Last updated on Feb 16, 2024
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Plan and prepare
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Communicate and build rapport
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Evaluate and compare
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Negotiate and agree
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Monitor and manage
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Review and learn
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Here’s what else to consider
Procurement risks are the potential pitfalls that can affect your ability to acquire the goods or services you need for your project or business. They can range from delays and quality issues to fraud and legal disputes. To avoid or minimize these risks, you need to apply some negotiation skills and strategies throughout the procurement process. Here are some tips to help you.
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- Gaurav Nirmal General Manager- Procurement
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- Shrinath D SECTION MANAGER at CPF(India) Private Limited -
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1 Plan and prepare
Before you start negotiating with potential suppliers, you need to plan and prepare your procurement objectives, criteria, and budget. You also need to research the market, the suppliers, and the legal and regulatory requirements. This will help you identify the best options, the potential risks, and the mitigation measures. You should also prepare a clear and detailed request for proposal (RFP) that specifies your expectations, deliverables, and terms and conditions.
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- Gaurav Nirmal General Manager- Procurement
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Procurement Risk Mitigation Plan:1. Thorough vendor assessment, 2. Contract clarity3. Supplier diversification 4. Continuous monitoring5. Risk identification6. Legal compliance7. Financial due diligence 8. Insurance coverage 9. Performance metrics10. Contract flexibility
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- Shrinath D SECTION MANAGER at CPF(India) Private Limited -
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Here are some strategies to minimize procurement risks:1. **Market Research:** 2. **Supplier Evaluation:** 3. **Clear Requirements:** 4. **Contract Management:** 5. **Diversify Suppliers:** 6. **Continuous Monitoring:** 7. **Risk Assessment:** 8. **Compliance and Regulations:** 9. **Collaborative Relationships:** 10. **Technology Utilization:** 11. **Training and Skill Development:** 12. **Contingency Planning:** 13. **Insurance:** 14. **Ethical and Sustainability Considerations:** By combining these strategies and customizing them according to your specific procurement needs, you can significantly reduce the risks associated with procurement processes.
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In the world of business, procurement risks are hidden dangers that can jeopardize budgets, deadlines, and reputations.To shield your enterprise, you must understand your needs, choose vendors wisely, manage relationships rigorously, and stay compliant with regulations. Don't forget to prepare for supply chain disruptions and budget fluctuations. Invest in your procurement team and ensure they have the right skills. Procurement isn't just a process; it's the foundation of business success.
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In avoiding procurement risks, vetting suppliers thoroughly with a strong approval criteria, clarifying contracts, and diversifying sources are essential. Regular risk reviews, open communication and contingency planning. These strategies ensure a more resilient and stable supply chain, minimising potential disruptions and ensuring reduced risk.
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2 Communicate and build rapport
During the negotiation process, you need to communicate effectively and build rapport with the suppliers. You should use active listening, open-ended questions, and positive feedback to understand their needs, concerns, and motivations. You should also use empathy, trust, and respect to create a collaborative atmosphere and avoid conflicts. This will help you establish a long-term relationship and a win-win outcome.
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It has been my experience that having a mutually beneficial, trusting, long term association with vendors helps in the sustenance of uninterrupted supply chain.
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- Bill Muhati Procurement Manager, Nairobi Safari Club by Swiss-belHotel
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On first negotiating you can let the vendor representative present it's requests, by explaining how it undertakes it's services to it's clients, place terms and conditions. This will enable you to place your company requirements in if not you place it as a request. This is contrast to you giving your company fpr the vendor to agree with. I mean your requirements and the vendor's should be aligned to form a stronger contract.
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3 Evaluate and compare
After receiving the proposals from the suppliers, you need to evaluate and compare them based on your criteria and budget. You should use a scoring system or a matrix to rank the proposals objectively and transparently. You should also consider the value for money, the quality, and the reliability of the suppliers. You should avoid choosing the lowest bidder without considering the other factors that can affect the performance and the risk level.
