How to build a strong procurement risk management strategy
Buyers encounter risks at each step of the procurement workflow, including human errors, supplier fallouts, and sudden market shifts. As a result, procurement teams face potential operational setbacks that hinder their ability to produce and drive revenue. Developing a procurement risk management strategy to navigate these issues is essential.
An effective risk management process monitors everything from internal operations, like ensuring employees purchase from contracted suppliers, to external influences, such as disruptions to a primary vendor's supply chain. It is a contingency plan that mitigates risk while maintaining compliance across the entire procurement process. With the right insights and tips, you can build a procurement risk management strategy that protects your organization from costly disruptions.
Types of procurement risks
The most common procurement risks fall into four main categories. When analyzing your operations for risks, be sure to take a holistic view, recognizing that threats can arise from within and outside of your company.
Supplier risks
Suppliers must fulfill their part of a contract to keep your in-house production running smoothly. If they experience a supply chain disruption and can’t complete a shipment, their issue could impact your operations. This is why supplier management is so important.
Organizations with poor supplier management lack the insight needed to identify potential risks or performance gaps. If you can’t analyze a supplier’s delivery performance, it’s tough to determine their reliability as a supply chain partner.
One way to minimize vendor risk is by securing secondary suppliers that can cover your needs if the primary cannot. Vendor diversification has become standard practice for companies aiming to strengthen supplier resilience, especially in public-facing industries like nonprofits. However, without clear visibility into which suppliers are most vulnerable, it's hard to pinpoint where you need secondaries as backups.
Ongoing supplier evaluation helps mitigate this. Over time, a supplier who once met your needs may no longer be suitable. Maintaining end-to-end transparency in your procurement process helps reveal the most efficient suppliers for your needs at any given moment.
Market risks
External events like international conflict, natural disasters, and pandemics pose global supply chain risks. Even sudden shifts in customer demand can harm the financial health of industries like manufacturing or travel.
These market risks disrupt internal workflows by restricting access to the goods and services required to run your business. Due to supply scarcity, you may encounter raw material shortages, significant delays in the delivery of goods, and increased costs. Since these risk factors are beyond your company’s and vendors’ control, regular forecasting and risk mitigation are essential for minimizing costly setbacks.
Compliance risks
Non-compliance includes everything from fraud to poorly managed supplier contracts, which can create significant challenges for businesses. In highly regulated industries like healthcare and government, organizations must also consider additional layers of compliance regulations. Meeting both external regulations and internal policies is crucial to maintaining operational integrity.
However, staying compliant isn't always a straightforward process. Rules and regulations can change without warning, making it difficult to keep up. Failing to adhere to compliance standards specific to your industry doesn't just put you at risk of fines and penalties—it can also cause reputational damage that makes it harder to secure reliable, high-quality vendors.
Operational risks
Systems, policies, or processes that interrupt or delay business operations can add risk to a company’s procurement plan. Common culprits include disjointed technology creating bottlenecks, error-prone manual processes leading to operational inefficiencies, and lengthy requirements that drag out requisition approvals.
As technology assumes a more prominent role in procurement, cybersecurity must remain top of mind. Since companies store sensitive customer and financial data in software systems, they must equip procurement teams with solutions that feature reliable data safeguards.
Transparency also plays a crucial part in reducing operational risk. Employees who lack visibility into an organization’s approved vendors and purchasing policies are more likely to make mistakes when placing orders. Insufficient transparency can increase rogue spend—purchasing outside of established policies and approved suppliers—leading to higher costs and unexpected compliance issues.
Steps to develop a comprehensive procurement risk management strategy
Follow these four steps to create a foundational procurement risk management strategy.
Step 1: Risk identification
Start by running a risk analysis on your current operations. Aim to aggregate every risk factor, including those that might already have a working safety net, to gain a comprehensive view of your company’s total risk.
To help uncover these risks, collect purchasing data from across the organization. Host discussions with stakeholders to understand their key problem areas and research the current market to find possible external threats. An increasing number of companies have also started leveraging AI to identify supply chain risks.
Conclude step one by building a comprehensive list of potential risks.
Step 2: Risk assessment and prioritization
Now assess the magnitude of risk for each item on your list, determining its likelihood of coming to fruition based on your current operations and the present market state. Remember to consider financial liability, noting the potential cost of each risk to the business.
The second part of this step is prioritizing the identified risks based on their assessment so you can address those that pose the greatest financial and operational impact first. It can also be helpful to identify which risks you can mitigate with quick fixes, like centralizing procurement with software, and which need more long-term maintenance, such as developing strong supplier relationships.
Step 3: Application of risk mitigation strategies
Once you understand which risks are not only possible but the most likely, use the following approaches to help your company reduce risk in procurement.
