Every successful business must rely on suppliers for efficiency. Traditional methods of procurement ensured that risk was minimized thorough risk management techniques. However, traditional procurement procedures involved slow manual entry of data and equally slow data processing. Technology has revolutionized how procurement is managed as computer based systems and tools are now used in place of traditional methods. Procurement activities of a company are now in the public domain and are very easy to scrutinize (Anderson 2010). Several risks have emerged from reliance on computer based tools to manage procurement and they are discussed below. They are ranked in order of potential impact and likelihood.
The major risk posed by computer based tools is security. Companies relying on computer based systems put themselves at the danger of industrial espionage from competitors. Industrial espionage involves spying on a competitor’s business activities and using the information obtained to stay ahead of competition. The information provided by customers is also at risk since hackers can break into databases and steal the identities of the customers. For instance in April 2011, the computer database of Epsilon, a company that socializes in Online Marketing in the US was hacked into. The hackers were able to obtain information about the company’s suppliers, strategies, profit margins and upcoming/ongoing projects. Since customers and suppliers expect that the company will protect their privacy, access of sensitive information by third parties destroys the fiducially relationship. This can hamper the company’s progress and result in losses in trading of the company’ stock. To curb this menace, a company must implement strong security protocols in its information technology framework and monitor unauthorized access frequently.
Business interruption also poses a significant risk. Reliance on computer based tools for procurement is susceptible to shutdown of the system when human and natural disasters occur. For instance, during the September 11th attack on the World Trade Center many computer based systems had to be shut down. Malfunction of computer equipment also interrupts the business significantly (Boone 2012). Procurement managers relying on computer based systems are often unable to communicate with vendors when such scenarios occur. Vendors on their part are unable to confirm, receive or authorize orders paralyzing the procurement process (Williams 2010). To address this risk, storage data must be backed up and a disaster recovery emergency response program has to be implemented.
Another risk that a company is likely to face is inadequate IT infrastructure. For effective computer based procurement to be carried out a company must have adequate computer infrastructure in place. A company may underestimate the IT requirements it requires thus leading to losses in the long run (Paulson 2009). If the IT system is inadequate then the inventory levels will be inadequate creating false shortfalls or surplus of stock. This will interfere with the company’s cash flow system. Since information in a procurement chain comes from different geographical regions, use of different IT platforms poses the risk of incompatibility of data which could undermine the efficiency of the procurement transactions. To address this challenge, all geographical locations in a procurement chain must use a similar IT platform. An assessment of the company’s IT infrastructure must be carried out by experts to ensure that it is not inadequate.
The risks discussed above are capable of impacting negatively on the profitability of company. Use of computer based systems has its benefits but the benefits can be watered down by risks. To gain from application of technology in procurement, companies must identify the risks they face and implement mitigation measures immediately. Effective risk management involves assessing risks against the likelihood of occurrence and the negative outcomes that the risk poses; and balancing the risk against the benefits that the company is likely to gain from the technology if there was no danger of risk. This will ensure that the benefits of technology are not washed away by the losses so that profitability can be maintained.