High Performance in Procurement Risk Management

Research and insights developed in collaboration with Massachusetts Institute of Technology

It is Accentures position that the need for a structured risk-management capability within (as well as beyond) the procurement organization is significant.
Risk is part of businessa significant, permanent reality faced by virtually every organization. Without risk, business as we know it might not exist either. To compete, grow and capture benefit, companies need to take chances; its what businesses do. Although business risk has existed as long as there has been commerce, the situation is clearly different in the 21st Century. According to a 2009 Accenture Study, seven out of ten companies acknowledge that business risk has increased due to recent financial stress. Nearly half of survey respondents believe that new regulations (often stemming from economic concerns) have exacerbated risk.1 Commodity price fluctuations and inadequate liquidity levels also are current concerns whose roots may be connected to modern economic problems. The net effect is that risk management is a white-hot topic. Companies in most industries are assigning resources to risk management. And many are working hard to identify functional risk issues and solutions hazards associated with specific business components such as design & development, supply & demand, and finance & accounting.2 The mission of this Accenture Point of View is to discuss research and insights associated with risk in one such functional area: We believe that procurement has become a major focal point for companies risk management concerns. Indeed, corporate buyers in almost all industries have seen risk incidents, factors and consequences increase significantly in the past ten years, often for the global, technological and economic reasons noted above. However, Accenture has observed that few companies translate this concern into a formal procurement risk management capability. Most do have risk-management structures within their finance organizations, and perhaps it is their belief that finances efforts are sufficient to mitigate risk across other company functions. We do not agree. It also is clear that many companies continue to manage risk opportunistically, i.e., on a case-by-case basis without a structured approach or specific criteria. We feel that this, too, is inadvisable. In fact, it is Accentures position that the need for a structured risk-management capability within (as well as beyond) the procurement organization is significant. Given todays turbulent supply markets and volatile, pan-global business environment, corporate buyers need to make consistently superior decisions. And developing a formal, structured, risk management capability for procurement is an outstanding way to do just that.

An Upside to the Downturn?

Is it possible that the recent economic downturn actually spawned some good news? In procurement risk management, that might be the case. According to survey results, the global recession made companies significantly more aware of the need for advanced risk management practices. The bar chart below offers significant evidence. Two additional findings also bear mention: Fifty five percent of responding companies gave more attention to procurement risk management in 2009 than they did in previous years. Eighty five percent believe that volatility will remain high in the near future, thus implying that formal and sustained risk management efforts should be enacted to countermand that trend.

Percent of survey respondents that extended various procurement risk management practices due to the downturn.

CPO's focus on procurement risk management

81%

Relationships with key suppliers

77%

Buyer's consideration of risk management practices

76%

Management monitoring and understanding of procurement risks

62%

Relationships with internal clients

56%

A Formal Effort to Understand Risk in Procurement

To validate Accentures view that risk management in procurement requires efforts beyond what most companies are doingand to identify leading practices, metrics and solutionsAccenture partnered with Professor David Simchi-Levi of the Massachusetts Institute of Technology (MIT) in Boston on a Procurement Risk Management Research Study. Answers to three fundamental questions were sought: 1. To what procurement risks are companies most frequently and extensively exposed? For example, are exceptionally high levels of risk most-tightly associated with supplier reliability, product quality, supply chain disruptions or some other issue? 2. Is risk management a must have capability? In other words, can a link be established between the level of procurement performance a company has achieved and the depth and sophistication of the risk management solutions it has implemented? 3. What do high performers in risk management do differently from other companies? What risk management capabilities really matter? What capabilities make the greatest difference in helping procurement organizations perform most effectively? The research team from Accenture and MIT received responses to an online survey from chief procurement officers (CPOs) at 127 global, industrial companies around the world. More than three quarters of those organizations are in Europe or North America, with most of the remainder in Asia and Oceana. As shown in Figure 1, five industry groups were particularly well represented.

Figure 1: Chief procurement officers from automotive, industrial equipment and consumer goods companies were the most prevalent respondents.

