Procurement risk management in times of Corona
The topicality shows how important risk management is in international procurement. An Innosuisse project is currently developing a method for the early identification, assessment, control and monitoring of international procurement risks. The Swiss professional association for purchasing and supply management, procure.ch, supports this project.
Back in April 2019, procurement experts from 315 member companies of the procure.ch trade association responded to a survey conducted by the Graubünden University of Applied Sciences and the Bern University of Applied Sciences on the topic of "International Procurement Risk Management". Meanwhile, the logistics industry has been hit at its core by the Corona crisis. Take ComatReleco, for example, a leading global supplier of high-quality electromagnetic switches, relays and contactors of all kinds. Its main customers are railway manufacturers and automation suppliers. These manufacturers were hit hard by the Corona crisis because their main suppliers operate in China. Their production facilities were closed during Chinese New Year 2020 and subsequently for at least a month due to the crisis. As a result, ComatReleco was missing important parts in production and the company had to deal with supply bottlenecks.
New risk management method
A company survey conducted as part of Innosuisse's iBERIMA project confirms ComatReleco's experience: international procurement creates significant risks for Swiss companies - and almost half of the companies surveyed admit that their own procurement risk management is inadequate.
Based on this company survey, a risk management method was developed as part of the Innosuisse project that enables SMEs to identify, assess, control and monitor the risks of international procurement at an early stage. The process of such a systematic risk management starts with the prioritization of the purchasing parts. The parts are evaluated with regard to their influence on the company's revenue. Purchasing parts with a major impact are given a higher priority in risk management than less important parts. For the prioritized purchasing parts and their suppliers, the risks that can arise from cross-border purchasing are determined on the basis of a comprehensive checklist. The defined risks are then evaluated with regard to the probability of occurrence and the potential extent of damage. To control the risks, one of the four following control strategies is used: risk avoidance, risk reduction, risk transfer, risk assumption. Finally, the monitoring of procurement risks includes their regular review with the help of a data cockpit so that possible changes in the risk situation can be proactively incorporated into the risk management process.
Supported implementation
In order to support SMEs in the introduction and sustainable use of the risk management process, the development of a pragmatic IT solution is planned. In addition to risk management, this solution will also cover the entire purchasing process, as both areas are closely related. The aim is to ensure that the risk management tasks of identification, assessment, control and monitoring can be carried out with as little effort as possible while generating the maximum benefit for the company. After all, one finding of the project is that only a pragmatic and as lightweight as possible - but nevertheless comprehensive - risk management process will be used sustainably by companies. The IT solution will support the risk management process at the level of the purchasing departments. Risk management thus does not remain an abstract exercise, but can be used as a decision-making aid in the operative business. Risk mitigation measures will be the focus and will be integrated in such a way that their implementation can be easily tracked. A daily updated risk exposure, measured in Swiss francs, will be available to users. The comparison of this actual risk exposure with an automatically calculated maximum risk exposure enables companies to plan and initiate risk mitigation measures.
A major challenge in risk management is to learn at an early stage of the occurrence or increase of a risk. For this reason, external data sources are also connected to the IT solution and a high degree of automation is achieved for risk management. The planned IT solution will be implemented on the basis of an already existing purchasing solution. Companies can thus not only introduce risk management. They also get the opportunity to digitally support their purchasing processes.
Investment pays off
The Corona pandemic will not be the last crisis to affect the international supply chains of Swiss companies. Therefore, it is advisable to invest in an appropriate IT solution. (Source/First publication: procure.ch on 25.08.2020).
