Question

What are the greatest inherent risks in the purchasing process? Explain the assertions that are at risk and the underlying drivers causing an increase in inherent risk.

Answer 1

Answer:

Inherent risk in purchasing process- All companies are different in size and business, hence have different types of risks.

Inherent risk in purchasing process arises due to following reasons:

Lack of proper analysis- If you have not analyzed, what you need, when you need and how much you need, you will make higher purchases. You will have higher inventory to keep and it will increase your warehouse cost also. Lack of proper analysis happens if company has not made and not planned the purchase.

(1): Vendor and supply chain selection- If company has chosen a wrong vendor and supply chain, it will suffer. Purchasing process needs the reliable vendor that can deliver the goods on time and even in the short notice. Projects can be delayed if vendor is not punctual.

(2): Maverick purchasing- Some companies go for extra purchase or outside the normal purchase, these companies have these risks-

• Higher cost
• Financial risk
• Brand risk, if company is not able to meet customer's expectations.
• Quality risk, if goods received are not up to the mark of quality standards.

(3): Lengthy cycle- Sometimes it takes too much time between placing the order and receiving the goods. If goods are not delivered on time, it will be a loss for company because many orders will get delayed and it will lose customer's satisfaction. If company does not get the delivery of goods on time, it can go for maverick purchasing that will have its own risk.