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There are several steps you can take to evaluate a supplier:1. Define your metrics2. Identify potential vendors3. Create an evaluation process4. Communicate with vendorsEvaluating potential suppliers allows you to review business needs. This can involve understanding what materials your product needs, how frequently you need to order products and if production varies throughout the year. Companies face different risks from each vendor and identifying these can help you plan contingencies. For example, one vendor might offer fluctuating prices, which can cause the company to exceed a budget when purchasing. When evaluating each supplier, you might assign risks to each. So you can determine which risks have an impact on the business
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- Bill Muhati Procurement Manager, Nairobi Safari Club by Swiss-belHotel
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This point you need to meet after looking into the price list, so that you would have done comparisons and market survey. At the meeting it would be easier to argue your case and give reason why.
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4 Negotiate and agree
Once you have shortlisted the best suppliers, you need to negotiate and agree on the final contract. You should use your preparation and communication skills to negotiate the price, the scope, the schedule, and the contingencies. You should also use your leverage, your alternatives, and your concessions to reach a mutually beneficial agreement. You should avoid making assumptions, accepting vague terms, or compromising on essential issues.
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- Bill Muhati Procurement Manager, Nairobi Safari Club by Swiss-belHotel
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At times you may disagree but given time you can come back to agree. You can agree but when it comes to contract let a third persons reading and advice be another step. Like payment plan let the accountants advice. Delivery time and day it should be user department to decide.
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5 Monitor and manage
After signing the contract, you need to monitor and manage the supplier's performance and compliance. You should use regular meetings, reports, and audits to track the progress, the quality, and the risks. You should also use feedback, recognition, and incentives to motivate and reward the supplier. You should avoid micromanaging, ignoring problems, or changing the contract without mutual consent.
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There are a number of ways in which companies can monitor supplier risk. One way is to keep track of supplier performance indicators (SPIs). These include metrics such as on-time delivery, quality levels, and customer satisfaction rates. By tracking SPIs, companies can get a sense of which suppliers are meeting their targets and which are not.Another way to monitor supplier risk is to conduct regular audits. These can be either internal or external audits, depending on the resources available.Also companies can use supplier questionnaires to collect data on supplier performance. This information can be used to identify areas of concern and work with suppliers to improve their performance.
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6 Review and learn
At the end of the procurement cycle, you need to review and learn from the experience. You should use surveys, interviews, and evaluations to measure the satisfaction, the results, and the risks. You should also use lessons learned, best practices, and recommendations to improve your procurement process and your negotiation skills. You should avoid blaming, hiding, or repeating mistakes.
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7 Here’s what else to consider
This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?
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- Reju Nair Sr Procurement Manager CPPM, CISCM, CPP, CISCP
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Based on my experience:- Choosing vendors via market insights, order history or consultants for key orders.- Diversifying vendors per order for risk reduction.- Using a weighted risk matrix for decisions.- Enforcing effective contract terms with respect to penalty for delays and well defined delivery schedule which is linked with payment.- Monitoring vendors through visits, communication, and reporting.- Conducting financial due diligence with legal compliance.- Establishing performance metrics and ensuring adherence.- Providing payment flexibility with unstable suppliers.- Fostering lasting vendor relationships to prioritize based on mutual understanding and importance.
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- Jonathan Crosland MCIPS qualified Procurement Consultant, Category Manager specialising in HR and People in Care Sector
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Its worth remembering nothing is without risk. By implementing some of the above suggestions and maintaining clear and swift communication channels, you can minimise its impacts. Have a clear idea of:- WHAT could happen, - Who can support its minimisation, - How do you communicate it (internally, externally and to authorities)- Where do you need to seek approval to implement mitigating actionsMost importantly, remember to take ownership of the risk. By assigning a risk owner is significantly more likely to be resolved quickly than everyone managing it ... badly.
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