6%

13%

29%

16%

Automotive and industrial equipment Communication and high technology 17% 19% Consumer goods and services Energy and resources Pharmaceuticals Other

Cisco: A Master of Risk Management

Cisco provides one example of a comprehensive risk management approach that spans the entire company. With almost all its manufacturing activities outsourced, the firm faces enormous risks: from supplier reliability, through supply chain disruptions, all the way to man-made and natural disasters. To address this challenge, Ciscos risk management framework includes the three components identified in this Accenture Point of View: risk anticipation, risk monitoring and risk mitigation. Ciscos resiliency scorecard includes four categories: manufacturing resiliency, supplier resiliency, component resiliency and equipment resiliency. Cisco updates its resiliency scorecard on a quarterly basis and uses it to identify where alternative sites, dual sourcing approaches or inventory adjustments are required. Ciscos supplier risk assessment web-portal combines information from supplier meetings and public information about at-risk suppliers. Excerpted with permission from the book Operations Rules: Delivering Customer Value through Flexible Operations by David Simchi-Levi, MIT Press, September 2010.

1. Understanding Risk in Procurement

As shown in Figure 2, responding CPOs are most concerned with the level of dependency their companies have on critical suppliers. 3 This may not be surprising, given that critical suppliers represent nearly half of respondents total spend in direct materials and up to 16 percent of respondents total number of suppliers. The implication is that, for a particular category or niche, many buying organizations have been unable or unwilling to find more than one supplier that offers an optimal mix of price, quality and reliability. Buyers thus are fearful because, for one reason or another, they depend heavily on one or very few suppliers for a particular component, ingredient, product, SKU or service. Risk management efforts in this area focus on reducing dependency by tapping a wider swathe of suppliers or by helping ensure the ongoing solvency and reliability of those suppliers for which alternatives cannot be found.

Concerns about price volatility were shown to be nearly as prevalent as worries about supplier dependence. Survey results indicate that 46 percent of survey respondents spend is exposed to volatility in raw materials prices and that 27 percent is exposed to currency volatility. Unlike the supplier dependency issue, price volatility is often outside the suppliers control. Suppliers certainly have the ability to raise and lower prices in response to volatility; however, as elaborated in Figure 3, the research team found that about 64 percent of market price increases cannot be passed on to final customers; corporate buyers or suppliers simply must absorb most of the new costs. This is why sophisticated risk management policies and programs are so important: Besides raising prices, what else can companies do when the cost of a commodity is highly unstable? Can they do a better job of anticipating (and thus preparing for) price increases? Should priceescalation clauses in supplier contracts

be revisited? Might some products be redesigned to limit dependence on a potentially volatile commodity or component? Can existing finished goods near the end of their life cycle be cannibalized or repurposed to limit the number of new-part purchases? These are some of the riskmanagement issues associated with volatility. Supplier quality also represents a significant (third most common) concernone that speaks directly to risk-management solutions focused on the buyer-supplier relationship. Fifty percent of survey respondents experienced supplier-quality problems in 2009.

Fifty percent of survey respondents experienced supplier-quality problems in 2009.

Figure 2: Survey recipients were asked, For each procurement risk, indicate the extent to which your company faces that risk. Depicted is the percentage of respondents who indicated a moderate-to-high extent of risk.

Our company's dependency on supplier Unanticipated price volatility (raw material) Supplier quality problems Supply chain disruptions Unanticipated price volatility (currency exchange rates) Supplier bankruptcy Legal/Regulatory Supplier dependency on our company

65% 63% 55% 53% 48% 44% 30% 29%

Figure 3: Exposure to raw materials price volatility by industry. The X axis measures the percentage of cost of goods sold that is typically exposed to price volatility. The Y axis charts the average percentage of price changes that cannot be passed on to final customers.

More than 70%

Oil, Gas and other Natural Resources Communication Pharmaceuticals and Medical Products Media and Entertainment

Mining and Metals Electronics and High Tech

50% to 70%

Utilities (distribution of electricity, gas, water)

Automotive Industrial Equipment Chemicals Retail

Transportation Manufacturing

Construction

Food Consumer Goods

Less than 50%

Less than 3%

3% to 8%

More than 8%
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Supply chain disruptions (the fourth most highly rated concern) may or may not be a supplier management issue. But it still may be the most difficult to deal with since the capabilities of suppliers, third parties, business partners and even internal organizations must all come under scrutiny. Macroeconomic, political, social and ecological factorseverything from OPEC petulance to west coast port capacity problems to Hurricane Katrinaalso contribute to the potential for supply disruptions. Bottom line: Risk management solutions focused on minimizing supply disruption must be particularly varied.

