Increasing Procurement’s Risk Agility with a Silver Lining Strategy
Being the good process stewards that we are, procurement never just focuses on one topic. Instead we dynamically map how that topic interacts with the rest of the operation. Enterprise risk provides the perfect example. We don’t talk about risk, but rather risk management, risk assessment, or risk mitigation. Procurement is a function in motion – always driving forward towards the next objective.
When you look at the three verbs most commonly associated with risk – management, assessment, and mitigation – it is clear that risk is perceived as something to be avoided. Procurement’s primary objectives are to minimize the cost and operational impact associated with risks that materialize, and to put plans in place for risks on the horizon. Risk is bad, and we’re going to do our best to keep an eye on it.
What if, however, procurement was able to look at risk with a neutral eye? In reality, risks are things that we think might happen, or that are completely unexpected. We have to respond to these events and circumstances in the most optimal fashion possible. A risk is anything that causes us to deviate from ‘the plan’ and that can be unpleasant. Traditional risk management is aimed at increasing predictability and certainty because it is easier and more comfortable to make business decisions in known circumstances.
If predictability is the ultimate goal, procurement would also have to look at a surprise win or an unexpected opportunity as negative, and there is no way we should be willing to do that.
The reason our point of view is important is because an instinctively negative risk response is likely to constrain the options we consider in response. When risk is bad, we focus our efforts on getting back on track or returning to normal, reaching the point in the plan we would have occupied, if this or that lousy thing hadn’t happened.
A silver lining strategy to risk response introduces entirely new options. A potential or realized risk may shift the playing field in a way that renders (or should render) the old plan obsolete. Procurement’s response should not be to lament the change and fight to recreate the anticipated status quo, but to demonstrate agility and develop a new plan that seizes the advantages of the altered business environment better and faster than the competition.
Here are some examples of how procurement can actively engage in a mind-shift and implement a silver lining strategy in response to risk:
Don’t think: Does this change take our current sources of supply off the table?
Think: What additional sources of supply are now qualified alternatives based on our revised needs?
Case in Point: In September 2016, Hurricane Maria hit Puerto Rico – home of Baxter International’s IV bag production. The resulting shortage has sent shockwaves through the US hospital community. In the short term, supplies are being rationed and nurses are manually administering fluids via ‘IV push’ or substituting Gatorade for saline. In the long term, the FDA has already indicated a willingness to approve new suppliers in this category, increasing competition and diversifying sources of supply in advance of future disruptions. (NBC News)
Don’t think: How will this change affect our customers and target market?
Think: How does this set of circumstances become an outreach opportunity to build new bridges and strengthen existing ones?
Case in Point: UPS was grossly understaffed for the volume of packaged shipped during the 2017 holiday shopping season. Rather than lament and apologize, they pulled every available resource – even from headquarters – and boosted their brand reputation by earning positive news coverage: “Shipping company going all-out to make Christmas deadline” (Market Watch).
Procurement professionals are only human, and we are hard-wired to prefer stability. That said, being strategically opportunistic in an unpredictable world requires a nuanced response. Reprogramming our reaction to risk requires both training and practice – and the effort will never be over. Instead, we must stabilize ourselves so we can serve as calm, thoughtful strategic leaders when the unexpected inevitably happens.
Kelly Barner - Owner of Buyers Meeting Point
Kelly Barner is the owner of Buyers Meeting Point, an online resource for procurement and purchasing professionals. Her unique perspective on supply management is based on her time as a practitioner, a consultant at a solution provider, and now as an independent thought leader. Kelly has led projects involving members of procurement, supplier, and purchasing teams and has practical skills in strategic sourcing program design and management, opportunity assessment, knowledge management, and custom taxonomy design.