Advanced Operating Models
Oct 31, 2018

Third-party risk management

Can procurement lead the way?

Procurement's focus has traditionally been on cost and quality, ensuring the business runs smoothly through partnerships with suppliers. But this role has become outdated as businesses strive to compete in a hyper-competitive world. Procurement teams are now expected to contribute to wider strategic goals, and that includes third-party risk management (TPRM).

At the same time, the pressure is mounting for companies to have squeaky-clean, robust supply chains. It's no longer enough just to meet legal or regulatory requirements to be seen as a good corporate citizen. Investor groups and indices have sprung up to separate the leaders from the could-do-betters. And the prevalence of social media means any third-party failures quickly make headlines.

Enter procurement

Procurement is well placed to help organizations work with better suppliers and reduce third-party risk. The fragmented ownership of risk within organizations – e.g. IT security owned by IT, health and safety by operations – underlines the need for a central function to take a lead. By leveraging the existing relationships procurement has with external parties, it's easy to see how it can take a more strategic role, setting out risk requirements and implementing them through holistic supplier relationship management. But to do this well, procurement teams must have the right skills in place and be able to measure their impact.

Changing procurement skills

Procurement teams' skills and knowledge have focused on the areas in which they've traditionally added most value: sourcing and negotiation. To become more effective business partners, these teams' skill sets will need to expand. If we look at risk management in the broadest sense to include reputation, delivery and service failure, and financial, it's a big ask to be able to identify and, most importantly, manage all of these angles. Time and money will need to be invested in skills such as interpreting financial data and understanding key reputational compliance requirements, such as data protection and modern slavery regulations, to make sure procurement is well equipped for this new role.

About the author

Andy Rayment

Andy Rayment

Assistant Vice President, Source to Pay

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