How to Manage Risk With a Group Purchasing Organization
Minimize risks to your supply chain.
- Procurement and supply chains carry six distinct types of procurement risk and six major supply chain threats
- Risk identification should start with overall business goals, not just procurement targets
- A risk assessment per category (identify → prioritize by impact → develop mitigation plan) is the structured starting point
- Three core mitigation strategies: diversify, develop contingency plans, and build strong supplier relationships
- GPOs reduce risk through vetted suppliers, collective buying power, and supply chain diversification
- Una's four-step process: identify risks → establish strategy → implement action plan → analyze and optimize
Understanding Procurement & Supply Chain Risk
Procurement and supply chains carry risk for an organization, ranging from spiraling costs to reputational, operational, and compliance risks. In today's uncertain economic environment, it only takes one poor decision to place an organization in a difficult position.
But instead of seeing procurement as a source of risk, the more productive frame is to see it as protection against risk with a GPO as one of the most effective tools in that arsenal.
LET's CHAT
Una's Sourcing Advisors can help identify risks within your supply chain. Una is free to join with results in weeks.
The Golden Rules for Identifying Risk
There's no single correct way to identify and prioritize risks. Risk matrices and decision trees are common tools, but whatever method you use, two rules apply universally.
RULE 1
Focus on risks that relate to organizational goals
Don't chase down procurement risks that are unimportant to the wider business. Start with overall business goals and work from there otherwise risk management becomes an internal procurement exercise that leadership doesn't engage with.
RULE 2
Think beyond cost
The classic procurement trap is to focus too narrowly on cost. Cost blowouts are a major risk, but supplier reliability, compliance, data security, brand reputation, and operational continuity are just as material and often more damaging when they fail.
Conducting a RIsk Assessment by Category
A risk assessment for each spend category is a structured place to start. Identify the potential risks, prioritize them by their impact to the business, and develop a mitigation plan for each.
Here's an example of how that looks in practice:
Risk
Likelihood
Impact
Mitigation Plan
Single-source supplier dependency
High
High
Supplier financial instability
MEDIUM
High
Maverick spend in tail categories
High
MEDIUM
Contract non-compliance
MEDIUM
MEDIUM
Identify potential risks at each stage of the procurement process and understand how each one could negatively impact overall business objectives, not just procurement KPIs.
Six Types of Procurement Risk
The procurement risks that could impact your organization depend on several factors like whether you work in the public or private sector, whether you work with high-risk categories, and your industry's regulatory landscape.
Here are the six primary types to monitor and plan for.
Supplier Performance Risk
Issues with supply reliability, product or service quality, or contractual compliance. To mitigate: monitor supply reliability and quality, consider contingency strategies, implement a preferred supplier program, avoid single-source dependency, and establish quality control and assurance measures.
Financial Risk
Supplier bankruptcy, poor cash flow management, or fraudulent activities that compromise supply continuity. Conduct due diligence and financial analysis during supplier selection, monitor key performance indicators on an ongoing basis, and have a contingency plan ready in case of supplier failure.
Legal Risk
Contract breaches, intellectual property infringement, non-compliance with regulations, or procurement fraud. Mitigate through effective monitoring and communication, and ensure every contract and supplier agreement is reviewed and approved by the legal team before execution.
Maverick Spend Risk
Employees bypassing established procurement processes, leading to off-contract purchases that create financial and compliance exposure. Curtail through better buyer education on preferred supplier programs, stricter authorization measures, and procure-to-pay solutions. Bringing tail spend under control is a high-impact approach to reducing maverick spend risk at its source.
Data & Project Risk
Inaccurate spend data, project delays, cost overruns, or changes in scope that compromise decision-making and continuity. Mitigate through a data management strategy with good data governance, supported by analytics software that enables better assessment of supplier performance, risk, and customer behavior.
Brand Reputation Risk
Supply chain practices that don't align with organizational values on supplier diversity, sustainability, and fair trade damage customer loyalty and investor confidence. Protect through ensuring procurement decisions reflect the organization's values, and maintain transparency and integrity throughout the supply chain.
Six Types of Supply Chain Risk
Removing the procurement lens for a moment and putting on the supply chain manager's perspective, there are plenty of overlapping risks, plus risks specifically associated with business continuity and the movement of goods.
These six deserve dedicated planning.
Black Swan Events
Highly disruptive, rare events such as natural disasters or global pandemics. While rare, organizations must have contingency plans to deal with them. The COVID-19 crisis highlighted the importance of having a backup plan like re-shoring supply chains or adopting a just-in-case supply model rather than discovering the gap only after a disruption has already struck.
Cost Blowouts
Cost blowouts can occur due to process inefficiencies, ineffective supplier relationship management, unrealistic scheduling, excess inventory, freight expenses, unforeseen disruptions, and IT implementation costs. Prevent through effective project management, simplification of complex processes, a comprehensive SRM strategy, robust planning, and automation to improve spend visibility.
Port Congestion
Port congestion easily disrupts operations and leads to late ship arrivals, rising shipping costs, and container shortages, all of which ripple downstream through every supply chain activity dependent on that freight. Mitigate by maintaining flexible logistics contracts and alternative shipping routes where possible.
Truck Driver Shortages
The US recently recorded a deficit of 80,000 truck drivers, causing significant disruption since nearly three-quarters of all freight is transported by truck. Without significant structural reforms, the shortage is unlikely to improve which means procurement and supply managers need to actively consider mitigation strategies such as local sourcing and multimodal logistics planning.
