Reducing industrial procurement risk

The risk categories and where they are controlled

• Specification risk — the wrong thing is bought. Control: performance specification and a written acceptance test.
• Supplier risk — the counterparty cannot deliver. Control: qualification, references at comparable capacity, export experience.
• Payment risk — money leaves before value arrives. Control: milestone payments tied to verifiable events, letters of credit, advance-payment guarantees.
• Delivery risk — the equipment arrives late or damaged. Control: Incoterm choice, export packing requirements, insurance, inspection.
• Quality risk — performance falls short. Control: factory acceptance test before shipment, site acceptance test after commissioning.
• Documentation risk — the shipment stalls at customs. Control: an agreed document list in the contract.
• Schedule risk — the project slips. Control: a contractual delivery plan, progress reporting and defined remedies.

Payment structure is the strongest single lever

Tying instalments to verifiable milestones — design approval, materials procured, factory test passed, shipment, commissioning, performance test — keeps the commercial interest of both parties aligned across the whole delivery, and it is normally negotiable even with suppliers who open with a large advance.

Plan for the second supplier

Keeping a qualified alternative warm through the evaluation costs almost nothing and changes the negotiating position materially. For critical packages it is also the only realistic contingency if the preferred supplier fails commercially or technically.

Frequently asked