Assessing Risk Mitigation Preference Effect on Supplier Commitment and Procurement Performance in the Public Health Industry in South-Africa

Abstract

The lack of a well-stated risk mitigation strategy has caused several challenges within the South African Public Health sector. Additionally, setting a risk mitigation strategy around mitigation preferences can be challenging for procurement personnel. As such, risk mitigation penalty clauses in the case of failure of the selected supplier are not agreed upon from the onset of the contract agreement. This research proposes risk-sharing versus risk-shifting contracts as risk mitigation/reduction strategies within the supplier relationship of the public health sector. We evaluate the effect of risk shifting and sharing mitigation preference on supplier commitment and supplier performance in the public health industry in South Africa using structural equation modelling. The results show that there is a significant relationship between supplier selection and risk sharing, risk sharing and supplier commitment, risk shifting and supplier commitment, and risk sharing and procurement performance. However, there was no significant relationship between supplier selection and risk shifting and risk shifting and procurement performance. These results imply that to build a win-win supply chain, public health sector procurement managers should balance risk sharing and shifting mitigation strategy in procurement instances where appropriate to improve on a higher level of procurement performance.