Risk: The Interview

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Mpho: Welcome to Health Procurement Africa. The community and learning hub have been created to enable us to share the power of our experience, so together we can improve the procurement of healthcare products and medicines, to help millions of Africans.

If you work in public healthcare procurement in Africa and are buying products or services for your organisation, this is the perfect community for you, where you can start learning, sharing and solving your procurement problems.

Today I am joined by Chukwudi and Josephat, two of Africa’s leading experts in procurement and supply. They will be talking about risk in procurement, and how you can take steps to help your organisation prepare for disruption to the supply of products and services you need.

Josephat: Shall we begin by discussing what we mean by ‘risk’ Chukwudi?

Chukwudi: Yes! A great place to start. In procurement, a risk is an unpredictable event or incident that can disrupt the supply of products or services that your organisation needs. Any risk if it happens can lead to having to apply extra resources and money to put it right.

Chukwudi: Josephat, how important do you think it is for an organisation to understand risk?

Josephat: As you know Chukwudi, understanding and managing risk is the key to success in procurement and supply. If you are responsible for buying products and services you will be constantly making decisions to ensure that the supply is not disrupted, for this could make it difficult for you to make deliveries to your own customers on time.

For example, let’s take the mosquito nets that are widely used in Kenya. Many of them are imported from Vietnam. But they are also made with parts from China and Italy. On their way to Kenya they are transported by road and sea and must go through customs checks a number of times. So, there are a number of risks which could delay or disrupt your deliveries.

Chukwudi: There are benefits of risk management, good risk management will enable your organisation to continue operating with the least disruption. This will reduce the cost to your organisation, improve customer satisfaction, protect information, data and records, and keep your organisation providing good quality services to your customers.

You can never remove risk completely, this is impossible. What we try to do is to manage the risk to make sure that you have prepared as far as possible for unexpected events which could prevent the delivery of the goods and services you need.

Josephat: What kind of risks are you referring to Chukwudi?

Chukwudi: A risk is anything that can be an obstacle to the delivery of products and services you have ordered. Some obstacles should be considered a high risk, some will present a low risk. This will depend on your organisation and business sector and the importance of the products you are buying. For example, if the products are being delivered from another country, there are higher risks of delays during the different transport options or clearing customs. If you are buying technology, you need to be prepared for technical and quality problems that may take time to put right and incur additional cost. Do you hold enough stock in case deliveries are late? If you don’t, your own delivery service could be disrupted or you might have to pay extra to find alternative supplies.

Procurement and supply teams can use a number of tools to understand the risks present in the marketplace and the business environment. For example, there is an analysis tool called STEEPLE to help us understand some of the aspects of changes in the external environment which may generate potential risks that we must try and manage. STEEPLE takes its name from the first letter of some of the most important areas of where things are changing:

• Social
• Technological
• Environmental
• Economic
• Political
• Legal
• Ethical

Remember that your own colleagues in different departments of your organisation will have information and insights which they can share with you to help you understand and prepare for risk events.

Josephat: As you say Chukwudi, risk is present in every aspect of procurement and supply. What we need to do is understand and manage these risks. We can do that by creating a simple Risk Management Cycle, which breaks down the process. You begin by identifying the risk and then assessing the likelihood of it happening and what the impact will be if it does happen. For example, how long will disruption last and how much will it cost you? The answers will help you decide what action to take.

During this process its always good to work with colleagues from different departments within your organisation, who can contribute their expertise and experience. This means forming a cross functional team.

Can you draw a ‘map’ of your supply chain’? This will help you to identify pressure points where there might be risks. For example, a map of the supply chain for the mosquito nets would show the country of origin for each supplied element and the potential for delays at certain ports and border crossings. You might also assess the different suppliers as to whether they have been quality approved or undergone any financial appraisal.

Chukwudi: That’s right Josephat. It’s important to remember that risk be managed through the appraisal and selection of suppliers. So if you use approved suppliers that have already been evaluated and selected, it will be easier to understand and manage risks in your supply chain. Your selection should take into account risk factors, such as a supplier’s location, quality performance and capability. For example, when you order mosquito nets from a supplier in another country, you will want to know about their arrangements with their suppliers and their experience in managing their operations, quality, logistics and getting products through customs as quickly as possible.

Your aim will be to chose a partner you can work with over the long-term but you will also collect valuable information about risk.

Josephat: There are resources we can use to help us understand risk. Procurement specialists use a number of resources which can be adapted to suit their needs. For example, a Risk Assessment Matrix uses the colours green, amber and red, like a traffic light, to understand how likely it is that a risk event will happen and whether the impact will be minor, moderate or severe.

The 4Ts are a way of dealing with specific risks after the initial risk assessment has been completed, based on the same traffic light concept. So red for Terminate (or avoid) and green for Tolerate (accept). Amber can mean Treat (control) or Transfer (outsource).

The Kraljic Matrix is also a good resource, helping you to find risks in your supply chain, from high value goods and services which are essential to business continuity to low-cost products which are nonetheless still important to your organisation. But remember that high value does not always mean high risk. The Matrix will also help you find the risk of bottlenecks in the system, which can disrupt production and affect quality.

Chukwudi: It seems that risk management is vital to business continuity?

Josephat: Yes, this is so. Effective risk management helps to protect your organisation against disruption, loss, damage, and fraud. You will be prepared and ready to respond to unexpected events, maintaining your service to key customers and to patients.

Chukwudi: Terms and conditions can be used to help to manage risk too, acting almost like a sort of risk rule book by which you and your suppliers are going to operate. The terms and conditions explain who will be responsible and what action will be taken if certain things do actually happen, such as not delivering on time or there being poor quality. Your assessment of the risk will also help decide how to manage and develop your organisation’s relations with a supplier. If the risk is high, you should think about how you will ensure that you develop a good trusting relationship over time.

High risk products and services mean higher prices but the Kraljic Matrix shows bottleneck items have risks associated with them even though they are of low value. For example, there may be limited choice of supplier or you have little power to influence their production priority or delivery.

Josephat: Chukwudi, how does Health Procurement Africa help companies to manage risk to ensure that patients are able to receive the treatment and care that they need, as soon as possible?

Chukwudi: HPA brings together knowledge and experience of procurement and supply into a community of people working together to ensure that patients are able to access the healthcare they need and that the public sector secures value for money.