BBA 4326 Unit IV Essay

BBA 4326 Unit IV Essay

Columbia Southern University

Risks and Uncertainties

There are many risks or uncertainties that can arise within the procurement process. According to Garret (2015), risk is expressed as exposure to harm and is associated with contingent events occurring or not occurring, and, can come in the form of uncertainty regarding a specific event or as an undesirable consequence associated with the event. Problems from risk arise when they are not understood and intelligent decisions cannot be made in order to avoid them. Many risks can be identified and addressed within contract pricing agreements and it is up to the buyer to determine which risks are significant and then to decide how to handle them by devising contract terms that address these risks (Garrett, 2015). “The buyer must identify the sources of uncertainty about contract performance and the risks associated with those uncertainties to write a contract that will address those risks and fairly distribute them between buyer and seller” (Garrett, 2015, p. 73). Poorly managed risks within the procurement process such as inadequate needs analysis and poor supply chain management can have a wide array of adverse implications on the objectives of an organization and therefore must be managed accordingly within the contract pricing agreement.

Inadequate Needs Analysis

Knowing what you need, when you need it, and who can deliver it on time and at the best price is an essential part of the procurement process. This information is gathered through a needs analysis and without this information an organization may end up purchasing either too much or not enough of a particular product or service, may end up purchasing these products or services at less than optimal prices, or even purchase the wrong products or services all together. Having an inadequate needs analysis can make it difficult to connect budgets to actual purchasing behavior, can create an incomplete audit trail, and expose an organization to significant financial risk that can damage profitability, the ability to gain a competitive advantage, as well as an organizations reputation all together (Biedron, 2019). To combat this risk, it is essential for organizations to conduct an internal needs analysis in order to gather the data required to ensure that their need are number one, known, and number two, that their needs are met within the contract pricing agreement. The purpose of gathering data is to benchmark current performance, analyze and understand how resources are being distributed and used, determine the costs for particular departments and functions within an organization, and to project future growth and needs (Blood-Rojas, 2019). Additionally, an internal needs analysis provides organizations with the data needed to “identify usage patterns and other information that make it easier both to develop smarter purchasing strategies and negotiate mutually beneficial contracts” (Biedron, 2019, n.p.) between buyers and suppliers.

Poor Supply Chain Management

Another potential risk exposure that an organization may face within the procurement process is risk associated with poor supply chain management through the use of inadequate suppliers. It is very important for organizations to carefully evaluate and select suppliers as a supplier’s inability to meet criteria set forth in the terms and conditions of a contract can result in significant losses to the buyer (Blood-Rojas, 2019). According to Biedron (2019, n.p.), “failing to vet your vendors using key performance indicators (KPIs) robs you of a wealth of information you can use to remove redundancies and form strategic partnerships with your best suppliers.” Key performance indicators can include reputation, past performance, financial statements, credit reports, and references from other customers. In order to avoid supply chain disruptions and to mitigate the risks associated with a poorly managed supply chain and inadequate suppliers, organizations may choose to select more than one supplier within a contract pricing agreement. One vendor may serve as a primary provider while the other vendor serves as a back up should the primary fail to deliver on their obligations. In addition to ensuring no supply chain disruptions, this creates a competitive environment among the suppliers and establishes the potential for lower prices and more quality products or services (Blood-Rojas, 2019).

References:

Biedron, R. (2019, March 20). Procurement Risks & How To Mitigate Them. Retrieved from https://www.purchasecontrol.com/blog/procurement-risks/

Blood-Rojas, C. (2019, June 20). The 7 steps of a strategic procurement process. Retrieved from http://www.tradeready.ca/2017/fittskills-refresher/7-steps-of-a-strategic-procurement-process/

Garrett, G. A. (2015). World class contracting (6th ed.). Riverwoods, IL: CCH.