In today's volatile business environment, risk management and resilience have become paramount concerns for procurement functions. A recent  survey of 2,307 executives by Economist Impactacross various industries and regions provides valuable insights into how organizations are approaching these challenges.

Understanding procurement risks

Risk management has emerged as a top strategic priority for procurement functions, with 28% of respondents focusing on it in the next 12-18 months. This emphasis reflects the growing recognition of procurement's role in mitigating various organizational risks.

The survey identifies several key external risks impacting organizational strategic priorities and operations:

• Macroeconomic risks: 71% of respondents cited issues such as price inflation, interest rate volatility, and liquidity risk as major concerns.
• Legal and regulatory risks: 70% highlighted challenges related to protecting intellectual property rights and enforcing contracts.
• Security risks: 45% pointed to threats such as armed conflict, terrorism, and cyber risks.
• Climate-related risks: 38% mentioned global warming, natural disasters, and health crises as significant concerns.
• Government effectiveness risks: 38% noted issues like excessive bureaucracy and corruption.
• Political stability risks: 33% cited concerns about excessive executive authority, international tensions, and reshoring/nearshoring.

Top risk mitigation strategies

Interestingly, the survey reveals a disparity in confidence levels when it comes to managing different types of risks.

While 83% of respondents expressed confidence in their procurement team's ability to manage internal risks (such as strategic initiative alignment and workforce issues), only 41% felt confident in managing external risks (like geopolitical shifts and supplier threats). This gap in confidence levels underscores the need for procurement functions to enhance their capabilities in managing external risks.

Organizations are taking various approaches to address this challenge:

1. Supplier risk and performance management: 42% of respondents reported being highly confident in their ability to identify, assess, and mitigate risks posed by suppliers.
2. Strategic sourcing: 39% expressed high confidence in their ability to consolidate data and information for supplier selection to increase profitability and minimize risk.
3. Category management: 55% reported high confidence in their ability to manage purchasing by grouping segments of procurement spend.
4. Automation: 32% were highly confident in their ability to adopt technology to manage the procurement workflow.

Additional risk mitigation techniques with AI

Organizations are also leveraging technology to enhance their risk management capabilities. Over the next 12-18 months, procurement functions plan to use artificial intelligence to improve several risk-related areas:

Looking ahead, risk management will remain a key focus area for procurement. The impacts of the new US administration are only just being felt.

So what?

The business environment continues to be increasingly complex and uncertain, and procurement functions are playing a crucial role in managing and mitigating organizational risks. The focus on enhancing capabilities to manage external risks, coupled with the strategic application of technologies like AI, indicates a proactive approach to building resilience.

As procurement continues to evolve, its ability to effectively navigate and mitigate risks will likely become an even more critical determinant of organizational success.