Achieving High Performance With Procurement Shared Services Centers

7/29/2019 Achieving High Performance With Procurement Shared Services Centers

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Achieving High Performancewith ProcurementShared Services Centers

Consulting Technology Outsourcing

by Kris Timmermans & Sven Ruytinx, Accenture


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Shared services is a model that

is right or our times. Areas suchas human resources, inance and

accounting are requently optimized

in companies that centralize their key

support unctions.

But despite shared services many

successes and adherents, it has

been applied less successully to

the procurement unction. Reasons

vary. At some companies, the

acquisition o direct, indirect and

MRO materials is too ragmented,

making it doubly diicult to adopt a

model built upon strict governance,

process standardization and contract

adherence.

Other organizations do not realize

that procurement is more than a

transaction-intensive unction. As a

result, they end up olding only the

ew purely transactional pieces o

procurement into a inance shared

services (e.g., accounts payable)

model. Not surprisingly, these

organizations are usually disappointed

by the low payback.

Most oten, though, companies with

cross-business-unit procurementorganizations all short or strategic

and process reasons: They lack an

integrated vision o procurement

and an understanding o how to

operationalize procurement in a

shared services environment.

While the challenges are signiicant,

the rewards or overcoming them

are signiicant as well. Accentures

research into High-Perormance

Business conirms that a relationshipexists between procurement mastery

and superior inancial perormance.

The research ound that procurement

masters achieve procurement savings

that are 30 percent higher than low

perormers. Yet, masters procurement

organizations cost about hal as much

to run.

This Accenture Point o View brings

into ocus an integrated vision or

shared services in procurement.

It shows that when vision and

operationalization are thoughtully

combined, companies nearly always

ind that shared services and

procurement are extremely compatible.It discusses the operational eatures

companies should strive to perect, the

rewards they can expect by doing so,

and a case example o a company that

successully aligned shared services

and procurement.

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The mission o procurement is

simple: Consistently purchase high-quality, minimally priced materialsand services, and ensure they aredelivered within the prescribedtimerame. However, an integratedvisionconceptualizing, designing andconstructing the actions that makethe procurement mission happenis agreat deal more complicated.

A undamental starting point isacknowledging the existence androle o three distinct processes within

sourcing and procurement: strategic,tactical and transactional. Tactical andtransactional processes together areoten reerred to as operational.

Strategic activities encompass multi-yyear and annual planning o sourcingprograms; identiying optimal sourcingstrategies and suppliers; risk planning;and supplier relationship management(SRM).

Tactical activities are high level,yyet execution ocused: supplierdevelopment, contract implementation,spot (one-o) buys, contractmanagement and so orth.

Transactional activities involvey

catalog maintenance, master datamanagement, executing purchaseorders, and ollowing up day-to-day ondeliveries and purchase orders.

A second aspect o the integratedvision is minimizing maverick buying.Maverick buying reers to ocontractbuying o items and services orwhich company contracts have beenestablished. It also implies purchaseo one-o items and services (spotbuying) without involving procurement

people or ollowing procurementchannels or processes.

Most companies have this problemto one degree or another: A contractis orged with a specifc vendorbut employees still do end runsaround the arrangement to quicklyand inormally get what they need.Generally their choice is dictatedby convenience, so they wait untilater the purchase to seek budgetary

approval or reconciliation. Researchshows that the procurementorganization gets involved in onlyabout 60 percent o a typicalcompanys indirect-materials

purchases. Few companies have been

able to increase procurement coverageto the 86 percent level that Accentureassociates with high perormance inprocurement Figure 1.

In net, the integrated procurementvision emphasizes 1) a highpercentage o technology-enabledtransactions that are consistent withcontractual stipulations and 2) aprocurement organization that is ableto ocus primarily on adding valueby increasing sourcing and supplier-

management coverage and involvingitsel in necessary one-o purchases.The dierence between this vision andcommon current practice is illustratedin Figure 2.

The Vision

When vision and operationalization

are thoughtfully combined, companiesnearly always find that shared servicesand procurement are extremelycompatible."