Thinking and Acting Cross Functionally

Survey respondents generally know that risks affecting procurement have impacts that extend far beyond the procurement organization. However, that knowledge is not well reflected in the dispersal of procurement risk management responses and solutions across functions. As shown in Figure 4, risk management expertise tends to be centered either in finance (risk managements traditional home) or in procurement. Unfortunately, neither comprises a complete answer. One key to successful risk management in procurement is to ensure its presence across all the organizations with which procurement interacts on a regular basisfrom product design to manufacturing to supply chain management to service and spare parts management.

This is not to say that each department should develop its own capability, but rather that procurement risk management needs to be constructed and executed more cross functionally across the enterprise. And it often is advisable for procurement to take the lead in driving this change across functions.

Figure 4: Survey recipients were asked, For each procurement risk, indicate the departments or functional areas involved in identifying and monitoring that risk.

Unanticipated price volatility (currency exchange rates)

Unanticipated price volatility (raw materials)

Supplier quality problems

Supply chain disruptions

Supplier bankruptcy 0% 20% 40% 60% 80% 100%

Procurement Product Design

Manufacturing Supply Chain

Finance Other

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Risk Management Issues and Responses are Often Industry Specific

While many of the conclusions drawn in this Point of View apply to companies across sectors, it certainly is true that risk varies by industry. Consider the various industries summarized in the table below and how much difference there often is in the nature and degree of risk.

Exposure to price volatility and supplier risks by industry.

Impact of wheat or milk prices

High

Chemicals Food Mining and Metals

Construction

Transportation Oil, Gas and other Natural Resources

Impact of oil prices

Perceived exposure to price fluctuations

Manufacturing
Medium

Industrial Equipment Consumer Goods Retail

Automotive Utilities (distribution of electricity, gas, water)

In 2009, some OEMs have had >30% of their suppliers in bankruptcy situation

Low

Pharmaceutical and Medical Products

Media and Entertainment Communication

Aerospace and Defense Electronics and High Tech

Mono-source situations

Low

Medium

High

Perceived exposure to supplier risks

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2. Risk Management as a Key Driver of Procurement Performance

Figure 5: A procurement performance bell curve (annual savings relative to annual operating costs) reflects companies investments in risk management.

Low Performer 18%

Mid-range Performer 60%

Master 22%

ROI< 3

ROI> 8

The hypothesis was that companies with stronger (though not necessarily more) investments in procurement risk management would be more likely to show up on our litmus test as procurement masters. Companies with lessfocused or less-effective risk management investments would more likely be labeled low performers. This did prove to be the case.
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Just how important is sophisticated risk management to companies achievement of high performance in procurement? It is clear from information presented in the previous section that procurement risk has a great many faces (supplier dependency, price volatility, supply chain disruption, etc.) and that most companies are exposed to these realities on a regular basis. In fact, Accenture has determined that risk issues have a greater cost impactand take up far more timethan most buyers efforts to capture savings through negotiation. Given this reality, to what extent is procurement risk management considered a must have capabilityan investment in improved performance? The research team sought to address this question by mapping CPOs investments in risk management capabilities against the specific levels of performance achieved by their procurement organizations. Our hypothesis was that companies with stronger (though not necessarily more) investments in procurement

risk management would be more likely to show up on our litmus test as procurement masters. Companies with less-focused or less-effective risk management investments would more likely be labeled low performers. This did prove to be the case. According to a previous Accenture study,4 high performers in the procurement realm (procurement masters) save about ten times as much as it costs them to operate their procurement organizations. In other words, if it costs a company $100 to staff and support an inhouse procurement department, an organization that has achieved master status will identify and capture annual procurement-related savings of $1,000. The bell curve for the aforementioned survey identified 16 percent masters, 67 percent midrange performers and 17 percent low performers.

Figure 6: Procurement performance and level of realized risks.

