Design-to-Source Intelligence Transforms Strategic Value of Procurement Centers of Excellence (Case Study)
The pursuit of efficiency, intelligence, and insights presents incredible potential for benefits across global industrial equipment supply chains. In this pursuit, the “center of excellence” (COE) has emerged as an organizational strategy that pulls together specialized talent and digital services that have a high level of expertise aligned to accelerate innovation or develop new sources of competitive advantage.
The goal is to share best practices and ultimately provide strategic value to the broader enterprise. Unfortunately, this is where many COEs fail to deliver. While the promise of the initiative is compelling, the ability to execute with success remains a common challenge. However, with the new sources of insights, market intelligence, and supplier collaboration, which we will explore in this article, the opportunity to overcome these pitfalls has never been greater. We explore these new success factors and showcase a recent case study of a modern procurement COE driven by Design to Source Intelligence.
Centers of Excellence in Industrial Manufacturing
A COE (Center of Excellence) is a centralized unit of dedicated people with a mission to streamline access to scarce, high-demand capabilities for rapid execution across the business. This group hones expertise in a specific subject area, standardizes best practices for wide-scale adoption, and provides thought leadership & direction in their area of expertise.
The granular details of a COE model vary from industry-to-industry, but there are some common goals:
- Define a set of best practices and standards
- Assess or assist in defining the maturity model of current business processes and capabilities
- Provide support and guidance in implementing these best practices into the broader organization, such as across business units, manufacturing locations, or geographies.
- Accelerate application of new digital transformation technologies in areas such as customer experience, manufacturing automation, procurement intelligence, and creation of new digital products or services.
While these goals are well received at the outset of a proposed COE initiative, the largest pitfall of COEs is their inability to measure or deliver significant value that supports target objectives and comes through in the form of tangible results.
This begins by setting standards that target improvements which translate to actual value, and not perceived results. Instead of piling on improvements that target singular issues, the goal should be to identify critical improvements, as opposed to a long list of issues that focus on operational maturity, which is too lofty of a goal and should instead be treated as an added benefit resulting from other, more focused efforts.
Overcoming Pitfalls Associated With Decentralized Business Models
Within the realm of industrial equipment manufacturing, the majority tend to lean towards a decentralized business unit model, especially after numerous acquisitions and mergers across global regions. This leads to a sense of pride in a self-sufficient approach to business operations, championing the ability to act separately from the other business units.
On the surface, the logic here is sound, but when we look deeper, specifically into procurement and sourcing, numerous issues arise. For example, in this type of structure, several business units could be purchasing the same components for vastly different prices, instead of negotiating a single, competitive price point.
As a manufacturer, it’s important to aggregate and manage spending across the organization, which improves both visibility and strategic control. This is a perfect example of a business-wide issue that could be solved through the implementation of a capable and focused COE. Beyond proper structure and planning, though, lies the need for solutions that deliver insights to this point of need.
Bridging The Gap Through Digital Ecosystems & Supply Market Intelligence
A center of excellence is only as good as the technology it has available to it. Intelligence, data, and smarter factories provide crucial capabilities to those working across the organization. A survey conducted by Deloitte and the Manufacturers Alliance for Productivity and Innovation (MAPI) across 850+ executives in 11 different countries painted a picture of how COVID-19 has accelerated digital transformation efforts and the focus on a digital ecosystem:
- 72% of respondents are concerned about meeting profitability goals due to COVID-19’s economic impact.
- 62% of leaders are continuing smart factory investments, allocating 20% more to these initiatives in 2020 compared to 2019.
- 85% believe ecosystems are important or extremely important to overall competitiveness.
When we use the term “ecosystem” here, we’re essentially describing a more digitized and broadly implemented center of excellence. Consider the definition below:
“[Ecosystems] are when different entities are coming together in meaningful ways to solve shared concerns and meet shared objectives. And underlying all of that is a concept of collaborating and co-evolving.”
– Mike Rohrig, partner, Ecosystems and Alliances leader, Deloitte Risk & Financial Advisory LLP
Sound familiar? When we think about ecosystems at Supplyframe, we include the global engineering and supply chain communities of professionals. We also consider geographic and commodity segments and related suppliers, innovation drivers, and market trends. As we look at the global electronics value chain, we believe that shared Design-to-Source Intelligence is critical to driving better shared outcomes (faster innovation, increased agility, and improve shared profitability) across component suppliers, distributors, EMS providers and their OEM customers. As COEs teams adopt an “outside-in” mindset for new sources of insight and decision drivers, they typically elevate their unique value proposition to address specific strategic imperatives defined by the executive leadership team. Most importantly, the connection between an accelerated digital transformation and a truly realized center of excellence becomes the most clear when viewed through a real world lens.
Empowering COEs through the Implementation of Intelligence Solutions
Supplyframe began working with a Fortune Global 500 company global industrial equipment manufacturer, addressing challenges that will look very familiar to others in the space:
- A company that grew through acquisitions and mergers, creating a complicated shared management that wasn’t centralized.
- Regional buyers were spread around the world, without the ability to easily aggregate shared spend across business units or divisions.
- The organization had no way to aggregate demand and tie strategic sourcing strategies to accurate product line forecasts.
- The sourcing teams relied on manual processes, driven by excel sheets both internally and externally. With over 60 different ERPs in use across the organization, things had become far too unwieldy.
Most companies prefer to perform aggregate sourcing events and strategic negotiations every quarter, but in the case of this manufacturer, the above challenges resulted in a process that allowed them to only negotiate once per year. With a timeline of 8 months to update new cost, forecasts, and spend analysis in their system, negotiations were not timely or competitive.
When the engagement began with Supplyframe, the goal for the procurement leadership quickly became to create a single specialized electronics center of excellence and shared service for multiple business units. The vision for this team was transformational, focused on reducing the complexity of internal data management, streamlining sourcing strategy development and spend analysis, and improving negotiation outcomes.
The team needed a modern, digital platform to combine external sources of insight with enterprise spend history and forecast, one that would identify and push real time market changes to cost, lead time, and supplier risk as they triggered sourcing events based on market conditions and not internal inefficiencies.
Expected benefits ranged from increased efficiency for sourcing and supply management team members, to higher accuracy, reduced errors, greater visibility beyond the internal enterprise data sources. Ultimately, Supplyframe’s solution enabled the manufacturer with the following new capabilities:
- The ability to aggregate demand across all business units every quarter, enabling 5 additional months of cost savings across negotiated pricing for parts.
- Access to real time supply market intelligence to gain visibility into trends and changes that could drive a more proactive approach to initiating sourcing events and maximizing cost savings opportunities or protecting critical supply capacity.
- Expanded data-driven negotiation levers to be used with suppliers, including cost benchmarking, supplier competitiveness, and new multi-source options.
As with many global industrial equipment manufacturers, there was strong executive leadership for accelerated digital transformation and adoption of advanced analytics in their global supply chain organization, but the related procurement and strategic sourcing teams were lagging behind their peers.
This new COE for global electronics sourcing and supply management needed to drive adoption of intelligent, efficient, and agile global platform to deliver significant immediate value in terms of cost of goods savings and reduce supply shortages.
Its strategic value could extend more broadly into upstream new product introduction planning and collaborative decisions making, which further expands the value to faster time to market, higher product lifecycle profitability, and reduced embedded supply market risk.
This is not a unique problem among industrial equipment manufacturers, but to deliver immediate and sustainable strategic value, COEs need to adopt a new approach. Contact us today to learn more about Supplyframe’s DSI Solutions for direct materials sourcing and new product introduction driven by real time market insights that elevate and enhance centers of excellence in your organization.