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Procurement risk: Is it visible to you?

  • General News
  • 15th December 2015

Tucked away in the pastoral splendour of the old Pilkington Glass family’s country seat of Rainford Hall in St Helens is me, Stephen Ashcroft, a senior consultant at Brian Farrington Ltd, one of the world’s longest established procurement and supply chain consultancy and training specialists. Our clients include a range of FTSE100 firms as well as leading organisations in North America, Southern Africa and Asia. Risk is an ever present consideration, regardless of where we provide our services.  Examples are safety critical equipment on aircraft, traceability of pharmaceutical feedstock and business continuity plans for strategic suppliers. How do procurement organisations plan to buy a high-risk high-value product or service? We trust you will find the following helpful, recognising that it is not intended as a full statement of requirements for such a plan.

A specification should be written, including acceptance criteria. It imposes an early discipline. By definition, this must involve stakeholders and regardless of whether it is a project, goods or services that are being purchased the logic remains. If, for example, professional services providers are awarded a contract we may ask what are their deliverables? We have seen this defined as a ‘Report’. Clearly this is totally inadequate, recognising many consultants that many are in breach of contract for not providing high quality advice.

The trading and contractual history of the proposed supplier should be set out. There is a constant failure to undertake appropriate due diligence both prior to contract award and subsequently.  What happens when a strategic supplier goes into administration?

There is a serious need for comment on the cost of the procurement. If there is a budget, where did that originate? Is it a guess or is it informed? Have we engaged in a through life cost study? What are the key cost drivers? Who will devise the cost model to include with the RFP/ITT? If a contingency is to be provided how was this determined? – in other words is it a standard 10% overspend allowance?  Construction and IT offer serious examples of purchase prices getting out of control, increases of 150% are not uncommon.

The planned contractual safeguards should be set out. If we are using standard forms of contract or standard terms and conditions of purchase, are these adequate? The answer is probably not. There are many factors to consider including, acceptance testing, warranty, limit of liability, insurance, key personnel, dispute resolution, termination, step in rights, right of audit and payment of damages. Procurement should take this initiative, basing their approach on a comprehensive risk assessment.

Key elements of a plan to ensure procurement risk is visible should include a thorough risk assessment considering such matters as the supplier’s business continuity plan, dependencies between the parties, technical specification deliverables, programme management, inspection and testing and key personnel.

Stephen Ashcroft of www.brianfarrington.com can be reached at s.ashcroft@brianfarrington.com and is also (avidly) on Twitter @ProcureChange

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