"

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KPI Defnation Mastery Value1

Procurement ully controlled spend 86%

Compliant spend to controlled spend 95%

TCO saving as a multiplier o procurement operating cost 10

Operating cost as percentage o purchase spend 0.8%2

Time spend onManagerial tasksyStrategic tasksyOperational (tactical and transactional) tasksy

11%46%43%

Figure 1: Metrics identifed byAccenture research as consistent

with high perormance in

procurement. (1) Masters represent

approximately 16 percent o 600

companies studied by Accenture

during a study o high perormance

in procurement (indirect spend only).

(2) CAPS benchmark = 0.84 percent

Figure 2: The centerpiece o an

integrated vision o procurement isan operating model that supports andenables sourcing agreements, reducesspot buys and acts as a continuousimprovement engine.

Plants

Marketing

Sales

SpotBuying

Suppliers

Suppliers

Suppliers

Suppliers

MaverickBuying

SpotBuying

StrategicSourcing

Agreements

StrategicSourcing

Agreements&

AutomaticPOs and

Expediting

Plants

Marketing

Sales

Suppliers

Suppliers

Suppliers

Suppliers

From To


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High perormance in sourcing

and procurement implies a highpercentage o on-contract buying

and a value-ocused procurement

organization. However, as noted

earlier, a great deal more can be done

to coordinate procurement activities

more tightly and economically,

increase procurement coverage,

and raise compliance and service

levels or internal business users and

suppliers. The key is developing a

procurement shared services center

that eatures a middle ofce.

Figure 3 illustrates a world-class,our-part model that embodies thisextended shared services vision:

The Front Ofce is a sourcingorganization staed by categorymanagers who work in and acrossbusiness units and excel at strategy.

A Back Ofce operation consists ofnance-governed, accounts-payable-ocused, shared services operationswhose core mission is to handletransactions. The only procurementtransactions that are executed here are

ater-the-act purchase orders or other

transactional updates that require noprocurement background or skills.

The Middle Ofce is a procurementshared services center that connectsthe companys transactional (backofce) activities with strategic (rontofce) operations. The middle ofceis what makes shared services workbecause it brings centralization (andthereore scale) to higher-value,non-transactional activities, suchas spot buy management, reporting

perormance measurement and data/contract/compliance management.The middle ofce contains sourcinganalysts who support categorymanagers with analytical, e-sourcingand supplier-management expertise.They also research opportunities tohelp category managers reduce therequency o spot buys.

Local support and thus LocalOperations are key to making the

model work. Procurement requires alocal arm to help implement contractslocally and support spot buys thatrequire extensive collaboration or aredifcult to centralize or oshore.

How does this model actually work in

a shared services environment? Themost eective way is through a portal.To launch a request or materialsor services, authorized users accessa portal that presents them with amenu o buying channels, catalogs,deals, etc. I they fnd what theyneed, the process is entirely sel-serveand automatic, albeit contingentupon approval that can be solicitedautomatically. I their need is or aone-o (spot-buy), users can contact

a local purchasing representative (LRP)who can either make the purchase,orward the requisition to the middleofce where a team o proessionalspot-buyers obtain it, or orward therequest to the ront-ofce (categorymanager) i the item is o strategic orhigh value. This sequence is depictedin Figure 4.

Equally important, the modelchannels an ever-increasingpercentage o requisitions into the

automatic sel-serve channel. Ineect, an ongoing, continuous-improvement engine is enabled.

Translating the Vision into a Shared Services

Operating Model


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Figure 3: In a world-class

procurement shared services model,

our components reside between a

companys internal business users and

its suppliers.

Figure 4: The critical role o a middle

ofce in procurement shared

services.

User

LPRLPRTransaction

Engine(Catalogue and Business

Form Content)

P.O.

Yes No

Preferred Vendor?

Yes No & > 2,5k

Educate userto use system

in future

Spotbuyingteam

Inform LPR

P.O.

Content notavailable

> 100k (*)CategoryManager

No & < 2,5k

Execute localspot buy

P.O.

