By Proxima

20 Mar 2020

What might have been only thought exercises a few weeks ago are now reality thanks to the impact of coronavirus, writes Proxima, and all organisations must use this time to evaluate their approach to risk 


Up until a few days ago this all seemed far-fetched. Now, nobody is immune. 

At some stage, a level of abnormal will become the new normal. When it does, we will have to ask ourselves what, if anything, of what we have learnt so far still applies. Do the old rules still apply in a new world? 

Let’s face it – most of the talk will be around cash, agility, supply chain resilience and risk management. That’s a good list, and whilst the future context may be different, the importance of those factors is playing out before our eyes.

You might not realise it, but most of us have been living in an uncertain world for some time now. From Brexit to trade wars, to global warming, major world economies and the UK public sector are continuously being challenged to be prepared for the unexpected. Add to that list anyone who works in an SME, or anyone who is self-employed trying to grow a business. 

Against this backdrop, understanding your risks, embedding resilience and the ability to react quickly and decisively can be the difference between success and failure. Some have heard it, some have done it. 

The Covid-19 elephant in the room is that global supply chains are demand led. They are most often highly tuned and well forecasted. They cannot cope with unprecedented levels of demand which far exceed normal patterns; under conventional rules there is a) not enough stock, b) not enough distribution channels and c) not enough production to meet these challenges – under conventional rules.

Whilst under enormous strain, it is not a miracle that many essential services have not collapsed. Rather it is within the ability of government and business leaders to embrace the unconventional; cutting product lines, rationing, changing regulation, collaborating, pivoting labour to where it is needed most, seeking new and rapid source of supply, and more.

They deserve our thanks, we all deserve a break. As far as government commercial goes. Risk has long since been a hot topic. Many commercial managers have spent the last 12 months grappling with price increases on goods ranging from food to paper supplies. They’ve also been helping departments with the implications from IR-35 and ensuring major outsourcing programmes are managed effectively in a world post-Carillion. The issues have been coming thick and fast for quite some time now.

Whilst most would imagine that risk has only come onto the agenda post-Carillion, government has been steadily building its capability to manage risk over a number of years. In 2011 the NAO published “Managing risks in government”, in 2013 The Orange Book approach was launched, in 2017 John Manzoni completed a review of “Management of Risk in Government”, in 2019 we saw the launch of the “Outsourcing Playbook” and later that year a new Government Functional Standard for Commercial. These activities have resulted in improvements in risk ownership and improved Commercial thinking on risk allocation between government and supplier and on-going contract risk management.

There is risk in everything we do… and it’s the role of Commercial to help departments manage their risk exposure appropriately. This has been made harder by the continued need for structured cost reduction, but it’s under these circumstances when the need for effective risk management becomes obvious. Whether we recognise it or not, the preparations over the last decade have made a difference, in practice and in mindset.

The Covid-19 elephant in the room is that global supply chains are demand led

Where to look for future uncertainty

Beyond the immediate challenge, risk is dominating many conversations across government and business. The World Economic Forum in its 15th publication of its Global Risks Report shared global risk perceptions on the biggest threats to mankind. Dominating concerns are environmental issues and technological threats.

“The global economy is faced with a ‘synchronised slowdown’, the past five years have been the warmest on record, and cyberattacks are expected to increase this year—all while citizens protest the political and economic conditions in their countries and voice concerns about systems that exacerbate inequality,” Børge Brende, President World Economic Forum.

 


Systematic Commercial risk management

Commercial has an opportunity to offer strategic direction to departments, which deliver improved service and value for money. To this end Commercial risk management is transforming itself. It’s moving from a monitoring activity to a holistic approach, which encompasses identification, assessment and mitigation. To enable this transition, commercial leaders are looking to develop category managers who can develop next-generation approaches to supplier risk management, and factor new metrics into major sourcing and supplier management decisions.

As an example, a Proxima client in financial services recently carried out a commercial risk transformation to resolve regulatory issues and mitigate 3rd party supplier risk. 

The transformation leveraged a systematic risk management approach and included developing an approved supplier risk framework, rationalisation of high-risk suppliers and the use of risk technology. Change management and communication played a critical role in improving corporate accountability and responsibility for risks across the organisation.

The time to reflect will come

Over the coming weeks the focus will be on working with our colleagues, our supply chains and our loved ones to get through a difficult time. We will learn a lot about how to deal with disaster management and be stronger and more resilient for future challenges to come.

We live in uncertain times and supply chain disruptions are common and costly. Establishing a mature risk management approach can ensure continuity in a crisis. Commercial leaders have an opportunity to use risk management to improve organisation performance and respond effectively when needed.

 

Click here to learn more about Proxima’s Capability on Demand service – bringing trained commercial professionals into your organisation to help keep procurement functions, businesses and supply chains moving.

Or click here to read their report – Resourcing challenges in government commercial. 

Read the most recent articles written by Proxima - Why COVID-19 doesn’t mean that developing at pace needs to grind to a halt…

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