Blog | April 6, 2017 | by Reggie Peterson

Mitigating Procurement Risks at the Global Scale

Mitigating Procurement Risks at the Global Scale

Global procurement has become the new normal, but that can lead to incredibly risky business practices. There are ways to mitigate that risk.

The world is becoming smaller by the day. Global trade has become the new normal, yet many buyers and suppliers are still struggling to make international purchasing processes as transparent, seamless, and reliable as domestic purchasing.

The growth in global procurement is a massive opportunity for cross-border commerce and many payments technology companies are looking to take advantage. However, cross-border procurement can lead to incredibly risky business practices.

Trillions of dollars’ worth of goods are procured from international sources each year, but for executives in the global supply chain, it is important to understand the possible volatilities and risks associated with world-wide trade in order to protect their businesses.

Partnership risks

International growth is a popular pursuit for companies in the supply chain. A survey of senior finance executives found that 75 percent of its respondents seeking growth said they will expand into foreign markets. However, as with international travel, cross-border trade comes with inherent dangers.

Companies’ inability to track where their monies are going and where their goods come from can put both themselves and their buyers at risk. There are many obstacles that can obscure procurement and purchasing transparency when conducted on the global scale, including political volatility, humanitarian issues, data security and much more. Cross-border procurement heightens these challenges associated with dark purchasing that many businesses already feel in their domestic dealings.

Mitigating these risks is not hard, if understood properly. To protect the safety of their companies, business goals, and customers, financial executives must have a clear understanding of what they’re buying, from whom they’re buying it, and who the other players in their global partners’ supply chain are.

Procurement departments and financial executives can minimize international expansion risks, including increased costs, delays, and inconsistency that can occur by using multiple points of contact and by utilizing cloud-based software to stay organized and maintain quality control.

Payment risks

While partnership transparency issues pose real challenges for executives, businesses in the global supply chain are equally, if not more preoccupied with the financial risks associated with international procurement. Many companies have expressed continued concern regarding currency exchange rates. Exchange rates can change daily which poses serious problems for businesses solely dealing with local currencies. Coupled with other types of fiscal and political uncertainty at the global scale, such as Brexit, purchasing items in local currencies requires extra diligence on behalf of the CPO, CFO, and all other financial executives.

For buyers and vendors to succeed financially in a market flooded with turbulent global currencies, more research into suppliers, local tariffs, and regulations is imperative. Stretched-out payment terms can prove to be a challenge for players on all ends of the supply chain. Suppliers may struggle with cash flow as they wait to get paid, but corporate buyers can also see a hit on the bottom line thanks to foreign exchange volatility between the time a payment is made and when a supplier receives it.

Faster payments may offer a benefit to the businesses involved in international procurement, whether it be through credit cards or through other faster payment initiatives. This will ensure the exchange rate is accurate and each business is paying completely and in-full. Faster payments also lower the risk of corruption, changes, or interference in their partners’ supply chains.

The best way to mitigate risk in global procurement is to ensure full visibility and transparency between businesses and their partners. Executives must position themselves to be knowledgeable and hands-on with the data available to them, as it is vital to be cognizant of political changes, humanitarian issues, data safety, and financial stability, as these factors have a direct effect on company revenues.

See how e-procurement systems can assist in cost reduction and spend management whether you’re going global or staying local.