How CPOs can lead their colleagues to better risk management

June 4, 2020
Risk is everyone’s problem

Risk is top-of-mind for just about everybody right now. In the midst of a viral pandemic that is affecting the entire world, it’s easy for some to forget that their countries—including the U.S.— are still embroiled in costly trade wars. That cybercrime is still rampant. That natural disasters still occur every day. And regulatory requirements aren’t going away. Pandemic or no pandemic, there is plenty of risk to go around and every department in every company needs to do its part to manage it.

Procurement is no exception. In fact, procurement professionals can play a major role in risk mitigation by setting an example. No other part of an organization has a better handle on risk up and down the supply chain. Procurement teams can provide the company with an incredible amount of insight, thanks largely to the strength of their leaders.

The best CPOs are masters of complexity, communication, and cooperation. And key to becoming a master of these three things is good use of data and digital technology.

Masters of complexity

Data is perhaps the most important tool for understanding sophisticated systems and processes. With good data and great analysis, CPOs can help manage risk for their organizations by cutting through the complexity of the supply chain—whether it comes from prices, market movements, stock levels, logistics, transport routes or beyond. Procurement leaders can use this data to analyze their company’s costs and processes, identify risks, and come up with ways to mitigate them.

For instance, good data makes it much easier to reduce obsolete items and improve replenishment cycles by identifying your company’s most frequently used items and finding alternate suppliers through strategic sourcing. This seemingly simple exercise can help mitigate a whole range of business risks associated with inventory management.

There are a number of other ways chief procurement officers can use data to help minimize risk in other parts of the organization. For instance, if you work at a manufacturer, you can use data to help your company identify changes in supply and demand for component purchasing and eliminate waste and errors. You can compare real-time pricing and availability, and integrate order accuracy and logistical costs to get a better picture of your company’s overall expenditure. By benchmarking performance against your peers, you can get a much more accurate view of spend.

Masters of communication

Procurement data isn’t just a bunch of prices, quantities and dates in a spreadsheet—or at least it shouldn’t be. Instead, it should be information that can be used to communicate intricate details about your organization. Put another way, data is a language common to almost all businesses—if the procurement team is fluent in that language, they have a way of speaking to other departments across the organization. Speaking “fluent data” is a way of getting a seat at the table with all departments and, in the process, earning their trust.

Developing and building relationships with other leaders in the company is a key skill for procurement leaders. Better mastery of communication will inevitably lead to better cooperation.

Masters of cooperation

As I said at the top of this blog, risk is everyone’s problem. So, it makes sense that every part of the organization—not just procurement—should be part of the solution.

With their mastery of complexity and communication, chief procurement officers can play a vital role in facilitating cooperation throughout the enterprise when it comes to risk management. And smart procurement leaders are already there; according to a survey of CPOs by Deloitte, some 59% of procurement departments are using their data and tech-savvy to help other managers in the business improve processes and help make strategic decisions. Automation can play a crucial role in helping procurement assist these other departments. Dashboards giving you a view up and down the supply chain can help you make sure you have information readily available to communicate to your peers in other departments.

But while many chief procurement officers might be using data effectively, businesses in general can do more to leverage their data. Research from Forrester has found that around 75% of all business data goes unused, and only about 50% of business decisions are made using data versus gut feel.

Every department leader needs to work together to mitigate risk. Whether it’s R&D or manufacturing, everyone has skin in the game, and every manager should know how performance and continuity of supply can affect not only their own departments, but also their company as a whole.

Mastering complexity, communication, and cooperation is never easy, but by working smart with the right data, procurement leaders can go a long way towards rallying their peers to help manage risk across the whole company.

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