January 22, 2013

Supplier Management Trends in 2013: Trend 5 – Procurement Centers of Excellence & Supplier Management

In 2013, Procurement Centers of Excellence (CoE) will continue to play a vital role for expanding the influence of procurement.  The reason for this – the expansion of supplier management and the importance of supporting it.

Leading procurement enterprises today already demonstrate favoritism towards center-led procurement structures that are based on a “Centers of Excellence” model. According to one study done by KPMG, the move towards a more centralized model may be due to the increased professionalization and up-skilling of procurement practitioners, but it is also likely to be driven by the current economic climate, with the strong emphasis on cost control.

As a recap, center-led procurement is driven by a central management team that directs the procurement and sourcing of goods and services globally. This central group helps aggregate company expenditures across various supply chain functions, and can promote the consistent delivery of procurement-related processes throughout the entire organization.

The central management team in a CoE also makes use of cross-functional teams and subject-matter experts in areas that can incorporate expertise in products, services, compliance and risk.  These teams provide knowledge on what sourced goods and services should cost, and when delivery should be expected to ensure that projects and internal clients benefit from the best values available in the marketplace.

But the reason CoE’s work at their most basic level is that they promote collaboration through instilling best practices around specific focus areas that drive business results. In this regard, CoEs support best practice capabilities by providing –

  • Standards, methodologies, tools and knowledge repositories for approaching procurement.
  • Training and certifications, skill assessments, team building and formalized roles are all ways to encourage shared learning in procurement.
  • Value to create economies of scale in procurement.
  • A team who’s goals are no longer silo-ed, but, instead, has cross-functional insight and responsibilities.

Procurement Centers of Excellence also allow for the creation of flexible supply chain processes and commodity strategies that can be tailored at the local level when necessary to adhere to local regulations or take advantage of local markets or tax breaks.  Corporate spend can be fully leveraged on strategic commodity categories well suited for centralized sourcing and non-strategic categories; those not suited to centralized sourcing can also be handled by individual business units.

But while the CoE trend has been emerging for the past several years from a source-to-settle basis, going forward procurement CoEs will also need to expand the dialogue around supplier management.  Why? As one of the newer developments in the area of procurement, supplier management provides a new means to focus on building long-term relationships and deeper insights into supply chains, rather than just focusing on costs alone.  Incorporating supplier management policies with multiple stake holders in a CoE model allows organizations to also take advantage of that sharing of best practices in areas like supplier onboarding, performance benchmarking and risk management.  But it goes further than that.

Through the use of enterprise wide supplier management technology like HICX’s Supplier Manager, organizations can model complex workflows and supplier relationships at both the global and local levels – hence they are now able to establish a common view of a supplier and supplier parentage, all while maintaining the local requirements necessary for regulatory compliance, performance and risk management. Without the ability to model the supplier relationships from local to global levels, the organization may be still open to more risk, since supplier information is not being shared and communicated up through the organization.

Furthermore, as markets continue to shift, being competitive in global markets is no longer based on outsourcing to India or China.  Today, the procurement vernacular has expanded. For instance, in some cases, due to global supply chain uncertainty or other political motivations, sourcing has gone domestic, i.e. “onshoring” or in some cases gone to a hybrid model with the core business at home and selected services strategically outsourced overseas. In such complex models, how can you accurately manage supplier addresses, names, tax identifiers etc. without a central repository inherent in a center-led model? Companies that embrace CoEs are thus better prepared to enable a strategic view of suppliers and the goods and services they provide.

Thus, in my view, this next evolution of Procurement Centers of Excellence will reinforce the view of promoting innovation and supplier collaboration as part of the strategic efforts like corporate social responsibility, sustainability and business continuity management.  Furthermore, through an expanded role of CoEs, executive management will begin to further recognize and allocate the importance of procurement as playing a strategic role, by incorporating supplier management in particular, as more of a corporate-wide strategy.

Hence, adoption of the term Procurement Center of Excellence may likely migrate more towards “Supplier Center of Excellence”, by implying going beyond procurement as defined by spend management and into focusing on global approaches for reducing supplier risks and enhancing the value of key supplier relationships.

WEBINAR ALERT:
Our webinar previously on January 17th has been rescheduled to January 28th 2013.  I would encourage you to join HICX with our special guests from Rapid Ratings, Razient and Zurich Insurance in a webinar entitled Reducing Supply Chain Disruption with Supplier Risk Intelligence.

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