Managing the Risk of Sourcing Projects – Part I of II

April 13th, 2015

Do you know where the risk is in your projects and how to manage it effectively?

 

Today’s post is from our SafeSourcing Blog archive

Risk Management is a term associated with so many areas within a company that there are even entire Risk Management departments dedicated to the protection of a company and its assets, both material and personnel. 

It is no small wonder then that the concept of managing risk within procurement projects is becoming increasingly important as companies move from reacting to challenges they face during the course of a project to planning for the risks in advance of the projects ever beginning.  As companies begin to embrace a style of sourcing that maps out their goals and projects in structured plans, there are important steps needed to achieve this.  To truly understand and plan for risk with a sourcing project we will look at some of those steps to take over the next two days that can help with execution.

Understand the current landscape– Many companies struggle with determining and forecasting risk associated with projects because they do not truly understand what they are doing today.  As example, Company ABC wants to begin structuring a project to make some decisions on their Temporary Labor spend.  They have spend numbers by month and by company location.  They know who their incumbent providers are and they have contracts and invoices that tell them the landscape of what they are currently paying and what level of service they are supposed to be getting.  This is great information except that it does not include insight into a possible strike in one of the locations or the requirement of employees to belong to the local union to be considered other locations.  These special circumstances begin to create the profile of risk associated with a sourcing project.  Risks can be a non-issue if they are planned for and known about in advance; a good way to use internal survey tools to get the information needed.

Determine and Minimize Complexity– It is a common process by many companies to look at a category and in the name of a consolidated National contract, attempt to tackle every aspect of it.  If there is enough time to proceed in this manner and the executive support and personnel are in place this can lead to great results.  Since many companies do not have the resources for a project of this size, it is important to focus on the aspects with the greatest impact.  If the plan is to reduce 100 suppliers to 10, focus the event in a way to accomplish that.  Create one year agreements, work through the transition to the smaller set of suppliers and then in year two, determine if more consolidation is needed or a more focused savings project is conducted with a resulting multi-year deal.   If the plan is to try and get savings for a catalog of 800 items, determine the items that make up the top 80% of spend and focus your and the suppliers’ attention on those items rather than the whole catalog.  Reducing the complexity of events gets a large chunk of success quickly in a way that takes fewer resources to conduct.

At SafeSourcing we are constantly working with organizations to assist them with their sourcing needs in a strategic way.  Part of a successful process begins with understanding and planning for the risks that may occur well in advance.  Tomorrow we will conclude this series with three additional steps you can take to manage risk.  For more information on how we can help with your projects or on our “Risk Free” trial program, please contact a SafeSourcing Customer Service Representative.  We have an entire customer services team waiting to assist you today.

We look forward to your comments.

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