ProcurementCenter

Portal

Operational Procurement ProcessesSourcing & Category Management

Internal Business Users

Suppliers

Perform Requisitions& Fulfillment

Perform CustomerServices (Helpdesk)

Provide SourcingSupport

Execute Local Con tract Implementation

Execute Spot Buys

Corporate Procurement

Zone(s)

Roles: Cat. Leader and

Manager

Corporate/

Business Unit/Local Sourcing

Roles: CategoryLeader and Manager

Finance SharedService Center

Handle CommercialSupplierRelationships

Optimize UserCompliance Satisfaction

OptimizeSupplierPerformance

OptimizeContracts

E-sourcingServices

Value Tracking/BudgetingServices

ExecuteSpot Buys

Execute 8 stepStrategicSourcing

SourcingSupport

InvoiceProcessing

SupplierHelpdesk

Front Office Procurement Shared Services Center (Middle Office) Back Office

Local Operations


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In broadest terms, companies have

two options: Either they can build and

operate a shared services capability

(the middle ofce) themselves, or they

can outsource that eort to a qualifed

services provider.

Regardless o whether the shared

services program is outsourced orkept in house, numerous procurement

activities will likely be located oshore.

This is where much o the new models

savings come romobtaining low

labor rates or procurement activities

that are not aected by distance, and

or which the learning curve is not

particularly steep. Examples include:

Sourcing support: Leveragingy

specialized sourcing analysts who

support category managers with data

analysis, industry and supplier profling,

e-sourcing support, Request or

Proposal (RFP) analysis and preparation

or act-based negotiations.

Spot buys: Handling one-os andy

ensuring proper ollow up or on-time

delivery.

Contract services: maintaining ally

contracts centrally and monitoring

contract-related ollow up activities.

Master data compliance and contenty

assurance, requisition-to-pay and

reporting-ramework maintenance.

Activities or which an onshore

presence remains preerable are

usually those that are particularly

detailed and/or that require ongoing

ace-to-ace interaction with business

decision makers and suppliers. An

example would be complex spot buys

or creative agencies in the area omarketing. Still, as much as 80 percent

o shared services activities can

legitimately be regarded as candidates

Building the Model

or oshoring. The key is building

mechanisms that accommodate the

smooth and rapid transer o requests

and inormation.

When oshoring, close consideration

should to be given to location(s) o the

procurement center. Typically, the most

important criterion is availability oabundant procurement, analytical and

language skills. Signifcant advantage

also can be obtained by fnding a

location where competition or the

above capabilities is limited. Basically,

frst movers have a signifcant edge,

since turnover and labor-rate increases

can quickly compromise a business

case. However, as shown in the case

study box, making location the sole

criterion is seldom a wise move.


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In recent years, raw material prices

in the global beverage market

have increased dramatically. Many

companies thus have been working

hard to reduce indirect spend. One

good example is a global beverage

manufacturer that is implementing

procurement middle offices inCentral and Eastern Europe.

Most core to the companys mission

were 1) reducing the procurement

organizations operating workload

before offshoring and 2)

maximizing user-centricity. The

second concept is particularly key:

User centricity means that the

complexity of the middle office

should not be evident to the user.

To make this happen, the company:

Implemented a 70 person off-y

shore middle office

Developed a procurement usery

portal as a content layer over the

ERP system. Via the portal, users

are quickly and smoothly guided

to the right information through

appropriate buying channels.

Appointed a dedicatedy

procurement representative to act

as a central point of contact for all

procurement-related issues.

These innovations (new technology

and new organizational structure)

involved a significant change

management effort. Most important

was preparing for centralization and

offshoring by making necessary shifts

in the nature and quantity of work.

For example, procurement services

were standardized across countries,

supplier e-readiness programs were

introduced, reductions were made

in the quantity of spot buys, and a

broad cleanup effort was done to

the companys procurement master

data.

To date, middle office capabilities

have gone live in the Ukraine,

Luxemburg, Russia and Belgium.

Implementation activities are

underway in the United Kingdom,

Romania and Germany. Yet even at

this stage, procurement coverage

has increased from 65 percent to 85

percent, while operating costs have

dropped by about 10 percent. The

procurement user portal has helped

increase compliance from 80 percent

to 95 percent of procurement

covered spend.

