Procurement is key to supply chain risk management

By Freddie Pierce
Year-end business reviews for 2011 point to a weak link in corporate practices that can bring even the mightiest of organizations to its knees in a tim...

Year-end business reviews for 2011 point to a weak link in corporate practices that can bring even the mightiest of organizations to its knees in a time of crisis. That weak link is the lack of multiple suppliers that are dependable and readily available, according to the January 11, 2012, Wall Street Journal story, “Reinforcing the Supply Chain,” by Maxwell Murphy. The story highlighted the vulnerabilities of companies that depend upon a single supplier only to have that supplier rendered powerless to deliver due to a disaster, such as the earthquake and tsunami in Japan, or the Arab Spring uprisings that closed businesses in the Middle East.

Closer to home, tornadoes struck Joplin, Mo. and Tuscaloosa, Ala., and Hurricane Irene flooding swallowed many parts of the Northeast. All told, the United States had a record 10 weather catastrophes in 2011 costing more than a billion dollars -- five separate tornado outbreaks, Hurricane Irene, two different major river floods in the Upper Midwest and the Mississippi River, drought in the Southwest and a blizzard that crippled the Midwest and Northeast.

With many disasters, natural and otherwise during 2011, organizations are realizing the frailties of small inventories, just-in-time deliveries and single vendor partnerships. These procurement strategies may have looked good on paper at one time, but are now proving to have the potential for grave negative consequences, especially when the supply chain is cut by severe weather, strikes or other conditions.

“Organizations most vulnerable during disasters are those that insist on having just a few suppliers and resist automating their procurement process,” said William Gindlesperger, chairman and chief executive officer of e-LYNXX Corporation. “You may have the best supplier in the world, but if it is underwater you are stuck without a supplier. You are left scrambling to find a supplier somewhere to deliver what you need, even if the quality doesn’t measure up to what you really expect.”


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Gindlesperger added that is where automated procurement technology fits in. With automated vendor selection technology, buyers are not limited to reliance on single sources of supply even while gaining the efficiencies and cost savings associated with single source partnerships. Buyers using automated vendor selection procurement obtain the best price from the best qualified supplier for the specified product or service needed at the exact time required (with zero cost for inventory).

As a single-source ordering platform that manages a multitude of buyer qualified suppliers, automated vendor selection technology requires that the buyer develop a database of at least two dozen trusted suppliers. Each time the buyer submits job specifications, the computer matches the specs with the supplier pool and only those that are best qualified to do the work are invited to bid. Not only does this give the buyer a diverse field of pre-qualified suppliers from many geographic areas, it creates a competitive bidding environment that results in the buyer paying 25 to 50 percent less for the procured good or service. The web-based communications and workflow system used for maximum automated vendor selection benefit delivers total transparency, strong risk management and quality controls, full accountability and complete documentation and archiving.

“Automation is changing the efficiency and cost effectiveness with which organizations procure what they need to sustain their businesses,” Gindlesperger said.  “Common sense would tell you that this is the course to take.”

The Aberdeen Group reported that the majority of the 130 organizations that participated in its 2011 procurement survey agreed companies should adopt more technology to automate procurement. A.T. Kearney's 2011 Assessment of Excellence in Procurement study of more than 185 leading companies across 32 different industries found that procurement leaders excel at managing risk. By contrast, just one in five procurement followers use risk management activities in procuring goods and services—which means about 80 percent of companies are a natural disaster away from a major disruption.

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