30 25

Masters Mid-range Performers Low Performers

20

Procurement ROI

15 10

0 0 1 2 3 4 5 6

Average yearly number of incidents by critical supplier

As shown in Figure 5, a similar bell curve emerged for our present study on procurement risk management. First, a composite score (from 0 to 100) was calculated to reflect survey respondents investment in procurement risk management capabilities. These capabilities were associated with one or all of three categories: Risk anticipation (e.g., predictive analytics or dual sourcing) Risk identification and monitoring (e.g., supplier scorecards) Risk mitigation (e.g., mitigation and escalation plans) These scores then were correlated to the procurement-related returns on investment achieved by each respondent. Following are some of the specific observations that helped survey analysts make a connection between risk-management investments and distinctive levels of overall procurement performance.

Procurement performance tracks to respondents level of realized risk Figure 6 demonstrates that high levels of procurement ROI are closely associated with fewer risk incidents. This applies to masters, mid-range performers and low performers, but is particularly evident among the masters. It is also notable that companies with a high number of incidents are rarely masters. Companies with low procurement performance seldom have a high number of incidents, not because they are better at managing risk but because they are unaggressive when it comes to pursuing procurement savings. Companies investing in supplier risk management capabilities often experience fewer incidents The key to interpreting this finding is combining it with the insights depicted in Figure 6: In Figure 6, we show that fewer risk incidents are associated with the achievement of higher procurement ROI. In

Figure 7, we demonstrate that, as companies invest more intently in risk management capabilities, the fewer incidents they are likely to experience. The same basic arc was found when the research team graphed respondents implemented risk anticipation capabilities, risk monitoring capabilities and risk mitigation capabilities. Companies that have not invested in price risk monitoring capabilities for raw materials are limited in their ability to improve procurement performance Depicted in Figure 8, this is a rawmaterial-price-risk-management example of the information described more generally in Figure 7. It further supports the broad conclusion that procurement risk investments result in higher procurement ROI. The distinction is that price risk has two distinct geneses: macro-economic forces and fluctuations that are influenced directly by the supplier. Sophisticated procurement risk management capabilities potentially address both. 13

Figure 7: Level of realized risks compared to investment levels in supplier risk management capabilities.

Average yearly number of incidents by critical supplier

0 15 20 25 30 35 40 45 50 55 60 65

Overall supplier risk management capabilities Masters Mid-range Performers Low Performers

14

Figure 8: Procurement performance and level of investment in price risk monitoring capabilities.

30

25

20

Procurement ROI
15

10

0 -10 10 30 50 70 90

Masters Mid-range Performers Low Performers

Overall price risk monitoring capabilities

15

3. Risk Management Mastery: What Do High Performers in Risk Management Do Differently from other Companies?

Thus far, we have demonstrated that companies in a variety of industries confront myriad procurement-related risks, and that a clear connection can be made between companies investment in risk management capabilities and the level of procurement mastery and ROI they are able to attain. Two things remain to be determined: What do procurement masters do differently that allows them to achieve higher ROI? What specific investments do procurement masters make to support those capabilities? Accentures experience is that one of procurement masters most important attributes may be their use of a risk management frameworka comprehensive, end-to-end approach to anticipating, monitoring and mitigating risk. As shown in Figure 9, this is basically an over-layering process, whereby three riskmanagement stages (anticipation,

monitoring and mitigation) are applied to the key components of a procurement organization.

1. Procurement Strategy
The research team observed that procurement masters are significantly more likely to address supplier and price volatility risks when developing their procurement strategies (as opposed to later on). Masters also were found to be two-to-three times more likely than low performers to integrate risk management into their category strategies, develop innovative ways to monitor risk, and implement practices and tools to mitigate risk. A good example is that masters are significantly more likely than low performers to apply dual-sourcing and risk-sharing initiatives to anticipate supplier quality risks (Figure 10). To anticipate supplier bankruptcy risks, procurement masters were found to be leaders in dual sourcing and supplier negotiations. In addition, the most

significant disparity between masters and low performers was in the area of risk sharing clauses and back-toback contracts (formal agreements stipulating that buyers can share, or even transfer, the cost of unforeseen problems across suppliers or subsuppliers). According to our study, masters are 2.5 times more likely than low performers to deploy these clauses/contracts.

Procurement masters are significantly more likely to address supplier and price volatility risks when developing their procurement strategies (as opposed to later on).

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Figure 9: A risk management framework applied to procurement.

