How to build a procurement center of excellence
Communicating procurement’s value to broader business goals will help increase operational efficiencies, build stakeholder alignment, and drive company-wide change.
Procurement professionals are passionate and dedicated, but their role in the organization is terribly misunderstood and underestimated.
For many, procurement is viewed as a strategic partner only when a crisis strikes. Once the crisis abates, procurement’s influence is no longer considered strategic to the business.
In the past 20 years, we’ve seen procurement take a stronger leadership role within organizations, and much of this is due to technology advances in the industry that provide deeper levels of visibility.
But the profession still has a bit of a perception problem. Reactive and tactical approaches to a crisis make the business slow to respond and recoup losses.
For procurement to be a strategic advisor before, during, and after a crisis, leaders must create a procurement Center of Excellence (CoE) that defines procurement’s value, communicates goals and best practices, measures success, and much more.
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What is a Procurement Center of Excellence?
Any business unit can create a CoE. It is both a quantitative and qualitative strategy that helps procurement and business leaders identify and understand mutual goals, establish processes to achieve those goals, and communicate results.
A procurement CoE provides departmental leadership, establishes best practices backed up by industry research, and identifies areas of training and support for key stakeholders and business functions.
A CoE is a way to illustrate procurement’s strategic objectives alongside business priorities. As an example, for organizations committed to corporate social responsibility as part of their wider brand reputation and awareness goals, procurement can support these goals with strong supplier management and oversight.
Building a Procurement Center of Excellence
Being a strategic advisor to the business starts with understanding the challenges of each business unit as it currently exists. This will help to establish procurement’s contributions beyond the narrow view of cost management and supplier continuity.
Interviewing stakeholders from key business units will help both parties build stronger internal relationships. For example, some business units bypass procurement, but do you know the reasons why?
If business units perceive procurement as a slow-moving, cost-control gatekeeper, try showing the value that procurement can bring by leveraging savings that can be invested in other ways - from bringing on additional staff to acquiring new tools and technology that can increase operational efficiencies.
With input from internal stakeholders, you can begin expanding your research to external stakeholders, including your suppliers. Suppliers are not only highly in tune with what is happening in the broader market, but they can also provide insight regionally and locally.
From employee sentiments toward management in factories to concerns about severe weather events that could cause flooding and mudslides, your suppliers have first-hand information on risks and opportunities.
Discussions with your suppliers can also help fill the gaps in your data. Who are your suppliers’ suppliers? In what regions or localities do those suppliers operate? Given that most organizations have limited visibility beyond Tier 1 suppliers, this information can help procurement act quickly in the event of a disruption.
The intelligence derived from both internal and external stakeholders in one centralized location will ensure one source of truth among your procurement team with insight that is actionable and reliable.
Additional read: Optimize Your Supplier Relationship Management Strategy
Procurement's Role within the Company’s overall Strategy
Once you have input from key stakeholders, it’s time to map procurement’s value as it relates to the organization’s overall strategy. Here, it’s important to identify and define the areas in which procurement contributes to overall business goals. Cost-savings are important to every business, so it shouldn’t be dismissed as a KPI.
Beyond cost-savings and supply continuity, procurement has an obvious role in managing risk. A Dun & Bradstreet study found that it wasn’t direct suppliers (Tier 1) that caused the most supply chain headaches during the pandemic, but rather Tier 2 and Tier 3 suppliers.
Visibility into the supply base is a strong risk mitigation strategy to weed out child labor, human trafficking, and unsafe or illegal working conditions. Besides the societal impacts of doing business with bad actors, there is also the reputational impact on the organization.
When it comes to internal business functions, areas in which rogue spend (also known as tail spend) can be better managed, and funds can be reinvested into the business to increase cash flow - an imperative at the moment.
A procurement CoE must have clearly defined goals and KPIs, include scalable and repeatable processes, and identify areas for innovation and improvement. Some such areas that exhibit procurement’s value outside its traditional scope could include:
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Category management - Develop deep category expertise in both internal and external business functions that will provide more accurate forecasting.
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Supplier management - Manage risk in supplier relationships, develop goals and KPIs to score supplier performance, and audit suppliers for compliance.
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Project management - Organize and track projects in one centralized location accessible in the Cloud, create project dashboards to communicate results, and manage workflows among your team.
Spend Analytics
By analyzing organizational spend data, procurement teams can pinpoint cost-saving opportunities and make informed decisions to enhance and optimize their purchasing strategies. This process allows for a thorough examination of expenses, leading to more effective resource utilization and improved financial outcomes.
Procurement people are detail-oriented, expert strategists, and incredible relationship managers. But business leaders respond to data. Cost savings are an important KPI to communicate, but procurement has more to offer.
A procurement CoE can play an integral role in validating procurement as a strategic partner in the best of times and the worst of times.
How can Unit4 help you create a procurement center of excellence?
Unit4 Source to Contract by Scanmarket creates the technological foundation for a procurement center of excellence. Providing your teams with a unified platform for every aspect of the procurement journey and using pre-defined templates and automated workflows to empower everyone in your organization to more confidently make supplier agreements that support your organization’s strategic goals.
To see what our solutions can do for you, please visit our Source-to-Contract page or click here to book a demo.
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