Effective procurement ensures sustainability*
Sustainability is often discussed in environmental or community terms, but financial sustainability and the health of the organisation is often overlooked. If the business itself is not sustainable and able to ensure its own future, then the outcomes of environmental and corporate responsibility goals won’t be attainable.
Procurement, as the key conduit between organisations and their suppliers, plays a vital role in securing business viability and continuity by ensuring organisations have everything they need for their operations.
And that role is no longer about securing goods and services at the lowest price. It is about minimising supply chain risk, which involves managing dependable flows of goods and services at reasonable costs that ensure the business continuity of the selected vendors.
Procurement can make a significant contribution to sustainability by sourcing intelligently rather than simply going back to the same suppliers year in and year out.
The latest e-procurement technology casts the net wide, opening lines of communication with the widest possible selection of qualified vendors.
Of course, opening up the tender process to unknown bidders does expose the buyer organisation to new risks. Are these vendors legitimate? Are they solvent? Can they meet your needs and do they have strategies in place to ensure ongoing supply?
The risks are not too significant for low-value, commodity-type purchases where there are multiple vendors and a narrow price range, and it’s fairly easy to screen prospective vendors with some carefully crafted surveys, augmented by searches of public credit databases. And even if you do get it wrong, it’s not that hard to find another source of copy paper or cleaning materials.
It does, however, get more complicated with vital requirements and more concentrated supplier pools. If something goes wrong with your IT or telecoms partner, your business may be out of action for days or weeks – at enormous direct and reputational costs. To avoid that, procurement professionals need to thoroughly evaluate and investigate the bidders, even tapping into third-party analysis and reporting where necessary.
Supplier risk in a dynamic environment
As we know, the business environment has never been more volatile. Global geopolitical factors, currency fluctuations and trade tensions are impacting on many organisations in a variety of ways – many of them negative.
So, the supplier that looked suitable when the contract was awarded may not be in the same position months, or even weeks, later.
That’s why many corporate buyers undertake ongoing scrutiny of their key suppliers using services like illion’s Supplier Risk solutions. These keep buyers continuously informed of supplier risk with alerts on positive and negative changes as they happen.
Obviously, all these risk mitigation measures involve additional costs, but as we stated at the outset, the focus of procurement has moved away from pure ‘cost saving’ to broader business sustainability. Those procurement professionals who have had to deal with the fall-out from the failure of a key supplier agree that they would have paid almost anything for early warnings.
In an increasingly competitive business environment, organisations need to focus on fundamentals more than ever. And procurement due diligence – both initial and ongoing – can make the difference between success and failure. Sometimes, with key vendors, it’s more than that – it’s a matter of survival.
Phil Stark is Director of illion TenderLink (illion.tenderlink.com), Australasia's largest integrated e-procurement solutions provider, proudly bringing suppliers and buyers together for 25 years.
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