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Global Procurement Shared Service

MAY | 2011

1Copyright © Beroe Inc, 2011. All Rights Reserved

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Overview

Global procurement shared services are used by large rms tominimize the total cost o procurement and improving their eciencyand eectiveness in procurement operations. Procurement sharedservice involves consolidating the procurement services o anorganization into stand alone business units that ocus completely

on this unction. Functions that are not considered as a corecompetence o the company are usually outsourced to the sharedservice center.

Procurement shared service is essential to ensure ecient andeconomical perormance o procurement activities, therebyincreasing procurement coverage and satisying customers bothinternally and externally. The procurement shared center (alsoreerred to as middle oce) helps in establishing a relationshipbetween the transactional and strategic operations o thecompany.

Procurement shared services can either be operated by the

company itsel or outsourced to a dierent organization. Forexample, Philips outsourced its procurement transactions toInosys BPO and signicantly improved its service levels. A globalbeverage company established shared service centers acrossmultiple regions to reduce the procurement organization’s workload and improve its service.

Some o the challenges involved in establishing procurement sharedservice centers include managing the change in the organization,cost o setting up shared service centers, and gaining expertise onthe unctions. Companies establishing shared service centers havestarted conducting change management programmes to mitigatethis challenge. In addition, companies have started to leverage the

existing locations to reduce the cost o setting up a new center.Although the shared service concept has not been very successul in

procurement in the last ew years, companies have started ndingdierent means, such as understanding unctions and organizingit to make it successul and attain signicant cost savings. Thesuccess o a shared service model depends on developing a clearunderstanding o the business objectives and challenges, groupingappropriate unctions or the shared service and choosing thesuitable model or the implementation.

Share services are mostly used as a means to mitigate the risksdue to the conventional procurement model, such as currency risk,planned outages in oshore manuacturing acilities (or examplein buying bulk chemicals into the US rom China and Middle East)etc. These risks can be limited by associating with an oshoreprocurement partner.

Levers of Procurement Shared Services Model –

Improved Internal Control

Consolidation

Easy to monitor and manage processes when compared to selprocurement

Improved knowledge sharing

Training simplied

More timely, consistent and improved consistency o people

Standardization

Standardize documentation

Standardizing supporting technology – e.g. common ERP system

Increases eectiveness and eciency by reducing number ocontrols and increasing organizational awareness

Reducing variation and eliminating duplicationProcess Improvement

Improves processes through simplication and sharing o bestpractices

Reducing complexity thus reducing the probability o error andnumber o required controls

By using best practices, shared services can leverage most eectiveand ecient controls across the organization

Automation

Improved automation due to benets o consolidation,standardization due to enhanced returns on investment intechnology

Increased scope and scale

Reduces number o manual controls, thus saving on time andeorts

Leadership Model

More integrated view o risks across organization

Foster knowledge sharing and Improve transparency

Talent better managed by balancing workload, and reducing

knowledge gaps thus reducing risks

With ewer management teams, audit and control testing costsare reduced signicantly

Importance vs. Implementation in the Direct

Materials Domain

HighLeadership Model,

Process ImprovementStandardization

Low Automation Consolidation

Dicult Easy

Ease o Implementation   E  c  o  n  o  m   i  c   I  m  p  o  r   t  a  n  c  e

Source: accenture.com and Beroe Internal Knowledge Base

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Forms of Shared Service Models

Companies have started adopting a hybrid shared servicemodel containing local/regional and global sharedservice centers to maintain efciency and achievesignifcant cost savings.

The unctions that are not core to the company are outsourced tomultiple units that are local/regional or global. The shared serviceunctions can either be single or multiunctional ocusing on manydierent unctions and sub unctions.

The advent o technology and the need to consistently improvethe eciency has increased the number o shared service centersregionally and globally. Regional centers support operations indierent countries across a particular region.

The developments in technology has also encouraged companiesto adopt virtual shared service models where the members o thegroup are no longer expected to be physically present in the center.These members carry out all operations at home or are connectedto distant locations.

Shared services can include outsourcing as the retainedorganization can manage one or more outsourcing contracts.

About 80% o the shared service model are oshore , therebyensuring the smooth and eective transer o inormation.

Source: accenture.com and Beroe Internal Knowledge Base

Steps involved in Establishing a Shared Service

Model

The shared service model involves a signicant amount o

organizational change. Hence, the pace o implementing thisapproach must be clearly dened.

The ability to leverage the current location to avoid start up costsand currency risks is another critical actor to be considered.

Source: www.sequeiraconsulting.ne and Beroe Internal Knowledge Base

Procurement Shared Services Model

Identiy requirements rom business units

Sending requests to procurement shared service providerRegular ollow up

These services are derived rom shared procurement serviceproviders due to its core competence and specialized expertize inthese unctions . This advantage can be leveraged by buyers in terms

o reduced total cost o ownership, lesser risk in terms o availabilityo material, and quality.

Source: Beroe Internal Knowledge Base

3Copyright © Beroe Inc, 2010. All Rights Reserved 3Copyright © Beroe Inc, 2011. All Rights Reserved

Regional or Global

Single or

multi-functional

Co-located or

Virtual

egional or On-shore

or Off-shore

These models are

usually easy to monitor

and are faster in

adapting to the changes.

They are very useful in

the procurement ofdirect materials.The

spend on these models

is usually larger than the

indirect category and

are often prone to

changes.

Implement theShared Service

Build governance structures and create appropriate roles.

Support with funding.

Communicating the new service model and developing support

from all members of the organization

The functions that need to be executed centrally and locally/regionally are analyzed.

The extent of st andardizing and localizing the different

functions across regions are also analyzed.

Analyze the variousshared service model

that suit theobjectives

Analyze and Groupthe Services to be

Shared

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.

Operational Procurement Process to be Followed bythe Procurement Intelligence Cell

Identiy SuppliersValue Tracking/ 

Budgeting Services

Shortlist MostPromising Suppliers

Analyze Perormance

Preparing RFIs/RFPs E-Sourcing Services

Coordinate RFI/RFPProcesses

Finalizing the Contract/ Negotiation

Category Managers at the Client’s End

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Disclaimer: Strictly no photocopying or redistribution is allowed without prior written consent rom Beroe Inc. The inormation containedn this publication was derived rom careully selected sources. Any opinions expressed refect the current judgment o the author and areubject to change without notice. Beroe Inc accepts no responsibility or any liability arising rom use o this document or its contents.

For more inormation, please contact ino@beroe-inc.com.

Author: 

Pavitra Mohan | Senior Domain Lead