Last Updated: January 9, 2025
Imagine this: a few months ago, the CEO of a growing manufacturing company was riding high on success. Profits were up, and everything seemed on track. But fast-forward to today and the mood has shifted dramatically. Sales are slipping, suppliers are dropping the ball, and the team is scrambling to keep things afloat.
The CFO, looking stressed, finally speaks up: “We’re just reacting to problems instead of preventing them. We’ve really dropped the ball on managing our procurement risk.”
This scenario underscores a vital point in risk management: there’s a big difference between responding to the impacts of risk and actively working to prevent risks from happening in the first place.
In an unpredictable economy, it’s crucial to shift from a reactive mindset to a proactive one. So, how can organizations do this? Enter the group purchasing organization (GPO).
What is Procurement Risk
First off, let’s talk about what procurement risk actually means. The term that covers all the potential problems that can mess with your supply chain and business operations.
Here are some common culprits:
- Supplier Issues: Think bankruptcies, quality hiccups, and delivery delays.
- Market Volatility: Prices can swing wildly, impacting your bottom line.
- Regulatory Changes: New laws can emerge and throw a wrench in your plans.
- Natural Disasters: Events like hurricanes or pandemics can disrupt operations.
These risks can range from minor annoyances to serious issues that can hurt your reputation and finances. That’s why it’s essential to understand these risks and tackle them head-on.
Business leaders need to fully understand the concept of procurement risk and the challenges that come along with it. Only then will they begin to implement the right strategies to mitigate it's impact to the organization.
Steps to Keep Procurement Risk in Check
1. Identify Risks
The first step to managing procurement risk is figuring out what those risks are. While you can’t attempt to eliminate every single risk, you can try to anticipate and reduce them.
Conducting a thorough risk assessment helps you understand what vulnerabilities you might have in your supply chain or supplier relationships. These could include geopolitical/trade risks, over-reliance on a sole supplier, poor cybersecurity, or increasing costs.
2. Create a Strategy
Once you know what risks you’re facing, it’s time to develop a game plan. This is where teamwork comes in. Collaborating with your procurement team and a GPO like Una can help standardize your approach and ensure everyone’s on the same page.
→ Find out more about how GPOs like Una work within your overall procurement strategy here.
3. Put the Plan into Action
With your strategy in place, roll it out and keep an eye on how it’s working. Visibility is crucial for making quick adjustments when unforeseen issues pop up, so be sure to invest in the right procurement and supply management software, and keep on top of your data. There are also plenty of risk management tools on the market as well.
4. Analyze and Improve
Regularly reviewing your procurement processes is key to spotting areas for improvement. GPOs can help by analyzing your spending patterns and identifying potential savings, ensuring that everything runs smoothly and efficiently.
How GPOs Help Manage Procurement Risk
So, how exactly can a GPO make a difference? Here are some of the major benefits:
Supplier Due Diligence
GPOs do the legwork when it comes to vetting suppliers. We ensure that suppliers meet quality and compliance standards, which helps you avoid partnering with risky vendors.
Competitive Pricing
One of the biggest perks of joining a GPO is access to better pricing. By pooling resources, GPOs negotiate deals that individual companies might struggle to get on their own. This can help keep costs down and reduce the risk of overpaying.
Risk Diversification
GPOs offer a diverse supplier base, which means you won’t be overly reliant on any single supplier. This diversity is a safeguard against disruptions that can arise from supplier issues.
Expertise and Support
GPOs come with specialized knowledge in procurement best practices. Their teams can guide you through complex procurement landscapes and help you tackle specific risk challenges effectively.
Market Insights
Staying updated on market trends and emerging risks is essential for proactive management. The best GPOs keep you informed about changes that could impact your procurement strategies, allowing you to adapt before problems arise.
↓ Download: The Complete Guide to Group Purchasing
Why Proactive Risk Management Matters
Understanding the difference between reacting to risks and actively preventing them can make or break a business. Companies that only react often find themselves stuck in crisis mode, which can drain resources and hurt their reputation. On the flip side, organizations that take a proactive approach not only build resilience but also open the door to growth and innovation.
By partnering with a GPO like Una, businesses can effectively manage procurement risks and streamline their processes. GPOs act as extensions of your internal procurement team, providing valuable resources and expertise that can lead to significant cost savings and improved operational stability.
Conclusion
When procurement risks can threaten the very foundation of a business, teaming up with a GPO isn’t just a smart move—it’s a strategic necessity. By leveraging the collective power and expertise of a GPO, organizations can enhance their procurement strategies and foster sustainable growth.
So, if you’re ready to take the leap into proactive risk management, consider exploring the benefits of GPO membership. Download our latest playbook to dive deeper into how you can effectively manage procurement risk. Taking that first step could be the key to securing your organization’s future.
For more, download our full playbook on managing procurement risk with the help of a GPO here.
