The future of risk management in procurement
KGM Strategy study results & recommendations for action
Whereas in the past the main task of procurement was to save costs, today other aspects are coming to the fore as a result of politics, the markets and society. The requirement is to offer products and services that are, above all, reliably available and ESG-compliant. In today‘s globally networked and volatile times, it is hardly possible to operate entirely without risks. But how can risks be managed, minimized or, at best, prevented? What role does procurement play in this?
What role does procurement play in this?
Since the beginning of the pandemic, disruptions in the supply chain have become almost part of everyday life for many companies. Due to its direct contact with suppliers and its central function in the supply chain, procurement has a leading role in the active management of these risks. For around seven years, KGM Strategy has been investigating how risk prevention and intervention measures are developing. What has changed or what should change?
The pandemic has revealed: Only companies that are aware of their risks and their effects, i.e., that have full transparency of their own supply chain, continuously monitor risks and analyze them with specialist departments and suppliers, can survive successfully. Digital tools and systems make the decisive difference here. They are the basis of modern, strategic risk management in order to be able to act quickly; for example, if the standstill of the company’s own production is threatened due to geopolitical crises or violations of human rights and environmental standards. The latter have come particularly to the fore in connection with supply chain legislation such as the German LkSG which came into force in January 2023.
The majority of participants in the KGM Strategy Risk Management Study in the fall of 2022 had experienced unexpected delivery failures: In the last six months, 72% of around 120 respondents were affected. Securing supply therefore remains the top priority in procurement, followed by price risks and cost pressure from rising energy prices. Companies are still primarily concerned with “putting out fires” instead of investing in “fire protection” in the long term.
It is therefore all the more important that risk management is now permanently given a central place in the company and that the learnings of recent years are anchored in the operating model: Be it the establishment of a risk control tower – which requires the digitization of risk management – or a dedicated person responsible for the topic.
In addition to the core results of the latest risk management study, this white paper explains in four steps how to set up a professional risk management process in line with the times.
White Paper “The future of risk management in procurement” Preview
Below you can download our latest risk management study free of charge: