Kronos Group

Proven measures for procurement risk management that every organisation should be aware of


The management of procurement risk requires organisations to focus their efforts on many aspects of their operations.

The first measure is to conduct a risk assessment to identify vulnerabilities which will allow organisations to spot potential areas from which procurement risk can arise.

Organisations should also carry out due diligence before supplier selection and should document terms agreed upon with suppliers by taking steps to enforce contracts post-negotiation. Moreover, for continuous improvement, they should engage in ongoing supplier management and keep systems and procedures updated.

The prevention of procurement risks can be enhanced for organisations that undertake compliance management and actively implement technology solutions to enhance compliance and provide alerts on any potential breach while eliminating risks due to human error in some aspects.

The management of procurement risk is an essential aspect of any organisation’s risk mitigation operations—particularly for organisations that deal with numerous suppliers and vendors. In the modern business landscape, businesses should be aware of the most effective measures for the management of procurement risks. 

Organisations have the potential to face procurement risks, such as supply chain disruptions, vendor fraud, and compliance issues at any time if unmanaged. Therefore, organisations must implement measures for the management of procurement risk to protect themselves from these risks. 

To mitigate these risks, organisations need to implement measures that help to identify and manage procurement risks effectively. 

In this blog post, we will discuss some of the essential measures for managing procurement risk that every organisation should be aware of.

Conducting a risk assessment to identify vulnerabilities

Often, the initial step in procurement risk management is to assess the risks associated with procurement. 

This involves identifying the potential risks and their impact on the organisation’s operations. The risk assessment process should be comprehensive and cover all aspects of procurement, including supplier selection, contract negotiation, and ongoing supplier management. 

A risk assessment should also consider the likelihood of a risk occurring and the severity of its impact. Based on the risk assessment, organisations can develop a risk management plan that outlines the measures to mitigate each risk.

Carry out due diligence before supplier selection

Supplier selection is a critical aspect of procurement risk management. Organisations should carefully evaluate potential suppliers before entering into a contract with them. 

This includes conducting due diligence on suppliers to assess their financial stability, reputation, and compliance with laws and regulations. Organisations should also consider the supplier’s ability to deliver goods and services on time and to the required quality standards. 

Supplier selection should be based on a thorough evaluation of each supplier’s capabilities, performance history, track record, and potential risks.

Enforce contracts post-negotiation

Contracts play a crucial role in procurement risk management. The contract should clearly define the goods and services to be procured, the delivery schedule, and the price. 

The contract should also include provisions that protect the organisation from potential risks, such as warranties, indemnification, and limitation of liability clauses. 

Organisations should also consider including clauses that require suppliers to comply with laws and regulations and to provide regular reports on their performance. Contract negotiation should be conducted transparently and collaboratively, with both parties working to achieve a mutually beneficial agreement.

Engage in ongoing supplier management

Supplier management is an ongoing process that involves monitoring and evaluating the performance of suppliers. Organisations should establish metrics to measure supplier performance, such as on-time delivery, quality of goods and services, and compliance with laws and regulations. 

Regular supplier performance reviews should be conducted to identify areas for improvement and address any issues that arise. 

Organisations should also maintain open communication with suppliers to ensure that they are aware of the organisation’s needs and expectations. Effective supplier management can help to mitigate procurement risks and ensure that the organisation’s procurement needs are met.

Undertake compliance management

Compliance with laws and regulations is a critical aspect of managing procurement risk. Organisations should establish policies and procedures that ensure compliance with relevant laws and regulations, such as anti-corruption laws, trade sanctions, and environmental regulations. 

These policies and procedures should be communicated to all employees and suppliers involved in the procurement process. 

Organisations should also conduct regular compliance training for employees and suppliers to ensure that they are aware of their responsibilities. Compliance management can help to mitigate legal and reputational risks associated with procurement.

Implement technology solutions

Technology solutions can help mitigate procurement risks by improving visibility and control over the procurement process. Organisations can use procurement software to automate procurement processes such as purchase order creation and supplier performance monitoring. 

Procurement software can also offer real-time visibility into procurement activities, enabling organisations to identify potential risks and take action to mitigate them. 

In addition, organisations can use data analytics tools to analyse procurement data and identify patterns and trends that may indicate potential risks. Technology solutions can help organisations to manage procurement risks more effectively and efficiently.

Take the first step towards complete procurement risk management by partnering with a procurement specialist

All aspects of procurement risk management can be greatly enhanced by partnering with a specialist with expertise and experience in the area of procurement.

Initiate your efforts for managing procurement risk more effectively by partnering with a professional provider that has a great reputation and solid track record of demonstrated success in uplifting the procurement practices of organisations like yours.

Julie Brand

A part of Kronos Group’s team since 2018, Julie is a leader who has honed her specialisation in business transformation and utilised her expansive financial expertise to power business strategy and add value to what we do. She has amassed experience (Pfizer, Sony, AXA, SMEC, Tradelink) all over the world in strategy, project management, analysis, and supply chain.