Written by Bill DuBois. This post originally appeared on Kinaxis’ industry blog, the 21st century Supply Chain.
In today’s networked global marketplace, organizations increasingly see supply chain performance as a source of sustainable enterprise vitality and competitive advantage. To ensure a long-term strategic perspective that goes beyond the routine execution of supply chain tasks, Supply Chain Centers of Excellence (CoE) have become a more common tool companies use to drive innovation and best practices. According to a Gartner study of chief supply chain officers, 71 percent of organizations are employing CoEs.
Gartner defines a center of excellence as “a physical or virtual center of knowledge concentrating existing expertise and resources in a discipline or capability to attain and sustain world-class performance and value across the supply chain.” Their seminal research into Supply Chain Centers of Excellence found them to be “critical enablers of success in supply chains.” The study clearly demonstrates the value of the model, because organizations that have implemented CoEs show tangible results, including:
- A broader supply chain span of control
- A greater likelihood of being perceived as “partners to the business”
- Greater implementation of more advanced supply chain practices such as segmented supply chains, end-to-end business planning, or product/service portfolio management
- Greater success in meeting their goals with respect to revenue, margin, and return on assets
- Twice as likely to reach revenue and margin targets than organizations without a CoE
Three key challenges were cited in establishing and implementing CoEs:
- Clarity of purpose. A lack of clarity concerning the definition and purpose of centers of excellence has led to misapplication in supply chain organizations.
- Executive support. Getting leaders of the organization to invest in a COE can be daunting, especially when looking to attribute value to a group without direct profit and loss (P&L) responsibility.
- Application focus. While the definition of CoE does not change, its application in an organization can vary depending on the challenges and strategy of the supply chain.
And I would add a fourth: understanding of technological impact. Perhaps because of the emphasis in aggregating cross-functional experts in building CoEs, technology is sometimes overlooked as a driver of supply chain innovation and transformation in the context of the tool. Also key is the data quality necessary for supply and demand planning. The importance of having a system in place that can pull all data into one centralized system, provide real-time visibility across the supply and demand network, facilitate collaboration, and allow for quick analysis and scenario simulation is key for CoEs to perform at their best. This means software that is flexible and agile.
In today’s often volatile and constantly changing business environment, supply chain agility increasingly differentiates market leaders from followers—another factor supporting the use of CoEs. In fact, a recent study by Supply Chain Insights found companies with a supply chain CoE report their supply chains as agile nearly seven times as much as those that don’t have one (39 percent vs. six percent).