Friday 5 December 2014

Risk Management in Purchasing Process

Authored by Fahad Amjad

One of the Key functions of supply management is to ensure smooth and uninterrupted flows of goods and materials. Today, organizations operate in increasingly complex and uncertain environments with high risks of supply disruptions making supply management an increasingly Very complex task. 

The environmental pressures and risks require companies to constantly and consequently analyze and reduce these risks. Risk management should form an integral part of good purchasing and supply practice.  It is essential to address the right risks and use the right strategies. Thus, organizations should understand the sources of risk before devising risk mitigation strategies which may require adding capacity, increasing inventories, having redundant suppliers, increasing responsiveness, increasing flexibility, aggregating or pooling demand, increasing capability, or having more customer accounts.

Supply disruptions can be defined as any unforeseen events that disturb the normal flow of goods and materials in a supply chain. These disruptions can have major negative consequences for the management of operations. For example, they can result in production disruptions and hampered productivity and capacity utilization. In the longer term supply disruptions can negatively affect the shareholder price and a company's long-term financial performance.