Centers of Excellence Drive Supply Chain Transformation, Part 1

With today's increased pace and volatility of business, access to timely, accurate operational information is more critical than ever before. As globalization and outsourcing have extended supply chains to every corner of the world, the sources of this information are increasingly located outside of the four walls of a single enterprise.

A 2013 Deloitte survey found that supply chain executives are far more concerned about the extended value chain — where they have less control — than about risks to company-owned operations. This is driving the rise of a new class of enterprise software, the business network, built from the ground up to solve problems that enterprise resource planning (ERP) systems were never meant to address. Instead, ERP systems were created to harmonize and manage business processes within the four walls of the enterprise. These systems were not, however, designed to manage complex, cross-enterprise interactions, as well as global supply chain risk and resiliency to unexpected changes in demand and/or supply that characterize the modern supply chain.

Introducing the supply chain center of excellence
In response, companies have realized that they need to develop skills outside of the confines of ERP and instead cultivate their own internal skills for supply chain leadership. In other words, many of today's leading, global supply chain brands recognize that to create a long-term view to achieving supply chain excellence, organizations must take a strategic view beyond day-to-day issues. Dealing with the realities of the multi-level, cross-geography, and intra-enterprise supply chain model has been a challenge to many well-known brands. As companies reassess their strategies for collaboration, continuity of supply, and competitive advantage, the role of the supply chain “center of excellence” (CoE) becomes a key part of the organizational model.

The idea behind a CoE is to inject innovation into an organization's culture through the cross-functional engagement of key stakeholders who actually know how the business works and where the real opportunities are hidden. A CoE initiative is usually commissioned by the executive team as a way to shake things up and begin to address problems holding the company back or causing it to lag behind its competitors. In short, forming a CoE is usually an acknowledgement that a company's operational performance needs improvement.

Common challenges
Unfortunately, all too often we see supply chain CoE initiatives launched with high hopes, only to fail to deliver tangible business results — and eventually, lose momentum. Continuous improvement initiatives are now a given in any sizable enterprise, but many find themselves needing to improve how they make a tangible impact.

Here are a few common challenges that we at E2open believe can impact the effectiveness of a supply chain CoE:

  • Governance. Most companies tend to select the right people from such departments as procurement, materials management, inventory management, and planning, but don't really empower them to change their organizations. Yet, they are expected to advocate or influence others to change behaviors and business practices, which are usually deeply rooted in the organization's culture.
  • Change management. Seeding a supply chain CoE with respected subject-matter experts is the best way to gain credibility within an organization. However, this sometimes places members outside of the common interests of their respective functions. Without continuous executive-level support and constant communication of what needs to change, stakeholders face the difficult task of persuading coworkers to expose their problems, leave their comfort zones, and find new ways of working. In addition, some companies utilize satellite operational excellence groups (SOEs) to ensure the broader execution of supply chain CoE strategies, which then allows for both a centralized and a decentralized approach.
  • Metrics that actually move the needle. The hallmark of a supply chain CoE is a focus on fact-based, data-driven measurements of business performance. The old adage, “How do you manage something if you can't measure it?” has never been truer. But supply chain CoEs often scramble to measure the things that have data readily available, sometimes misunderstanding whether that data is truly correlated with poor performance.
  • Collaboration or communication? Many companies confuse collaboration with information sharing. Posting problems for all to see, without first getting the organization to reflect and understand how its process ultimately affects customers, causes stakeholders to tune out supply chain CoE recommendations for lack of context.
  • Misalignment of rewards and incentives. Though functional goals and objectives may be aligned, measurement systems sometimes are not. Production wants long manufacturing runs, procurement wants cheaper parts, and sales wants plenty of inventory. What could possibly go wrong? Enterprise processes are now strung across the globe with each entity seeking to optimize its own performance metrics, which often conflict with another's.
  • Overlooking technology as a stimulus of supply chain CoE change. The IT axiom that “the problem is the process, not the technology” is only partially true. Sometimes technology is wrapped around bad processes, and sometimes the wrong technology is chosen to “improve” good processes. Knowing how one affects the other is important to supply chain CoE success.

In Part 2, I'll take a look at the six best practices that organizations can institute to achieve successful supply chain CoE initiatives.

1 comment on “Centers of Excellence Drive Supply Chain Transformation, Part 1

  1. Taimoor Zubar
    July 31, 2014

    @Rich: I think the idea of building CoE within the supply chain and converting it into a supply network is a very good change. I do agree that companies are increasingly concerned about things beyond their own value chain. However, the fundamental issue that I see is that all the stakeholders need to be aligned on this. Every member of this network should realize the importance of collaboration and how they can together achieve more by collaborating. That seems to be the difficult part in my view.

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