Risk Management in middle-sized businesses

Procurement and risk management in Austrian middle-sized businesses – status quo, meaning and future developments

It is every procurement organisation’s task to connect the business needs of one’s own company with the competences of suppliers. Internal business needs are linked with external supplier competences through effective management and in a way that the company gains a sustainable competitive edge. This demand is subject to constant change, which implies that the procurement organisation is required to constantly develop itself.

In practice, the trends speak for themselves. Businesses are focussing more and more on their core competences and are purchasing an increasing amount of their entire range of services. In some companies, procurement costs amount to over 80 % of the total costs. The complexity of the purchased services is growing just as quickly as the procurement demands for the systematic use of worldwide differences in factor costs through global sourcing. Therefore, the significance of procurement in business success has increased considerably. The returns of marginal procurement cost reduction can, in proportion, be compared with significant increases in revenue. The procurement process therefore plays an essential role in business performance and profit responsibility.

In future, it is going to be essential for middle-sized businesses to implement efficient procurement processes and powerful and profit-oriented strategies in their business. This includes a holistic approach to the relationship between business and procurement as well as between business and supplier. It is businesses’ aim to achieve Management of Excellence in the area of procurement. Today, we are experiencing a paradigm shift: approaches that have been successful in procurement over the decades are no longer effective or do not achieve the desired results. Classic purchasing functions can no longer keep up with the transition in conditions due to an increase in prices by the supplier, low guarantee of delivery reliability, unattractive long-term contracts, increasing volatility in commodity markets and growing numbers in supplier insolvencies.

An increasing number of companies is recognising the fact that holistic procurement can lead to a sustainable competitive edge and that current and future risks in the area of procurement can be managed effectively. Therefore, business success requires the appropriate integration of a risk management approach in procurement

 Risk management in procurement is currently especially high on the agenda for production firms according to a survey on risk prevention in purchasing conducted by Inverto AG consultancy. The results of the survey support these findings and reveal which challenges companies will have to face in this area in the future in order to positively influence core topics.