Risk Management Framework

Risk Anticipation Develop strategies to avoid or minimize risk exposure Risk Monitoring Continuously track potential risks and raise alerts Risk Mitigation Act quickly and appropriately to minimize realized risks

Procurement Strategy

Sourcing & Category Management

High Performance in Procurement

Supplier Relationship Mangagement

Requisition to Pay

Process & Technology Workforce & Organization

Figure 10: Percentage of companies using various practices or tools to anticipate supplier quality issues.

Dual sourcing Regular negotiations with suppliers

59% 50% 44% 45%

Risk sharing clauses/back-to-back contracts

44% 18%

Value engineering/reduction of commodity content Insurance

41% 32% 19% 18%

Index-based contracts

7% 9% 4% 9% 0% 5% Masters Low Performers

Supply chain financing

Hedging/financial tools

17

Figure 11: Frequency and context with which companies use supplier market analysis to address risk issues.

37% To monitor risk of supply chain disruption 18%

67% To monitor supplier bankruptcy risk 41%

14% To monitor supplier quality risk 15%

0% Masters Low Performers

10%

20%

30%

40%

50%

60%

70%

80%

Figure 12: Data collected through supplier scorecards.

Latest news on the supplier

11%

Risk-management KPIs

15%

Historical pricing

41%

Historical quality of delivery performance

78%

Supplier's corporate information

56%

18

Figure 13: Percentage of surveyed companies that document risk management to a high extent in their category strategy documents.

70% 60% 50% 40% 30% 20% 10% 0% Defining the critical level that makes the risk an incident/alert Developing mitigation plans in case of incident/ alert

Masters Low Performers

Listing decision makers in case of incident/alert

Measuring impact of incident/alert

2. Sourcing & Category Management

Integrating risk management initiatives into the strategic sourcing process (e.g., during supplier evaluation) can help companies achieve procurement mastery and there are many tools and approaches for addressing/ remediating procurement risk in this area. These include supplier market analysis, current supplier portfolio analyses, supplier audits, supplier scorecards, supplier process failure mode & effects analysis (FMEA), historic & forecast pricing analysis, and logistical & transportation risk analysis. Among these, one of the most interesting may be supplier market analysis, an activity that is practiced far more by procurement masters than by low performers (Figure 11). Supply market analysis involves a thorough assessment of supply market industry dynamics, (supply, demand, industry structure, industry profitability, supplier capacity utilization, etc. ) in order to anticipate commodity price evolution and potential supply shortages.

Respondents use of supplier scorecards also is noteworthy. While distinctions among high, mid-range and low performers were not dramatic in this area, it is remarkable that 67 percent of respondents identified scorecards as a key capability. It also should be mentioned that masters seem less likely to maintain scorecards on all suppliers; masters are likely to focus on critical suppliers only. In addition, masters were found to be 50 percent more likely to update their scorecard information on at least a monthly basis. Figure 12 identifies the kind of data that respondents collect most often via their scorecards.

management masters, they also adapt their supply relationships to various geographies and cultures. To mitigate price volatility risks, survey respondents appear most prone to use negotiations and indexbased contracts when forging and maintaining supplier relationships. Despite their prevalence, these tools are used less by masters than by the remainder of the survey population. The reason could be that these two strategies either are not considered permanent solutions or not valuable as risk-abatement approaches. As noted earlier in Figure 10, other practices identified by respondents as key to their price-volatility-management efforts include: Value engineering and reduction of commodity content (practiced by 33 percent of masters and 23 percent of low performers). Hedging and other financial tools (practiced by 26 percent of masters and 41 percent of low performers).

3. Supplier Relationship Management

When it comes to procurement, risk management masters also tend to be supplier relationship masters. Not only do they form deeper, more symbiotic connections, they also collaborate with suppliers to rapidly detect risk (e.g., through early warning systems) and neutralize risk-related issues before those issues become incidents. As risk

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Figure 14: Percentage of responding companies that leverage external data, applications and sources.

Supplier financial situation Market analysis Price indices for commodities Supplier performance Tax and legal recommendations Recommendations for how to use riskmanagement tools

74% 59% 63% 41% 48% 59% 41% 9% 33% 14% 7% 9%

Service companies (credit rating service, etc.)

