><p><strong>Supply Strategies</strong></p><p>Companies may use multiple suppliers to ensure competitive pricing and mitigate the impact of potential price increases or apply a collaborative partnership approach.</p><p>They may implement fixed-price purchase agreements or agreements with pre-agreed caps for price increases.</p><p>However, it is essential that there are at least two suppliers per commodity, and a strategic sourcing or vendor development team plays a crucial role in implementing this strategy.</p><p><strong>Financial Hedging</strong></p><p>An action that protects against adverse price movement to remove uncertainty. Finance plays a vital role here; however, close coordination with the supply chain team always helps finance, understand this risk and take steps.</p><p><strong>Demand Management </strong></p><p>One of the important actions under this initiative would be to obtain the quarterly sales forecast from sales, convert it into the partwise requirement with the help of design/application engineering and take advance procurement actions.</p><p>Reconstructing product BOM and reducing the use of the commodity is an alternative means of managing adverse price effects.</p><p>&nbsp;</p><h2><span style="font-size: 14pt;">Supply Chain Disruptions</span></h2><p>1. Pandemics<br />2. Natural Disasters<br />3. Transportation Failures and Delays<br />4. Cyber attacks</p><p><img style="float: left;" src="https://kradminasset.s3.ap-south-1.amazonaws.com/ExpertViews/Manojpic2.png" alt="Supply Chain Disruptions" width="725" height="498" /></p><h2>&nbsp;</h2><h2><span style="font-size: 14pt;">Inaccurate Forecasting&nbsp;</span></h2><p>Three steps to mitigate the challenge &nbsp;</p><p><img style="float: left;" src="https://kradminasset.s3.ap-south-1.amazonaws.com/ExpertViews/Manojpic3.png" alt="Inaccurate Forecasting&nbsp;" width="687" height="222" /></p><p>&nbsp;</p><h2>&nbsp;</h2><p>&nbsp;</p><p>&nbsp;</p><h2>&nbsp;</h2><h2>&nbsp;</h2><p>&nbsp;</p><h2><span style="font-size: 14pt;">Lack of Automation&nbsp;</span></h2><ul><li>Data is not unified, and processes are manually orchestrated</li><li>Tools are not customized to unique business needs</li><li>Unstructured solutions&nbsp;</li></ul><p>&nbsp;</p><p><img style="float: left;" src="https://kradminasset.s3.ap-south-1.amazonaws.com/ExpertViews/Manojpic4.PNG" alt="Lack of Automation" width="690" height="273" /></p><h2>&nbsp;</h2><h2>&nbsp;</h2><h2>&nbsp;</h2><h2>&nbsp;</h2><h2>&nbsp;</h2><h2>&nbsp;</h2><p>&nbsp;</p><h2><span style="font-size: 14pt;">Inaccurate Internal Need Analysis</span></h2><p>This step aims to benchmark current performance and then identify needs and targets to develop a procurement strategy.</p><p>This involves the collection of several different types of data. The purpose of collecting initial data is to benchmark current performance, resources used, costs for all the departments/functions in the organization, and current growth projections.</p><p>How to mitigate no supply chain risk management</p><p>&nbsp;</p><p><img style="float: left;" src="https://kradminasset.s3.ap-south-1.amazonaws.com/ExpertViews/Manojpic5.PNG" alt="Inaccurate Internal Need Analysis" width="687" height="135" /></p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p><p><span style="font-size: 10pt;"><em>This article was contributed by our expert <a href="https://www.linkedin.com/in/manoj-yermalkar-0363a319/">Manoj Yermalkar</a></em></span> &nbsp;</p><p>&nbsp;</p><h3><span style="font-size: 18pt;">Frequently Asked Questions Answered by Manoj Yermalkar</span></h3><p>&nbsp;</p><h2><span style="font-size: 12pt;">1. How do you identify risks in procurement?</span></h2><p>By value stream mapping the entire procurement chain and also creating end-to-end visibility, we can systematically identify risks in procurement.</p><p>&nbsp;</p><h2><span style="font-size: 12pt;">2. How do you prevent price instability?</span></h2><p>By taking multiple steps like demand management, advance procurement actions, creating vendor-managed inventory, and financial hedging.</p><p>&nbsp;</p><h2><span style="font-size: 12pt;">3. What are the constraints in a needs analysis?</span></h2><ul><li>Unavailability of required data</li><li>Unavailability of a proper scope</li><li>Lack of understanding of the perceived and expressed need.</li></ul><p>&nbsp;</p><h2><span style="font-size: 12pt;">4. What are the three basic elements of an automated system?</span></h2><p>In the context of an automated procurement system, the basic elements are as below :</p><ul><li>Drive to accomplish the process</li><li>Process/standard operating procedure</li><li>Controls</li></ul><p>&nbsp;</p><p>&nbsp;</p>
KR Expert - Manoj Yermalkar