In our last post, we reminded you that since the dangers of centralization in a de-centralized world not only eliminated centralization as a valid Procurement Operation Model, but also limited the effectiveness of center-led and center-of-excellence models in today’s global trade environment, the Procurement Operating Model for a global organization needs to evolve in order for a global organization to be efficient and effective in today’s global trade environment.

We started to discuss the required changes by referring back to the list of center-led procurement best practices we gave you twenty years ago, and describing how the center led model needs to evolve along those dimensions. However, those aren’t the only dimensions that need to be considered, so today we discuss the rest, some of which probably aren’t part of your current model.

In addition to the 7 points we discussed in Part 1, a centrally orchestrated procurement center of excellence organization (Orchestric CoE) also differs in the following ways:

8. Centralized Risk Modelling, Mitigation, and Management

The only constant in global supply chains today is disruption — a lot of which can be (partially) predicted by well defined risk management. An organization that tracks global geopolitical, economic, and trade (tariff/isolationism) risks as well as more localized geopolitical and civil risks, port closures and strike risks, natural disaster and climate risks, and so on. That takes all of these into account in the formulation of, and constant adjustment of, sourcing strategies that focus on friend-, near-, and home-shoring (and hence regionally focussed Procurement) as well as “safe” supply lanes.

9. Standardization, Localization, and Rationalization – Products and Services

We’ve argued against over-standardization to the point that only a few suppliers can meet your needs, but without standardization to a reasonable extent across your global supply chain, you’re not going to ever see any economies of scale, risk reduction, or overall improvement.

Standardization allows products to be sourced and sold across regions, economies of scale to be monopolized across the supply base, and easy product development in established categories.

However, there will be different requirements with respect to product (raw material) content, industry standards, safety factors, warranty, and repair that will need to be met. Sometimes it will be possible to create products that meet all the needs, sometimes now, so the Orchestral COE will be responsible for defining the base standard and regional variations where required, as well as any additional specific localizations required to increase utilization or sales.

10. Standardization, Localization, and Rationalization – Policies, Terms & Conditions

You also want to standardize organizational policies and terms and conditions for contracts and service agreements to the extent possible. It makes it a lot easier to define processes, starting contract clauses, and conditions for success. It also makes it easier to identify what needs to be localized or altered in different parts of the world, track those differences, and understand when changes need to occur how much of the supply base and operating base is affected.

11. Global Logistics Coordination

In an article on how there is no cost savings if it doesn’t hit the P&L, we noted that most consulting process changes and (sourcing and) procurement platforms don’t actually save anything, not even a single cent, because the cost reductions usually came at the expense of cost increases elsewhere, which often exceeded the cost savings in Procurement.

The first place this usually hits is logistics — because, classically, Procurement always sought the lowest cost and that always came from the furthest supplier, which lengthened the supply chain and greatly increased logistics costs, as well as stockout-related costs as stockouts became more likely and frequent on every disruption. Also, when multiple supplier tiers sourced from far away, you ended up with a product where some of the raw materials circumvented the globe multiple times — and that’s just not efficient or cost effective.

And even when similar regions were sourced from, it was often the case a supplier as far outside of the network in the region as possible would be selected, leading to the need for new routes that wouldn’t run full truckload on a regular basis, more cross-docking, and greater inventory costs. The Orchestric COE needs to work with Logistics and ensure that the global logistics network is taken into account during centrally orchestrated events, or, when the supply base needs to change, updated appropriately to keep overall costs and risks low.

12. Operational Impact Tracking and Management

Any time a major change is proposed in the product base, supply base, shipping network, or standard operational policy, it’s up to the COE to determine what organization wide impacts will result and what the costs will be. Since there’s no savings if it doesn’t hit the P&L, there’s no savings if the change will shoot up costs in another part of the organization more than the change saves. So its up to the Orchestric COE to work with the other units as part of its cross functional teams to determine potential impacts, potential up front and ongoing costs, and take that into its total cost of ownership models when sourcing and managing day-to-day procurement.

In other words, you can’t lead from the center with one playbook and expect results. You have to orchestrate from the center, ensure the knowledge flows across the supply chain graph, and adapt to the market for each category when it needs to be sourced and procured. And that requires a different operating philosophy than a classic center led / center of excellence model.