67% 55% 52% 32% 30% 23% 30% 9%

Research companies

Industry associations

Consulting companies

Masters Low Performers

Risk sharing clauses (practiced by 22 percent of masters and 14 percent of low performers) Dual sourcing (practiced by 22 percent of masters and 36 percent of low performers) Survey results also show that procurement masters invest more in developing and following up on their mitigation plans. In each of the four areas noted in Figure 13, masters hold a roughly 20 percent edge over low performers.

likely than low performers (75 percent versus 32 percent) to have developed a regionally dispersed but centrally led procurement risk management network. Procurement masters also are more likely than low performers to have defined beforehand, and by function, who shall take part in mitigation plans when an incident occurs (48 percent vs. 27 percent).

focus more intently on the use of externally acquired and managed data (Figure 14). Particularly noteworthy are the extent to which this group emphasizes externally acquired information to help assess suppliers financial situations, perform market analyses, gauge supplier performance, and make tax and legal decisions.

5. Technology
The range of risk management tools available to procurement organizations is vasttoo broad for any organization to not be discriminating about what applications provide the greatest value. In fact, the ability to make smart decisions about what tools and technologies best support their riskmanagement efforts could be what best distinguishes high performers from the rest of the survey pack. Perhaps compensating for their more prudent technology-investment approaches, masters were shown to

4. Workforce & Organization

Research findings show that most companies do not assign procurement professionals to full-time riskmanagement work. However, there are distinct differences among masters, mid-range performers and low performers when it comes to centrally led coordination across regions: Procurement masters are far more

Masters were shown to focus more intently on the use of externally acquired and managed data.

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Key Conclusions
So what conclusions can we draw from the facts gleaned by the survey effort? With regard to the current procurement-risk environment, the research team determined that: Procurement organizations have traditionally under-estimated the effect of risk on their performance. However, the economic downturn has helped them realize how dramatically procurement risk can affect them. Many companies remain ill-equipped to cope fully with procurement-related risk. The most common and potentially dangerous procurement-risk areas relate to supplier reliability and price volatility. This exposure varies significantly across industries. It is increasingly critical that companies fully assess supplier risks (including financial and logistical concerns) and construct formal mitigation plans. Buyers must recognize that anticipating and rapidly reacting to market forces are more useful than concentrating on (non) relationships founded solely on lowest price. However, both aspects remain key. Team members further concur that excelling at risk management contributes significantly to a companys achievement of procurement masterythe ability to maximize the savings that a procurement organization generates relative to its costs. For example, a key characteristic of procurement masters is their adoption of a cross-functional approach: acknowledging and acting on the fact that procurement touches almost every corporate function and thus must be equally inclusive in its approaches to risk management. Procurement risk masters also tend to be particularly proficient at using specially developed risk-focused tools and services. Perhaps the best example is predictive analytics: Masters continuously monitor raw material price developments, forecast them and use technology to enable fast scenario planning. Basically, these organizations are better equipped than most to foresee a particular hurdles effect on their cost structure and the relative profitability associated with a specific component, system or end product.

Figure 15: High performers in procurement risk management often organize their capabilities in terms of risk anticipation, risk monitoring and risk mitigation.

Anticipation Capabilities
Carefully integrate procurement risk management into each category strategy (differentiation by category) Use dual sourcing and regular negotiations with suppliers to anticipate supply risks related to quality and supply chain disruptions Use risk sharing clauses/back-to-back contracts Apply value engineering concepts to look at alternative materials Use predictive analytics to analyze raw material regarding pricing and forecast & build scenarios on the effect on company's own cost structure

Monitoring Capabilities
Identify and assess the level of risk at key stages of the strategic sourcing process Identify, assess and continuously monitor key risks with critical suppliers at each step of the supply chain Adapt monitoring approaches to categories of suppliers and to different geographies and cultures Use external data sources for continuous monitoring of the supply markets, supplier's financial health, etc. Apply SRM practices-close integration and collaboration with selected critical suppliers and agree on "early warning systems"

Mitigation Capabilities
Develop a process to measure impacts of incidents/alerts and continuously improve risk management practices Integrate the organization in case of incident in mitigation plans (who makes, who decides) Emphasize development of mitigation plans for critical suppliers

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As shown in Figure 15, masters in procurement risk management often organize their capabilities in terms of risk anticipation, risk monitoring and risk mitigation. This clear segmentation of risk-related processes allows them to develop the formal plans and responses that help whittle down procurement risks otherwise-daunting impacts. At the Anticipation stage, for example, masters align risk programs with category strategies, make use of risk-sharing clauses and excel at predictive analytics. At the Monitoring stage, they work more closely with select suppliers, design formal supplier relationship management programs and (compared to low performers) make exceptional use of external data sources. And for Mitigation, masters stand out in the formation of decision processes and the use of formal metrics and measurements.

