Procurement Contract Risk Management

As pointed out by JP Massin in his Strategic Sourcing Europe blog, APICS and Protiviti recently released a study on Procurement Contract Risk Management.

As noted by JP Massin, the conclusion is that a large proportion of organizations need to improve the management of their procurement contract risks and opportunities. And this seems to hold true across the board, for direct and indirect procurement alike.

The study does a great job of pointing out many types of procurement contracts management risks you should be aware of:

  • End-customer satisfaction risk
  • Authority limit risk
  • Regulatory non-compliance risk
  • Information security, access, and privacy risk
  • Terms and Conditions risk
  • Reputation risk
  • Environment, health, and safety risk
  • Inventory and obsolescence risk
  • Off-balance sheet inventory liability risk
  • Automatic renewals risk
  • Contractual and legal risk
  • Employee/third-party fraud risk
  • Outsourcing risk
  • Efficiency risk

It also does a great job of pointing out some key capabilities a company will need to tackle these risks:

  • Strategy and Policy
  • Processes, Practices, and Procedures
  • Organization and People
  • Contracts Management Process
  • Information Methodologies / Tools
  • Systems and Data

And provides some great recommendations, including:

  • Never underestimate the importance of having a clear process vision, and well-designed and defined objectives, strategies, and plans for the process.
  • No matter how well the process is designed, it cannot be effective without the right people and structure.
  • It is essential that technology be leveraged.

I would highly recommend downloading a copy of the Procurement Contract Risk Management study and reviewing it at your leisure to make sure you understand what the contract risks are, what the key capabilities you will need to mitigate the risks are, and where the major problem areas are in most companies so that you can insure they are not in yours.