When Brian Farrington announced at the end of 2012 that Procurisk® had been live for a month or so, a number of leading people in the supply chain risk space questioned how such a significant change could have happened without it having been detected earlier.
Ray Gambell Head of Brian Farrington procurement risk team talked about Procurisk® being the first time a completely new approach to identifying procurement risk had been introduced, worldwide, and that it impacted on categories of spend and project types.
However, the visible impact of this change has been less significant than many recent technology stories, such as SAP/Ariba or OB10/Tungsten launches and the Trade Extensions innovations.
Has Brian Farrington changed procurement risk management forever?
Immediate repercussions weren’t as big as expected.
There seems to be a contrast between the vision of the change as stated by Brian Farrington and its repercussions within the senior procurement/CPO business community.
This leads us to conclude that although Procurisk® is a significant move, it is an upgrade in capabilities and that we will see the full impact of this change over the coming months and years.
What will Procurisk® allow people engaging and managing suppliers/vendors and contractors to do?
Procurisk® enables and equips people involved in procurement to understand supplier risk more closely, with greater understanding of words like ‘how’ ‘why’, ‘where’ and ”when’, as well as the risk that sits behind these word.
As we know mismanaged risk, creates losses and cause severe reputational damage. A structured and rigorous evaluation process of procurement risks has not been readily available, so to be able to access actionable data to identify and manage procurement risk is – right now – with all the noise of horsemeat, fraud and Asian supply chain risk looking good for Brian Farrington clients.
Why did Brian Farrington launch Procurisk®?
Brian Farrington recognised that clients expectations are that ‘solutions’ are provided in a blended format, typically with a technology platform. The intellectual capital that resides in the ‘grey-haired’ team at Brian Farrington and their deep research findings in best practice procurement risk management ensures its Procurisk® product is robust, with conversational-based diagnostics as a innovative cloud app, following its long-term technology push (working closely with Lancaster University in the UK.
Brian Farrington has made no secret of the fact it desires to become a ‘one-stop’ niche problem solving procurement specialist. With services formed through consultancy, training & development, coaching – all underpinned by their investment in technology to work with clients’ to solve procurement problems; all of which has been written about over the last year and a half.
Procurisk® makes great use of natural intuitive abilities to interface with the easy to use system – the output of a spider diagram to help ‘visualise’ where the risk lies across a comprehensive suite of datasets has been getting some great feedback. One client said “ the COO presented with the output diagram, set the challenge – ‘get that red section to green by the next report date’ – pretty good actionable data!”
How do procurement organisations actually plan to buy a high-risk high-value product or service?
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 actually plan to buy a high-risk high-value product or service? Well, it’s a high level skill with a breadth of commercial, contractual, financial and technical challenges.
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. Here is were Procurisk® really comes into its own ensuring a consistent and effective approach much quicker than traditional risk management methodologies.
Conclusion
Has Brian Farrington changed procurement risk management forever? While we haven’t yet seen Procurisk® drastically change the rather pedestrian approach to procurement risk management (risk log anyone? Yes I think we had one back at the tendering stage!), there are some clear implications and the industry should take note. If we consider there are three key stages to managing risk effectively:
1) Early and systematic identification, analysis and assessment of risks and the development of plans for dealing with them.
2) The allocation of responsibility to the party best placed to manage the risks.
3) Ensure that the costs incurred are commensurate with the importance of the contracted services and the risks involved.
Procurisk® appears to be ideally placed to enhance the rigour of procurement risk processes.
Recommended research:
3 procurement risks to make you shiver
About Brian Farrington
Brian Farrington is one of the world’s longest established procurement and supply chain consultancy and executive training specialists. 33 of the current FTSE100 have retained our services, as well as leading organisations in the UK, North America, southern Africa and Asia. Established in 1978, we have proven expertise and experience in strategic procurement and risk management.
Brian Farrington solutions and services are formed through consultancy, training & development, coaching – all underpinned by proprietary technology . Our four core areas of procurement risk management capability are:
•Strategic review and commercial governance
•Performance delivery and transition
•Major project support including managing contractual risk
•Learning & development in support of organisational aims.
For more details about procurement risk management and Procurisk® Ray Gambell can be reached at on 01744 20698 and email
