White paper on global procurement shared service by Beroe Inc

MAY | 2011

Global Procurement Shared Service

Overview

Levers of Procurement Shared Services Model – Global procurement shared services are used by large firms to Improved Internal Control minimize the total cost of procurement and improving their efficiency Consolidation and effectiveness in procurement operations. Procurement shared service involves consolidating the procurement services of an organization into stand alone business units that focus completely on this function. Functions that are not considered as a core competence of the company are usually outsourced to the shared service center.

Easy to monitor and manage processes when compared to self procurement Improved knowledge sharing Training simplified More timely, consistent and improved consistency of people

Procurement shared service is essential to ensure efficient and economical performance of procurement activities, thereby increasing procurement coverage and satisfying customers both internally and externally. The procurement shared center (also referred to as middle office) helps in establishing a relationship between the transactional and strategic operations of the company.

Standardization Standardize documentation Standardizing supporting technology – e.g. common ERP system Increases effectiveness and efficiency by reducing number of controls and increasing organizational awareness

Procurement shared services can either be operated by the company itself or outsourced to a different organization. For example, Philips outsourced its procurement transactions to Infosys BPO and significantly improved its service levels. A global beverage company established shared service centers across multiple regions to reduce the procurement organization’s work load and improve its service.

Reducing variation and eliminating duplication

Process Improvement Improves processes through simplification and sharing of best practices Reducing complexity thus reducing the probability of error and number of required controls

Some of the challenges involved in establishing procurement shared service centers include managing the change in the organization, cost of setting up shared service centers, and gaining expertise on the functions. Companies establishing shared service centers have started conducting change management programmes to mitigate this challenge. In addition, companies have started to leverage the existing locations to reduce the cost of setting up a new center.

By using best practices, shared services can leverage most effective and efficient controls across the organization

Automation Improved automation due to benefits of consolidation, standardization due to enhanced returns on investment in technology

Although the shared service concept has not been very successful in procurement in the last few years, companies have started finding different means, such as understanding functions and organizing it to make it successful and attain significant cost savings. The success of a shared service model depends on developing a clear understanding of the business objectives and challenges, grouping appropriate functions for the shared service and choosing the suitable model for the implementation.

Increased scope and scale Reduces number of manual controls, thus saving on time and efforts

Leadership Model More integrated view of risks across organization

Share services are mostly used as a means to mitigate the risks due to the conventional procurement model, such as currency risk, planned outages in offshore manufacturing facilities (for example in buying bulk chemicals into the US from China and Middle East) etc. These risks can be limited by associating with an offshore procurement partner.

Foster knowledge sharing and Improve transparency Talent better managed by balancing workload, and reducing knowledge gaps thus reducing risks With fewer management teams, audit and control testing costs are reduced significantly

Economic Importance

Importance vs. Implementation in the Direct Materials Domain High

Leadership Model, Process Improvement

Standardization

Low

Automation

Consolidation

Difficult

Easy

Ease of Implementation

Steps involved in Establishing a Shared Service Model Analyze and Group the Services to be Shared

Analyze the various shared service model that suit the objectives

Develop a detailed understanding of the business objectives, constraints, and challenges. Group services with similar objectives. Ensure that grouped services are in line with the business objectives.

The functions that need to be executed centrally and locally/regionally are analyzed. The extent of standardizing and localizing the different functions across regions are also analyzed.

Build governance structures and create appropriate roles. Implement the Shared Service

Support with funding. Communicating the new service model and developing support from all members of the organization

The shared service model involves a significant amount of organizational change. Hence, the pace of implementing this approach must be clearly defined.

Forms of Shared Service Models

The ability to leverage the current location to avoid start up costs

Companies have started adopting a hybrid shared service and currency risks is another critical factor to be considered. model containing local/regional and global shared Source: www.sequeiraconsulting.ne and Beroe Internal Knowledge Base service centers to maintain efficiency and achieve Procurement Shared Services Model significant cost savings. Regional or Global

Single or multi-functional

Co-located or Virtual

Regional or On-shore or Off-shore

Category Managers at the Client’s End

These models are usually easy to monitor and are faster in adapting to the changes. They are very useful in the procurement of direct materials.The spend on these models is usually larger than the indirect category and are often prone to changes.

Identify requirements from business units Sending requests to procurement shared service provider Regular follow up

Operational Procurement Process to be Followed by the Procurement Intelligence Cell

The functions that are not core to the company are outsourced to multiple units that are local/regional or global. The shared service functions can either be single or multifunctional focusing on many different functions and sub functions. The advent of technology and the need to consistently improve the efficiency has increased the number of shared service centers regionally and globally. Regional centers support operations in different countries across a particular region. The developments in technology has also encouraged companies to adopt virtual shared service models where the members of the group are no longer expected to be physically present in the center. These members carry out all operations at home or are connected to distant locations.

Value Tracking/ Budgeting Services

Shortlist Most Promising Suppliers

Analyze Performance

Preparing RFIs/RFPs

E-Sourcing Services

Coordinate RFI/RFP Processes

Finalizing the Contract/ Negotiation

These services are derived from shared procurement service providers due to its core competence and specialized expertize in these functions . This advantage can be leveraged by buyers in terms of reduced total cost of ownership, lesser risk in terms of availability of material, and quality.

Shared services can include outsourcing as the retained organization can manage one or more outsourcing contracts. About 80% of the shared service model are offshore , thereby ensuring the smooth and effective transfer of information.

Source: Beroe Internal Knowledge Base

Source: accenture.com and Beroe Internal Knowledge Base

Identify Suppliers

Author: Pavitra Mohan | Senior Domain Lead

Disclaimer: Strictly no photocopying or redistribution is allowed without prior written consent from Beroe Inc. The information contained in this publication was derived from carefully selected sources. Any opinions expressed reflect the current judgment of the author and are subject to change without notice. Beroe Inc accepts no responsibility for any liability arising from use of this document or its contents.

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