Sourcing & Procurement Shared Services: Looking Beyond the Conventional Model

The creation of Shared Services across IT and Non-IT functions across the enterprise has definitely created improved bottom line benefits across organizations across industry sectors. There was a time when a single organization would have many different ways execute the same operations, different operating models, and most importantly, oblivious to the fact that high value resources were being under-utilized by making them do day to day transactional activities. The evolution of Shared Services, considering the paradigm change in the technology landscape, has taken much longer for a significant number of organizations on this journey. The reasons are many; but, the most significant reasons have been the inability to manage change by parent organizations, strategic focus on managing service providers, and leveraging the innovations emerging in the space. Today, we are in the era of technology flux where building shared services is the strategy of the past. A few top quadrant transformative organizations have started looking beyond the shared services model by bringing excellence through  a collaborative model with technology solution providers. We will try to look into the ‘Art of Possible’ and this article will work as a guiding principle to CPOs and CFOs to implement continual transformation in their journey of adding value to the P&L contribution.

 

Evolution & Saturation Of Shared Services

Looking at the Shared Services Levels and Value derived from them, typically If we look at the maturity curve of the Shared Services s onboarding Vs Benefits, we can clearly see the significant benefits coming in the initial phases and then saturating over the period of time. In some cases, due to cost escalations across People, Technology, Connectivity etc, the value starts declining.

The above example is an ideal scenario where organizations continuously strive to identify various set of activities across functions and keep them pushing to shared service centers. However, in most of the cases, organizations just focus at the “Block I” or in some cases “Block II” and leave it to shared service solution providers to continuously enhance value. In such cases the saturation comes much faster and it becomes difficult to justify the existence of model itself in due course of time.

It has been reported that close to 60% of shared service have not moved beyond ‘Block II’; hence, the value keeps on diminishing.

 

Achieving Benefits in Shared Services

Service providers in the area of shared services have evolved into the business partners. To achieve the continual benefits, organizations collaborate with these partners, leverage their core skills, technology partnerships and multi-industry & multi-function expertise. Organizations have started looking beyond the labor arbitrage benefits. It is in interest of organizations which are on path of value generations through shared services to utilize the models to their fullest.

There are 2 key steps to achieve shared services maturity :

Step 1 – This is the first and key stepping stone in value generation journey. At this stage, organizations need to do detailed due diligence across enterprise and identify key differences in current operating models. The stage 1 endeavor should be to bring uniformity in the operating model. The way processes are run across the different business units, functions across the enterprise should be made uniform, leveraging the best being followed in current scenario. The technology platform or workflows should be same and the people skill set should be aligned with the kind of activities they do. This step should enable process standardization and uniform operating model across enterprise.

Step 2- At this stage, once the operating model is uniform across enterprise, it is time to transform the way processes are run. Organizations should evaluate all best in class technology platforms and align their needs with them through demos, discussions and pain point assessments

 

Going Beyond Shared Services

While it is very important to try and test every strategy which offer benefits in the shorter or longer term, it is equally important to keep evaluating benefits on a continual basis. Shared services is now a proven strategy which may not provide the same benefits than it used to provide decades back. Industry has grown across dimensions with significant advancements in technology, connectivity, communications, and applications.

Those embarking on the transformation and continual cost efficiency journey design the road may considering recent technology trends and perspectives. For example, there are cases where organizations have adopted and significantly benefited from a decentralized strategy. These strategies are typically enabled through cutting edge tools, technologies, and digitization. In the cases where shared services setup have matured, the new digital process enablers complement the shared services solutions and may generate stronger results.

Looking at the figure 2 below, the transformative developments have made the need of having a conventional shared services as redundant. Or, if put in better words, challenged the model to evolve from time to time to stay relevant

 

Organizations can leverage all the technological innovations to reduce the dependency on the conventional shared services and build automatic models. For example, in conventional shared services model, the organization users can raise a purchasing requisition and route that to shared services for the conversion to purchase order. User would have various reasons for raising the purchase requisition and one of the most frequent one is the depletion of line stocks, which may be tracked manually or through some system. It is responsibility of the shared services to ensure that purchase order is raised, vendor is followed and delivery is ensured. However, in innovative model, organizations can connect the inventory in stores, stock on operations line and other places through a technology like IoT, and trigger the need automatically. This system can be connected to the catalogue part of sourcing and procurement platform and enable auto ordering, auto generation of PO, execute delivery and then invoice and payment management.

 

Digitization

The day is not far in the when everything in Supply Chain space would be digitized. Organizations would hardly need outsourcing vendors or shared services to execute mundane day to day supply chain operations. The processes from need identification to payments through PO creation, ordering, inventory management, vendor life cycle management, contract management & compliance, invoices and accounts payable would be automated reducing the dependency on people to manage operations significantly. Organizations would need more partnership models and partner management programs than vendor management programs.

CPOs must align with CTOs of the enterprise and start readying up their organizations to be digital. Some of the key preparations to be ready are :

 

Conclusion

With advanced technologies in place, organizations can invest in them, identify key requirements and opportunities specific to the enterprise to ensure that a significant number of outsourceable processes are digitized and automated. This would make all of these processes more efficient, more secure, and lower the cost. There are significant opportunities in the Sourcing, Procurement, Supply Chain Operations and other SCM support functions which can transform the entire operating model. Through digitization, organizations can reduce the number of redundant and manual processes and transform them “lights out” operations completely human independent. Whether it is Chatbots, Auto POs, Auto Flips, “Cognitive Interventions” can be used to make purchasing decisions. Artificial Intelligence (AI) will provide real-time accurate insights, track or manage inventories, execute operations and processes beyond today’s vison. Supply Chain Management is on brink of paradigm change and all CPOs must start acting now!

 

 

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