Supplier diversification
If your primary supplier experiences a disruption, you’ll feel the effects. However, if you have a diverse supplier base, you can tap on secondary suppliers as alternative sources for purchasing goods. Performing due diligence regarding supplier diversification lessens the impact of potential disruptions on workflows.
Vendor contract management
Vendor contract management begins with understanding your options. Gather bids from each potential supplier to support your position as you negotiate for the most favorable contracts. A clear, concise agreement lays out order fulfillment expectations and a plan to manage potential issues.
Beyond the initial agreement, it's also essential to monitor active contracts. Regularly review vendor performance to ensure suppliers follow through according to the contract, and track contract expiration dates so you have time to finalize a new deal without risking a costly interruption to your current operations.
Procurement process automation
Traditional procurement’s reliance on pen-and-paper workflows increases the risk of human error and operational bottlenecks. Automating procurement streamlines aspects like approving requisitions, generating purchase orders, and processing invoices—all while ensuring compliance with company policies and budgets.
Automation not only translates into more efficient operations but also enhances supplier confidence in your business, helping you foster stronger relationships that may result in more favorable contracts.
Cybersecurity and data protection
Procurement software gives rise to concerns about data security and cybersecurity. To protect confidential information, choose technology with robust security features that meet compliance standards. It's also smart to partner with suppliers that take similar precautions to ensure end-to-end data protection.
Step 4: Continuous monitoring and review
Your risk management strategy must evolve as the industry shifts and your needs change. Maintaining compliance while meeting customer demand requires regular operational and financial risk assessments.
Continuous monitoring boosts awareness of influences that could negatively impact your operations, preventing you from getting caught off guard. A proper risk management strategy is agile and flexible, ensuring your company is resilient and responds quickly to early signs of disruptions.
How to leverage HAQM Business for risk management
HAQM Business takes important steps to reduce uncertainty, granting buyers and procurement teams peace of mind when managing orders and their supply chain.
Supplier verification and compliance
With HAQM Business, buyers can confidently purchase from an array of quality suppliers. Each vendor can make public any relevant business certifications or classifications for buyers to consult before making a purchase. This allows buyers to trust they’re sourcing the best vendor for their needs. Plus, there are hundreds of thousands of sellers to choose from, enabling users to implement supplier diversity across their network.
Beyond vendor compliance and diversity, HAQM Business captures supplier performance data. Through comprehensive audits, you can identify issues regarding compliance with contract terms and use data-driven forecasting to detect potential material shortages. This degree of in-depth visibility enhances supply chain resilience for improved operational outcomes.
Advanced analytics, reporting, and e-procurement benefits
Mitigating risk requires data. Robust analytics pull back the curtain on internal operations, revealing vulnerabilities and opportunities to strengthen organizational resilience.
HAQM Business’ real-time analytics aggregate purchasing and performance data to inform your procurement strategy. Centralizing procurement in one solution enhances spend visibility, making it easier to spot areas prone to rogue spending or regulatory violations. Reporting features provide a competitive bird's-eye view that improves the decision-making process and mitigates risk.
As an example, vacation rental management company Vacasa leveraged HAQM Business’ tools and resources to reduce rogue spending, consolidate accounts, and gain widespread spend visibility. They streamlined processes and channeled spend through a single HAQM Business account while eliminating the use of personal credit cards. Through various e-procurement tools, they were able to monitor purchases while gaining insight into buyer behaviors and needs across locations, helping to secure the buying process and predict needs down the line.
Flexible payment and procurement solutions
HAQM Business offers buyers flexible payment options, including invoicing, which allows users to fulfill invoice terms within 30 days without accruing interest or fees. For qualifying Business Prime members, that time frame increases to 60 days.
Flexible payment options help free up working capital, positively impacting your bottom line and allowing your business to stay competitive. With greater control over spending and more cash on hand, you gain an increased ability to navigate financial challenges.
Seamless integration with existing procurement systems
Integrating your existing procurement systems with HAQM Business can bring benefits tailored to your organization’s needs. You can use Punchout to buy through your purchasing system with access to HAQM Business’ products, or you can opt for Punch-in, where you shop on HAQM Business but checkout through your company’s e-procurement system. These and other purchasing options streamline the procurement process, reducing inefficiencies and improving workflows.
Start elevating your risk management strategy with HAQM Business
An agile and comprehensive procurement risk management strategy is essential for helping procurement leaders and buyers mitigate risk effectively. With HAQM Business, you can strengthen your approach by increasing purchasing visibility, diversifying suppliers, and incorporating automated compliance controls.
Sign up for a free HAQM Business account or contact sales to streamline your procurement process, or talk to a sales expert to explore tailored solutions for your organization.
Create your free HAQM Business account
