The Power of Procurement - The importance of supply chain risk management 

Richard Nixon, Partner, KPMG in the UK: The importance of supply chain risk management cannot be understated. Equally, it’s one thing for procurement people to think about the cost savings they can deliver, but if you have a supplier fail, the cost to your business in terms of disruption and finding a solution will be absolutely massive and it will draw on skills and challenges that you may not have within the business. And, I think it’s just going to be an ongoing reality of business in the future that suppliers, you know, won’t deliver on their promises, that some suppliers will go out of business and that procurement people have really got to think about those issues and know how to deal with them and develop the tools and the techniques to address those situations as and when they happen. And it’s not an ‘if’, it’s a ‘when’.

Charlie Whitworth, Senior Manager, KPMG in Canada: I think supply chain risk is increasingly important for a procurement function, partly because supply chains are becoming more and more extended. And it may well be that the organisation themselves are not extending the supply chain, but their suppliers are.

Ray Slayford, Partner, KPMG in Australia: I think procurement functions have traditionally focussed their attention on delivering cost reduction and value back to an organisation. Risk is not a natural area where procurement functions will naturally focus their attention. So they will focus attention on risk at point of contract negotiation and writing the contracts and managing new supply arrangements. However, the actual management of risk in the more sort of elongated end-to-end supply chain is not something that procurement functions have traditionally undertaken. So, I think going forward they need to improve their skills and their actions in end-to-end risk management.

Michael Pleuger, Senior Manager, KPMG in Germany: So I guess it’s about a structured information gathering of early warning indicators that are available throughout the organisation across functions. For example, the accounts payable staff know how often a supplier calls and asks for early payment. An engineer in new product development knows how many milestones cannot be held by the supplier in new product development because he is not investing enough money into this process. And, also the logistics people know how often express logistics is required to deliver parts to the production line. So, I guess the solution is to implement a robust process that is gathering all this information, all these early warning indicators from all over the organisation and assessing this information in a consistent way to make it available to assess the future performance and thus, the future financial stability of the suppliers.