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Risk management—particularly in procurement— has emerged as an important tool in the battle to achieve high performance.
Accenture and the Massachusetts Institute of Technology collaborated on research to understand procurement risk and how the masters get it right.
Risk has always been a fact of life for business, but there is consensus that it has increased in the wake of the 2008-10 recession. Managing risk has thus become a white-hot topic and, clearly, has become a prerequisite for high performance. And yet, Accenture believes, risk management remains largely restricted to the finance function. Few companies have translated their concern into a formal risk management strategy that spans functional areas, perhaps most notably procurement.
To investigate further, Accenture collaborated with Professor David Simchi-Levi of the Massachusetts Institute of Technology on research to answer three questions:
The joint research team received responses to an online survey from chief procurement officers at 127 global, industrial companies.
Accenture’s experience is that one of the most important elements of procurement mastery is a risk management framework. The research team further observed that procurement masters are significantly more likely to address supplier and price volatility when developing their procurement strategies, as opposed to doing so afterwards.
Another contributor to procurement mastery is the integration of risk management initiatives into the strategic sourcing process. Masters of risk management also tend to be supplier relationship masters who form deep, symbiotic relationships with suppliers, and collaborate with them to detect risk rapidly.
When it comes to workforce and organizational matters, the research shows that most companies do not assign procurement professionals to risk management work full time. Nevertheless, procurement masters are more likely to have developed a regionally-dispersed but centrally-led procurement risk management framework.
A final point is that procurement masters are smart about choosing the right risk management tools and technologies—in fact, this ability could be said to distinguish high performers from the rest of the pack.
The research team concluded that:
Team members further concur that excelling at risk management contributes significantly to a company’s achievement of procurement mastery—the ability to maximize the savings that a procurement organization generates relative to its costs. Procurement risk masters also tend to be particularly proficient at using specially developed risk-focused tools and services. Perhaps the best example is predictive analytics: Masters continuously monitor moves in raw material prices, forecast them and use technology for fast scenario-planning.
Contact us to discuss how to apply these research findings in helping your organization develop a risk management strategy that underpins high performance.
July 20, 2010
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