Building a Center of Excellence for Strategic Sourcing
Today’s post was written in partnership with Jacob Gorm Larsen at Moneyball CPH, a Danish firm which provides services within digital sourcing, e-auctions, sourcing optimization, and digital transformation of procurement. Jacob is recognized as a global thought leader in digital procurement. Before founding Moneyball CPH, he was the head of Digital Procurement at a global shipping company and gained additional experience in the digital area for Oil & Gas, Retail, and Off-shore.
How can we maximize scarce resources? Is this supplier operating sustainably? What if a regional labor shortage impacts our supplier? It’s a tough job to refine and optimize an organization's supply chain in today’s complex economic conditions. That’s why many procurement leaders are turning to strategic sourcing to meet this challenge. But there’s a way to deliver even more business value with strategic sourcing. It’s with a Center of Excellence (COE). A COE for strategic sourcing builds knowledge and leverages the best technologies into day-to-day operations to boost cost savings and productivity for enterprises of all sizes.
Here, you’ll learn the components of a COE for strategic sourcing and how to build one of your own.
What is a Center of Excellence?
A Center of Excellence (COE) is a specialized team that provides
leadership, training, and support to improve practices in a certain area of a company.
COEs essentially increase functionality in one area, which as a result, can help
deliver business value across an entire organization.
The components and advantages of a COE
Sourcing COEs go beyond the tactile view of procurement and constantly seek new ways to optimize and refine the sourcing function to save money, be more sustainable, improve resilience, and help the business run smoothly. Here are the components that help them do that:
1. Driving better use of resources across the business
A centralized operating model with a COE provides a holistic approach to the company’s established sourcing strategy, enabling better control over suppliers, contracts, and more (compared to individual stakeholders or regions carrying out their own sourcing tasks).
A COE team uses advanced tools such as Coupa Sourcing Optimization to handle complex categories, while associated teams handle more routine sourcing requirements. The COE also works to align sourcing with company-wide objectives and help execute sourcing strategies consistently across the organization.
2. Optimal use of best-in-class tools
Picking the right technology can combine multiple agendas — like sustainability efforts, contract creation, or flexible bidding — into one sourcing opportunity, helping stretch budgets and contain costs. Scenario planning, running e-auctions, and developing different solutions that balance cost and CO2 emissions are a few ways COEs use tools, like Coupa’s Sourcing Optimization, to identify the best procurement opportunities for an organization.
3. Leveraging subject matter expertise and skills development
COE team members often have advanced technical, business, and soft skills to provide the appropriate level of support on sourcing projects. Some of those skills include:
- Analytical. Knowledge of how to create and execute data models and formulas.
- Negotiation Theory. The ability to negotiate favorable conditions with suppliers to foster strong and long-term business relationships.
- Consulting and Persuasion. The ability to take a leading role in tendering strategy conversations with category managers and the business.
With these components working together in a sourcing COE, organizations can unlock potential savings otherwise missed. It’s how CRH, a global building materials business operating out of Ireland, saved 22% on direct and indirect tenders and automated bid volume allocation during the sourcing process to recover millions of Euros. With CRH’s sourcing COE negotiating with suppliers for complicated sourcing events and leveraging E-sourcing to speed up efforts, CRH now has better clarity and efficiency in their supply chain operations around the world.
Building a COE
Now that you understand how a sourcing COE works, you’re ready to build your own. But where to begin?
The first step is defining the mission and objective of the COE. What do you want to achieve? Is it part of a larger transformation of your sourcing functions? Or will it be part of a cost-out agenda mainly addressing your company’s spend culture? Perhaps managing Environmental, Social, and Governance (ESG) and compliance is important or better controlling how suppliers are engaged and selected matters. There are several strategic reasons, and choosing ones based on your company’s needs will determine what capabilities you should focus on when building your COE.
Once your mission and strategic objectives are defined, you can get into the nuts and bolts of designing and developing your COE. Here are three tips to help guide you.
1. Position within the procurement team
A key role for the COE is to drive a streamlined sourcing pipeline which sometimes requires overhauling procedures— and oftentimes very quickly — in order to deliver results. Change doesn’t always come easy for organizations, so to ensure things get done in a timely fashion, the COE should be positioned within the procurement organization directly with the Chief Procurement Office (CPO) or with direct access to the leadership team. By anchoring the COE directly there, it sends a signal of commitment to project leaders as well as eases the process of escalation when it’s required.
2. Choose the right experts
A key consideration for building a successful COE is the resources and capabilities assigned to it. A structured approach via a capability assessment is recommended to ensure you have the right people and capabilities onboard. The team covers several roles which should be taken into account when looking for the right person or people to be in charge of it. Here are three skill areas you should consider:
- Change in Management Skills. The change in sourcing practice along with the introduction of new technologies may be a challenge for your procurement team to grasp. It is the responsibility of the COE to plan and execute these changes, therefore, ensuring the right level of buy-in is important. Look for individuals who have experience in change management to ease this transition.
- Tender and Auction Strategy Skills. The COE should provide recommendations on strategies for the tender and auction process. This includes several areas, like the number of bid rounds, the structure of the tender, supplier feedback strategy, supplier communication, etc. In addition, the CEO should provide guidance on the development of an e-auction strategy, which can be quite complex. They should understand game theory and mechanism design to ensure optimal results are achieved.
- Technology Implementation Skills. To achieve the best results in tendering and negotiations, you need the right technology. It can be a steep learning curve for your team, so individuals who make up the CEO need to be able to support users with implementation and training. This is especially key for tenders that use sourcing optimization and e-auctions. Your procurement team will need to be comfortable using new technology to address high-spend and strategic contracts when auctions take place in real time.
The capabilities developed as part of the building process will also help to determine whether the COE is ready to operate effectively and deliver the desired outcomes.
3. Start small and scale when ready
Getting started with the COE is not necessarily a big upfront investment. I recommend starting small and then scaling as results are created and more demand is requested from the rest of your procurement team.
Select a few people (not one) to share the load and lower the risk of burnout. Once you start seeing tangible results in terms of savings, efficiencies, and reduced sourcing cycles, consider growing the team’s headcount to make sure that the COE can continue to provide a high level of service to the rest of the procurement organization as momentum builds.
Getting off to the right start is critical for the long-term success of the COE. It’s important the first couple of projects supported are successful so it builds trust and credibility with your team. To ensure that happens, leadership needs to take an active role in the first couple of tenders.
Boosting business value with a sourcing COE
One of the biggest challenges in strategic sourcing is analyzing supplier data. There’s simply so much of it, that finding the most valuable bits of information seems impossible. A sourcing COE and Coupa Sourcing Optimization help you cut through the noise and leverage the most relevant data to create a more impactful strategy. And when it comes to implementing that strategy, it guides procurement and sourcing teams with the most up-to-date practices, trends, and tools — leading to better business value.