Top Procurement Risks And Mitigation Plan

What dangers does your supply chain face?

Here are some of the top procurement risks and action plans to mitigate them.

Price Fluctuations

Price risk means the risk of an unmanageable price increase. Many commodities, like steel, aluminum, food grains, etc., undergo price revisions from time to time.

It is the financial risk on an entity's financial performance/profitability upon fluctuations in the prices of commodities that are out of the entity's control as they are dependent on external factors, like demand-supply gap, forex changes, etc.

Fluctuations in commodity prices affect production costs, product pricing, profitability, earnings, etc.

Supply Strategies

Companies may use multiple suppliers to ensure competitive pricing and mitigate the impact of potential price increases or apply a collaborative partnership approach.

They may implement fixed-price purchase agreements or agreements with pre-agreed caps for price increases.

However, it is essential that there are at least two suppliers per commodity, and a strategic sourcing or vendor development team plays a crucial role in implementing this strategy.

Financial Hedging

An action that protects against adverse price movement to remove uncertainty. Finance plays a vital role here; however, close coordination with the supply chain team always helps finance, understand this risk and take…