Warehouse Space Shortages
Stockpiling goods to hedge against supply uncertainty caused a shortage of warehouse space in the US, leading to higher competition for space and rising rents. The pandemic-inspired surge in eCommerce compounded the problem. New warehouse space cannot be built fast enough to meet demand, and rising warehousing costs will inevitably flow through to higher prices for consumers.
Cybercrime
Cybercrime caused an estimated $8.4 trillion in damage globally in 2022, with a cyberattack occurring every 11 seconds including costly and disruptive ransomware attacks. Supply chains are particularly vulnerable. Hard-to-hack technologies such as blockchain can be used to mitigate risk, along with prioritizing third-party risk management and systematically identifying supply chain vulnerabilities before they're exploited.
Geopolitical conflict like the situation in Ukraine contributes to higher fuel prices, rising inflation, and unexpected price increases across multiple product categories. Trouble in geopolitical flash-points worldwide continues to produce supply chain disruptions and pricing volatility. Procurement strategies need to account for geographic concentration risk.
How to Mitigate Procurement & Supply Chain Risk
No matter what type of risk your organization is facing, these three foundational strategies provide a starting point for lowering their impact. They apply across both procurement and supply chain risk types and all three are reinforced by GPO membership.
1.
Diversify
While consolidating suppliers can result in immediate cost savings, it also introduces the risk of sourcing all critical goods or services from a single supplier. Diversifying the supply chain by maintaining alternative suppliers ensures the organization can continue to function even if the primary supplier is unable to fulfill their obligations due to financial stress, operational failure, or supply disruption.
2.
Develop Contingency Plans
Preparing for potential disruptions before they occur is far cheaper than responding to them after the fact. Contingency plans for critical goods or services might involve shifting to a just-in-case supply chain model, creating a stock buffer, or pre-qualifying alternative suppliers. Cost-saving initiatives like redesigning processes to eliminate waste or leveraging technology for better visibility can also be explored without sacrificing quality or service levels.
3.
Build Strong Supplier Relationships
Working collaboratively with suppliers and fostering genuine long-term relationships helps minimize disruptions and ensures a more reliable supply chain. Supplier risk should also be actively monitored by tracking key financial health indicators and analyzing the impact of broader economic conditions on your critical suppliers. A supplier that's in financial difficulty is a supply chain risk waiting to materialize.
Managing Risk With a Group Purchasing Organization
GPOs leverage the collective buying power of their members to obtain volume discounts from suppliers. Once you join, you access pre-negotiated contracts and receive discounted pricing saving money, time, and effort.
GPOs are typically used when a company is lacking buying power, has fast-approaching timelines, limited procurement staff, or all of the above.
THE RIGHT GPO'S ROLE
The right GPO partner won't just respond to the effects of risk. Your GPO should proactively play a strategic role in procurement planning to mitigate risk and ensure success for their members, finding ways to reduce the likelihood of a risk event taking place, and if it does, having strategies in place to reduce its impact.
GPOs provide access to vetted suppliers screened for quality and reliability. They leverage massive bargaining power to secure better prices and terms and reducing the risk of overpaying. By pooling resources and buying power, members achieve economies of scale that are difficult to achieve independently, lowering costs and increasing efficiency in a way that reduces the risk of financial loss.
Una's Four-Step Risk Management Process
While every GPO operates differently, here is exactly how Una approaches procurement risk management for its members:
1.
Identify Risks
Complete elimination of risk isn't possible but a better understanding of where risk lives is. Una's extensive experience across industries and procurement categories helps members identify and prioritize their specific areas of exposure, including risks that internal teams may have normalized or overlooked.
2.
Establish a Strategy
Once your unique procurement risks have been identified, Una works with you to develop a comprehensive long-term risk reduction strategy. Procurement expertise helps standardize the process and create a cohesive strategy that addresses the specific risk profile of your organization, not a generic template.
3.
Implement an Action Plan
With a solid strategy in place, Una helps put it into action and continuously monitor its progress. Members have access to cutting-edge technology and analytical tools that provide clean, visible data for the procurement strategy ensuring the action plan is based on what's actually happening, not on assumptions.
4.
Analyze and Optimize
By continuously monitoring spending and evaluating purchasing behavior, Una helps members identify potential cost-saving opportunities and ensure that procurement runs as efficiently as possible. Risk management is not a one-time project. Una's team monitors continuously for new challenges and emerging risks that may require strategy adjustments.
The Una Difference
By joining Una, businesses leverage the collective purchasing power of the group to negotiate better deals with suppliers, reducing costs and improving financial stability that ultimately creates a buffer against potential risk impacts.
Vetted Suppliers
Every supplier screened for quality, reliability, and compliance before being added to the portfolio
Supplier Diversification
Access to a wider range of suppliers to reduce single-source dependency
Established Relationships
Strong, long-term supplier relationships that reduce the risk of working with untested vendors
Una works as an extension of your internal procurement department and is an additional resource for efficient sourcing, supplier and contract management. Una helps identify risks associated with acquisition plans, establish a credible long-term strategy, and facilitate implementation through contract negotiation, cost comparison, and continuous analysis and optimization.
Partnering with Una not only generates hard-dollar savings in selected categories, but also enables corporate procurement to redirect freed-up resources toward higher-priority strategic areas. Una membership is always free, with no purchasing requirements and no contract lock-ins.
Stop Leaving Your Organization
Open to Unnecessary Risk
Contact Una to learn more about managing risk with a group purchasing organization while saving more money, time, and effort.