Member Article

The unknown unknowns of procurement risk

It’s an infamous quote, from former US Secretary of Defence Donald Rumsfeld at a news briefing in 2002:

“There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. There are things we don’t know we don’t know.”

But the phrase, “unknown unknowns” has been used for much longer – and it’s certainly worthy of use in the worlds of procurement risk management.

There are plenty of factors in business that we know will be uncertain, and we could consider these as “known unknowns”. Fluctuations in energy prices, for one thing – although plenty of businesses do now adopt an energy purchasing strategy to enable them to turn the “known unknown” of energy price volatility into a “known known”.

And good risk management is about anticipating all of the “known unknowns” and planning for how we can deal with them. Great risk management and procurement goes further still, and even deals with the “unknown unknowns” that could impact on your supply chain and your business.

So here are ten questions to ask yourself to help ensure your procurement risk management covers the full range of knowns and unknowns – whether or not you know about them!

1. Do you have an overall picture of the risks affecting your supply chain and how they would impact on your business?

2. How have you decided what risks to capture, how to measure and evaluate them?

3. Have you seen your suppliers’ risk management policies?

4. Is your supply chain dynamic and flexible? Does it include redundancy and a diversified supplier portfolio?

5. Is there clear ownership of risk management, and does it extend across (and up and down) through the business? Are business risks separated from procurement risks and if so, how do they interrelate?

6. Do you understand which of your suppliers are absolutely critical for continuity of the business, and which are not?

7. Have you undertaken disaster planning simulations?

8. What data are you monitoring? Is it adequate?

9. How are you analysing and reporting on the metrics that you measure?

10. Are you collaborating extensively (or enough) with your suppliers to mitigate risks?

World class performers in procurement risk management will know all the answers to these questions (and many more).

But whatever the size of your business, if you find them difficult to answer, perhaps now’s a great time to look at managing and mitigating risk in the business, and ensuring the knowns and the unknowns don’t catch you out.

This was posted in Bdaily's Members' News section by Steve Malone .