Supplier Prioritization and Risk Management in Procurement

Abstract

People analyze risks and task corrective actions to reduce the severity. But, in supply chain, risks cannot be eliminated, only reduced. Traditionally, supply chains involve three sub-sections, procurement, processing, and distribution. While processing is in-house; distribution and procurement are critical, and any issue there affects the whole supply chain. Therefore, resources are deployed to make them resilient and minimize impact. Procurement is defined as a process of buying goods and services. A procurement strategy needs to maintain a balance between the risks involved and create a win–win situation for both the organization and supplier. Since it involves decision-making at all levels and can affect every part of the organization, procurement strategy must prioritize risk mitigation to maximize its efficiency and efficacy. Hence, supply chain departments must realign their approaches to include evaluating suppliers, paying premium prices for raw materials, redefining product characteristics, identifying alternate suppliers globally, developing sources in the vicinity, changing logistics, outsourcing technology, and so on. This paper attempts to showcase how supply chain risks can be minimized using a structured approach, which includes supplier prioritization followed by risk management techniques, assessing impact, and creating a contingency plan to eliminate risks. A real case is presented in which the structured approach is discussed to mitigate risks in the nascent stage itself.