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Risk Management In the Procurement Department

The procurement department can exercise some techniques to help control costs

The finance department is not the only area of a company that can benefit from effective risk management techniques. According to

The finance department is not the only area of a company that can benefit from effective risk management techniques. According to Sammy Rashed of Novartis Pharma, the procurement department can leverage its role to contain and manage risks that fall under its purview.

Writing in Procurement Leaders, Rashed said that procurement departments need to move beyond simply identifying and assessing risks and start actively mitigating them. Once a risk is identified during the annual review process, procurement can take steps like securing backup suppliers, modifying the terms and conditions of contracts, or even making an investment in a supplier. The department can also strengthen the verification process by applying it evenly to all vendors, including second-tier vendors.

Businesses can also share risks with vendors, Rashed suggested, noting that risk sharing works best when combined with vendor incentives. Some of the strategies a company can use to encourage vendors to share in their risks include taking responsibility for non-recurring costs or giving vendors a more flexible delivery schedule. Larger organizations should also not overlook the risks presented by second-tier vendors, Rashed said. By helping primary vendors manage their own supply base, companies can ensure that their own supplies will not run out.