Building 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.

I’ve spent my career working with Procurement professionals. They 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 makes the business slow to respond and recoup losses. In order for Procurement to be a strategic advisor before, during, and after a crisis, Procurement leaders would benefit from creating a Procurement Center of Excellence (CoE) that defines Procurement’s value, communicates goals, best practices, measures success and much more.

Additional read: Procurement Value Beyond Savings

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.

Additional read: Finding New Areas of Impact for Procurement

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 that include 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’ 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 that roiled disruptions. 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 to the organization. When it comes to internal business functions, areas in which rogue spend (also known as tail spend) can be brought under management can be reinvested into the business and 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:

• Category management - Develop deep category expertise in both internal and external business functions that will provide more accurate forecasting.
• Supplier relationship management - Manage risk in supplier relationships, develop goals and KPIs to score supplier performance, and audit suppliers for compliance.
• Strategic Sourcing - Identify rogue spend to bring it under management, minimize the time it takes to conduct complex supplier negotiations with digital tools like eAuctions, and streamline RFx activities with contract management software.
• Project management - Organize and track projects in one centralized location accessible in a cloud, create project dashboards to communicate results, and manage workflows among your team.

Procurement folks 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.