Lastly (and unsurprisingly) masters are collaborators: They work with critical suppliers to predict, detect and neutralize risk-related issues before those issues become incidents. And when incidents do occur, masters have predefined action plans. In net, an increasingly straight line can be drawn from 1) excellence in risk management to 2) procurement mastery to 3) high performance (a companys ability to consistently outpace competitors with respect to profitability and growth). Procurement risks will only continue to grow. However, companies that excel at procurement risk management will, in all likelihood, continue to grow also.

About the Authors

Per Segerberg is a Senior Executive in Accenture's Supply Chain Management Service Line. He has 23 years of experience as a management consultant and currently leads the Sourcing & Procurement practice in the Nordics. He has extensive experience in operational excellence programs and specializes in procurement transformation programs, including global procurement organizational design, global sourcing, supplier development and workforce transformation. He has worked across a variety of industries, including automotive, commercial vehicle, industrial equipment, high tech and electronics. He also has responsibility for developing Accentures High Performance in Procurement offering and assets. Based in Gothenburg, Sweden, he can be reached at Per.Segerberg@accenture.com.

David Simchi-Levi is a Professor of Engineering Systems at Massachusetts Institute of Technology. His research focuses on developing and implementing robust and efficient techniques for logistics and manufacturing systems. He has published widely in professional journals on both practical and theoretical aspects of logistics and supply chain management, as well as co-authored award-winning books: Designing and Managing the Supply Chain (McGraw-Hill, 2007), The Logic of Logistics (Springer 2005), and Managing the Supply Chain: The Definitive Guide for the Supply Chain Professional (McGrawHill, 2004). His newest book, Operations Rules: Delivering Customer Value through Flexible Operations, will be published by MIT Press in September 2010

Aurlien Rothstein is a Senior Manager in Accenture's Supply Chain Management Service Line. He has extensive experience in the areas of global sourcing and procurement, including strategic sourcing, supplier development, sourcing transformation and performance management. He has worked across a variety of industries, including automotive, industrial equipment, high tech and consumer goods. He has also contributed to the development of Accentures global sourcing offering and assets. Based in Paris, he can be reached at aurelien.rothstein@accenture.com

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About Accenture

About Accenture Supply Chain Management The Accenture Supply Chain Management service line works with clients across a broad range of industries to develop and execute operational strategies that enable profitable growth in new and existing markets. Committed to helping clients achieve high performance through supply chain mastery, we combine global industry expertise and skills in supply chain strategy, sourcing and procurement, supply chain planning, manufacturing and design, fulfillment, and service management to help organizations transform their supply chain capabilities.

Accenture is a global management consulting, technology services and outsourcing company, with more than 190,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the worlds most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$21.58 billion for the fiscal year ended Aug. 31, 2009. Its home page is www.accenture.com.

We collaborate with clients to implement innovative consulting and outsourcing solutions that align operating models to support business strategies, optimize global operations, enable profitable product launches, and enhance the skills and capabilities of the supply chain workforce. For more information, visit www.accenture.com/supplychain.

Copyright 2010 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.

Footnotes
1Managing

Risk for High Performance in Extraordinary Times, 2009 by Accenture.

2Still,

The authors would like to extend a special note of thanks to Maya Olsha for all of her contributions to this research initiative.

the aforementioned report (Managing Risk for High Performance in Extraordinary Times) noted that risk management is often absent from mainstream decision-making processes. For no major process (strategic planning, performance management, M&A, budgeting and forecasting, etc.) was risk management positioned as a major consideration.
3Accenture

defines critical supplier as a supplier that requires specific monitoring to avoid any significant impact on companys performance in case of incident.
4High

performance through procurement: Accenture research and insights into procurement performance mastery, 2007 by Accenture