Effective Strategies to Minimise the Risks in the Procurement Process

It’s no secret that the procurement of goods is one of the riskiest and most difficult parts of doing business. However, this doesn’t mean there aren’t strategies that can help you deal with this. In fact, we’ve prepared a guide to effective strategies to minimise the risks in the procurement process to help you do that!

Implementing better forecasting

The first way to minimise the risks in the procurement process is to have better forecasting. One of the greatest risks is ending up with a bunch of products you can’t do anything with other than keep in storage! Unpopular stock is often disposed of and is a complete waste of whatever investment you put into it. This makes forecasting one of the most compelling reasons to study supply chain management. Thankfully, enhanced forecasting is easier than ever now with cloud-based logistics solutions. The fact that you can easily access the sale, transportation and warehousing data makes analysis software much more reliable. As such, it can, with higher reliability, predict which of your goods will continue to be popular. Thereby allowing you to avoid pointlessly wasting your resources and giving you ample warning when you should try to empty your inventory of certain stock.

Insisting on better coordination

Another way to minimise the risks in the procurement process also related to your stock quality is implementing better coordination. You see, due to a lack of proper communication between branches and even different warehouses of a company, you can often see a scenario where you end up with excess stock. After all, even if an item is extremely popular, you can only sell a certain volume of it before the market becomes temporarily saturated. Having too much stock might even negatively impact your profits! As such, ordering just the right amount is paramount. And the only way to ensure this is by making it possible for every employee in charge of acquisitions to easily check the stock of other warehouses! Without this type of coordination, accidents are bound to pop up occasionally.

Exacting supplier standards

Of course, yet another risk you face when procuring goods and a reason why the importance of quality service in global logistics is so high is getting subpar products handed to you. The only way to guarantee this won’t happen by tightening the standards you have for your suppliers. If you implement proper methods for picking out suppliers, you’ll be able to quickly discourage those who are less invested in ensuring the quality of their products. Airtight contracts and background checks will eliminate any possibility of running into scammers, too. More importantly, such a contract will make it much less likely that a supplier will feel comfortable allowing delays or problems to pop up on their end. As such, you can approach your cooperation with them more sincerely and with fewer hang-ups.

Going local

One of the biggest risks in the procurement process is your supplier failing to deliver. Now, what we just discussed before will do a lot to mitigate the chances of this. But it is still not always enough! Accidents happen, suppliers run into their problems, and a million other things can go wrong and temporarily shut down your supply lines. However, picking out local suppliers is one of the most useful parts of knowing about supplier management and best practices to follow that allows you to mitigate this. It is necessary to preface this by saying that it’s possible only for ‘smaller’ companies. If you service the entirety of the UK, it isn’t easy to find local suppliers who produce enough stock for your needs. Still, it is a fantastic choice for smaller businesses since it lets them avoid most potential problems.

Diversifying suppliers

A useful strategy to minimise the risks in the procurement process is to diversify your suppliers. After all, this is one of the best ways to improve your supply chain and enhance its robustness. Simply because even if one of your suppliers does encounter some kind of a problem, you will still have the others to fall back on. This does mean dealing with a larger number of suppliers, though. And it would, in turn, require your business to have better bookkeeping and supplier management. Still, the added security might be motivation enough to justify the increased workload.

Consolidating suppliers

In contrast to our last bit of advice, we have consolidated suppliers to minimise the risks in the procurement process. So, how exactly do the two work together when they are in direct opposition? Well, this comes down to what product your supplier provides you with. While it is wise to diversify your suppliers if they offer different products, having multiple suppliers for the same product can get very risky very quickly:

1. It would be best if you accounted for the potential differences in quality.
2. You must figure out optimal warehousing and whether to store the stock from different suppliers together or separately.
3. You must keep proper track of all the suppliers, which can become complicated if you have too many.

So, a middle ground between consolidation and diversification is needed.

Improving your relationship with suppliers

The final way to minimise the risks in the procurement process is to build a better relationship with your suppliers. Accidents are unavoidable, and something will go wrong eventually. So, getting your stock on time might come down to how much effort your supplier is willing to put in. They might feel compelled to prioritise their contract over yours if they have better customers than you. And if your relationship is bad, they will likely not put too much effort into fixing things quickly to get you your stock. On the other hand, closer cooperation guarantees you’ll get news of incidents quickly and that they will do everything in their power to mitigate the impact of any accidents on you.

The difficulty of avoiding risks

With our guide on the effective strategies to minimise the risks in the procurement process, you’ll make a lot of improvements. However, it is impossible to work out everything. As we stated before, accidents will absolutely happen. And when they do, it will be up to you and how well you work under pressure.

IoSCM Procurement and Purchasing courses are available at a range of levels to support every stage of your career and further the duties and responsibilities of your procurement department. From procurement training for beginners (covered in Levels 2-3) and advanced training courses (Levels 5-7); there’s online training for procurement and purchasing managers of all skill levels.