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Companies must assess risk to prepare for continued turbulence

Businesses should carry out a risk assessment for each area of their spending to prepare themselves for continuing economic turbulence, say procurement specialists ADR International.

The assessment should determine the likely impact for an organisation’s own sourcing activity and also establish and assess the risk facing its key suppliers.

Robin Jackson, CEO of ADR International, advises flexibility, however. Identifying the impact and the likelihood of an event taking place should enable businesses to prioritise their actions, but contingency plans should be in place in case predictions turn out to be wrong.

In the latest eBulletin from ADR International, Jackson says: ”We live in a massively unpredictable world and need to make the right procurement and sourcing decisions right now to  benefit our businesses and organisations in the future.”

Predictions Jackson has gathered from other expert commentators include that the US dollar will increase in value against other currencies except the Chinese yuan, the UK will need support from the IMF and that interest rates will increase in most major western economies to counter inflation.

Rebecca Howard, Director of ADR Learning, the training and development division of ADR International, advises that the kind of deals struck with suppliers before the economic turmoil may no longer be appropriate. She says short-term contracts may be better in current conditions.

In her piece titled “The old rules no longer apply”, she says: “The traditional thinking has always been to mitigate the risk of cost variation in volatile categories by linking the contract to indices such as inflation, commodity pricing or a currency exchange rate.

“This has seemed like a good idea in the past. But these indices are now very difficult to predict and some organisations have come to think that they may be better off with short-term contracts.”

Bill Michels, CEO of ADR North America, says visiting suppliers on their own premises is an invaluable tool.

“Sometimes the only way to validate the soundness of your supply base is to make a formal, structured visit to suppliers,” he says. “It’s tempting to dismiss these visits as a discretionary expenditure, but nothing could be further from the truth.”

Michels makes a series of recommendations for ensuring that maximum benefit is gained through supplier visits. These include mapping the supplier’s supply chain, asking to inspect their financial records and examining the quality of their products.