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23.04.2019 – Supply Reliability Is the Top Priority

Risk Management Study Reveals the Response to Political Turmoil

Shortages of materials and price stability are the biggest risks faced by buyers. That is the verdict of the risk management study conducted by INVERTO, a subsidiary of the Boston Consulting Group (BCG). Managers are also concerned about growing global protectionism and Brexit. However, despite an increase in risk compared to last year, only slightly more than half of the companies surveyed engage in systematic risk management.

London, 23 April – Supply risks remain the biggest threat for procurement this year for 65 percent of respondents. Concerns surrounding price stability have also risen significantly. Last year, 35 percent of respondents stated this was a risk, compared to 48 percent this year. Indeed, as a result of continued favorable economic activity and the implementation of trade barriers, it is clear that the current situation in many procurement markets is tense.

Increasing protectionism and Brexit, reported by 54 percent and 45 percent of respondents respectively, both feature heavily in terms of general economic risk. This is a major change compared to last year when just 17 percent and 19 percent of respondents respectively perceived these issues to be a risk. The marked rise in figures demonstrates that confidence in the ability of politicians to negotiate compromises has waned.

In addition, IT crime and outdated digital technologies also rank highly on the list of general risks. Although slightly down compared to last year, the current figures, which stand at 49 percent and 45 percent, indicate that almost half of all decision-makers still do not feel sufficiently well-equipped to deal with such risks.

 

Definition of Countermeasures without Systematic Risk Identification

Overall, 56 percent of respondents stated that risks are systematically identified and assessed by their company. The larger the company, the more likely it is to engage in risk monitoring: 76 percent of companies that participated in the survey with a turnover in excess of €1 billion do so. Of the companies with a turnover of less than €1 billion, only 48 percent do so. Although only just over a half of companies engage in risk monitoring, more than three quarters of them (78 percent) define countermeasures, including 63 percent of those who have no systematic risk identification.

 

Companies Must Pay Attention to Risk Management

Countermeasures employed to mitigate risk focus on conventional strategies, such as regular supplier evaluation, long-term framework contracts, and dual-sourcing strategies. More sophisticated strategies, such as predefined contingency plans, support programs for suppliers, or hedging, are employed by less than a quarter of the companies that participated in the study. Here, there are marked differences compared to last year: Fewer buyers (69 percent versus 77 percent) are, as a result, currently able to conclude long-term contracts. In response, an increasing number of companies have built up security stocks (43 percent versus 35 percent).

“As a result of continued trade policy disputes and major supply risks, we strongly encourage all companies to establish a systematic risk management system and define countermeasures at an early stage,” advises INVERTO’s Principal Philipp Mall, who led the study.

 

About the Study

INVERTO invited almost 100 managing directors and procurement managers from a diverse range of industries to share how they managed risks. The questions covered general threats to business operations, as well as specific procurement risks. INVERTO has conducted this annual study since 2013.

 

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