New Zealand businesses are not properly managing their supply-side risks, jeopardising billions of dollars in revenue and tens of thousands of jobs, according to a report from the Chartered Institute of Purchasing and Supply, Australasia and accounting firm Grant Thornton New Zealand Ltd.
The research, entitled ‘Procurement Risks in New Zealand’, is the first of its kind ever undertaken in this country and looks to benchmark the level of awareness and action related to the assessment, mitigation and management of procurement risks.
The survey included about 200 organisations - mostly large corporations across New Zealand. About 75% of the companies in the survey each boast more than 500 employees and over $50 million in revenue, and combined, with more than $7 billion in revenue and 70,000 employees, represent a sizeable sector of the economy.
Ross Darrah, Grant Thornton New Zealand Director, Business Transformation, said that professional procurement in New Zealand faces specific and rare challenges, both in negating the impact of disruptions on the supply line, and in educating companies of the importance of investing in training of people in this area of their business.
“Simply dealing with requirements at the tip of the global supply chain presents challenges but persuading international suppliers to ‘bother’ to supply a first-world market – that often requires only low-volumes – is a challenge in itself.
“This issue of supply-side ‘risk’ is a real one for the country. Many of our businesses are reliant on a robust supply line and the consequences of any disruption can be far-reaching.”
Numerous recent events, both globally and in New Zealand, have impacted on the supply-side supporting the country.
“Two thirds of the organisations surveyed were impacted to a moderate extent by at least one of the recent events andabout a third experienced a high impact from at least one of the events with a combined value of the impacts across all organisations an estimated $1.9 billion,” Darrah said.
“Natural events have had the greatest cost impact overall, estimated at $560 million with the value split betweencorporate, private and public for these events being relatively even.
“The responses also suggest that the Canterbury earthquakes and Japanese tsunamis have had a far greater cost impact on larger organisations than smaller organisations within New Zealand.”
Jonathan Dutton FCIPS, Managing Director, CIPS Australasia, said that of concern in the research was that respondents did not believe their organisations had a high standard of supply risk expertise.
“Only 23% rated the level of risk management in their businesses as high, while the other alarming statistic is that thelevel of training amongst procurement experts is so low with 73% receiving no formal training,” he said.
“The Public and Private sectors must invest in professional procurement training for the people currently working in, or joining the ‘supply side’. New Zealanders expect and deserve world class procurement practice – the risks are just too great without it for a country at the tip of the global supply chain.”
According to the research the situation is further exacerbated by a lack of sophisticated tools used to manage risk.
Dutton said, “While New Zealand companies have been hit by several major disasters in the last three years, this should not be seen as being highly unusual. There will always be supply chain disruptions – for whatever reasons.
“Businesses with a mature risk management capability are in the best position to get on top of the issues faced from disasters, stock-outs, systems going down and the like and are able more quickly to fix the problems and get on with running their business.
“The key is to consider the possible risks and to prepare, plan and maintain the systems they will need to get their business back up and running efficiently by well-trained and prepared professionals.”