A CoE in a CoE? Are we going too far?

SI is all for Centres of Excellence, CoEs, but when he read the recent post over on Spend Matters on “Why Your Procurement Organization Needs a Market Intelligence Centre of Excellence”, one has to wonder if we are taking the CoE concept a bit too far.

Now, the post is not really advocating for a CoE in a CoE, as it is advocating a Market Intelligence Centre of Excellence (a MI CoE) in any organization with over 2 Billion of spend, which is a reasonable suggestion given the importance of market intelligence in Sourcing endeavours, but one has to ask, where is this CoE going to live? Presumably it will live in Procurement. But managing a CoE is no small endeavour. A CoE requires good management practices, and good management practices generally stem from a CoE. In particular, a Procurement CoE should manage the MI CoE. And the net result is we have a MI CoE within the Procurement CoE.

A Procurement CoE should have functional excellence in all of the functional areas relevant to Procurement. It should have excellence in market intelligence, spend analysis, should-cost modelling, sourcing best practices, optimization, contract negotiation and management, order and inventory management, payment management, and procurement project management. But these should not be individual centres of excellence, as many of these activities overlap and support each other and market intelligence supports all, and is supported by all, of them.

The Procurement organization Centre of Excellence should definitely build its Market Intelligence competence up to the level of functional excellence, as that will improve all of its Sourcing and Procurement activities and enable it to realize better results, but it shouldn’t take the CoE concept too far. A CoE in a CoE just gets a little redundant.

What Does it Take to Be CPO?

The short answer is, fulfill the CPO Job Description, even though the order is as tall as it is wide. Use their skills, education, and experience to execute the primary responsibilities efficiently and effectively.

However, this doesn’t help you understand how to

  • define the organizational Procurement strategy
  • create and manage short, mid, and long-term goals and objectives
  • create and leverage on-going value from the supply base
  • manage BPO activities
  • identify, realize, and maintain cost-saving and cost-reduction opportunities
  • etc.

So what do you do?

First of all, become A Procurement Leader.

Then, understand the primary responsibilities.

Support these responsibilities with the right procurement technology.

Use your leadership skills and technology platforms to both manage staff and develop staff.

Then, be sure to practice good budget management and align procurement with the other business functions.

And, finally, don’t forget to focus on continual learning and self-improvement. While the maverick and the doctor covered a lot in our series on the CPO job description and what it takes to succeed as a CPO, one thing we didn’t spend a lot of time on was the importance of continual learning. Nothing about Procurement and Supply Management is static. Everything changes, and everyday provides a new challenge that must be death with. New disruptions. New innovations. New opportunities. New threats. That’s why SI and the new spendmatters.com/cpo site exist. To help you identify new practices, process, technologies, and ideas that will help you deal with all of the change to come but yet get through it.

Technological Damnation 80: The Cloud

Where to begin with this one? How about a review of just about everything Sourcing Innovation has written to date on the subject:

Software was good. Hosted ASP was better. True Multi-tenant SaaS was better still. And “Cloud” is the one step back that follows the two-steps forward. (And unless you want to be a frog in a well, you’d best steer clear of it.)

The Cloud is not a white fluffy cloud full of day dreams, it is a gathering storm cloud that will soon erupt and flood your operation while the hail pummels you to a bloody pulp.

Not only, as per the linked posts, will you:

  • lose your mail, and all the confidential IP it contains, then
  • lose your data when you find out your Cloud provider put your data in a data center with no backup, then
  • lose your platform, when the FBI or NSA confiscates the servers in the data center that was powering the Cloud, and
  • lose your customers, when your loyalty program fails and they take their loyalty elsewhere.

But you will also

  • lose your supply chain visibility, and your ability to assure supply, when the Cloud explodes,
  • lose your revenue stream, when you can no longer book those customer orders and process payments, and
  • lose your bank accounts, when the (class action) lawsuits hit.

So next time a provider offers to take you on a trip through the Cloud, SI recommends you take them for a walk out the door.

World Class Procurement Organizations Are Beginning to Align with the Business

A recent publication from The Hackett Group for Procurement Executives addresses “How Procurement Organizations Are Reinventing the Stakeholder Experience” that looked at world class procurement organizations, which continue to outperform their peer group by a wide margin (by up to 5M in cost savings for a typical company), and found a surprising result.

We’ve known for quite some time that world class Procurement organizations, also known as The Hackett Group Top 8%, outperform their peers. We’ve known that some of these generate savings up to 41% higher than other (laggard) organizations. But we did not know that almost twice as many world class organizations (83% vs. 44%) have dedicated resources that act as liaisons between Procurement and the rest of the business.

As the authors state, raising stakeholder satisfaction levels builds trust and helps procurement gain the organizational permission to take on higher-value work. This is confirmed by the Hackett Group’s database of thousands of benchmarks across hundreds of performance studies which found that organizations that continue to invest in activities that elevate their role to that of a trusted advisor are taken more seriously, especially when they communicate that activity appropriately to the other departments in the organization. Furthermore, when these Procurement organizations are seen as a valued business partner, they generally report 68% higher savings! (This comes by way of an average cost reduction of 3.5% vs. 2.1% and an average cost avoidance of 1.2% vs 0.7%.)

Simply put, world class Procurement organizations have climbed to the top of the hierarchy of supply (which the doctor and the maverick discussed in their piece on “The CPOs Agenda I: Availability and Delivery”), having mastered supply assurance, cost reduction, and demand management. They listen and engage the internal customer, understand the customer’s needs, manage the relationship, offer them a superior service experience, and get better results. They follow all of the best practices the doctor and the maverick have been, and will be, discussing* over on the spendmatters.com/cpo site, and are seeing the return.

* The Agenda series has been broken up into three series:

  • the Conundrum# serieswhich discusses the outside-in issues putting pressure on, and shaping, Procurement
  • the Agenda serieswhich discusses the most pressing objectives on the CPO’s plate that are required to respond to the outside-in issues
  • the Value Drivers serieswhich discusses the primary actions that a CPO can take to realize the objectives on their journey to master the hierarchy of supply

# the doctor‘s terminology