Case Study: Leveraging a Procurement Middle Office to Increase Profits

and Performance


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Procurement is clearly an excellent

candidate or shared services

provided that companies understand1) how to organize and parse the

unction, and 2) that much o the

operation is ocused on the savvy use

o oshore resources. When these

acts are acknowledged, and ollowed

by a quality implementation o a

shared services sourcing model, the

results can be signifcant.

In a strategic context, high-level

buyers are reed up to ocus more

completely on proactive sourcing andsupplier development. Procurement

proessionals also become part o the

spot-buy equation, thereby reducing

o-contract purchases and obtaining

better deals. In eect, resources are

deployed more eectively and solid

groundwork is laid or greater levels

o specializationincluding sourcing

analytics, e-sourcing, spot buying and

contract management.

At the same time, governance

and control are actually enhanced

with an oshored (and potentially

outsourced) structure. Many

companies tend to ear that their

insights and involvement will be

compromised in such a situation.

What generally happens, however, is

the exact opposite: Buying channels

are tightly controlled and monitored

(all via a single point o entry) so

compliance is higher. Increased levelso automation ensure more-complete

visibility and perormance reporting.

Connectivity across all levels o the

client organization and all levels o

the procurement process (C-suite,

strategists, transaction specialists and

suppliers) is enhanced.

Naturally, these advantages oer

broad cost-saving potential. The

most signifcant arise rom tighter

adherence to contracted supplyrates. Accenture research on high

perormance has shown that

increasing on-contract buys rom 60

High Performance and the Rewards of Procurement

Shared Services

to 95 percent can reduce a companys

costs by up to 4 percent. Additional

savings stem rom:Aggregated spend across multipley

buyers. Shared services organizations

are better positioned to consolidate

buys across an organization and

thus acquire more volume discounts.

In organizations with multiple

procurement operations, it is not

uncommon to fnd several relationships

(and purchase contracts with varying

stipulations) with a single supplier.

The ability to pool experience,y

knowledge and skills, as well as

purchases and contracts.

Total cost o ownership reductionsy

particularly operating costs relating to

centralization and oshoring.

Higher percentage o cost-efcienty

product designs and introductions, due

to increased and earlier involvement by

the procurement organization.

Higher share o suppliers managedy

through a ormal process.

All contracts logged and managedy

centrally.

Leveraging technology morey

eectively. Shared services operations

oten have an easier time justiying

and leveraging the acquisition o

leading-edge technology, such as

e-procurement and e-auction tools.

Fewer missed opportunities toy

capture volume and early-payment

discounts.

Tight integration o sourcing andy

procurement with related processes

such as inventory management,

inbound transportation, and fnance

and accounting.

In the Accenture report mentioned

earlier, researchers noted that

procurement masters (roughly 16

percent o the survey population)requently implement mechanisms

such as shared services and

outsourcing that promote

accountability across the purchasing

cycle and in relationships with related

business areas such as engineering,

manuacturing and feld service.Moreover, masters were ound to be

twice as likely as laggards to avail

themselves o these opportunities.

The message here is that development

o a procurement shared services

model is highly consistent with

the characteristics and behaviors

o companies that are committed

to high perormance. Like all high

perormers, organizations that develop

shared services operations sincerely

want innovative business approaches

that reduce total cost o ownership,

ensure continuous improvement and

introduce new strategic advantages

that hold long-term sway in the

marketplace. In every respect, high

perormance and procurement shared

services are desirable and compatible.


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In a strategic context, high-level buyers are freed up to focus more

completely on proactive sourcing and supplier development. Procurement

professionals also become part of the spot-buy equation, thereby

reducing off-contract purchases and obtaining better deals. In effect,

resources are deployed more effectively and solid groundwork is laid forgreater levels of specializationincluding sourcing analytics, e-sourcing,

spot buying and contract management."

"

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Copyright 2008 Accenture

All rights reserved.

Accenture, its logo, and

High Perormance Delivered

are trademarks o Accenture.

About Accenture Supply

Chain Management

About the Authors

About Accenture

The Accenture Supply ChainManagement service line workswith clients across a broad range oindustries to develop and executeoperational strategies that enableproftable growth in new and existingmarkets. Committed to helping clientsachieve high perormance throughsupply chain mastery, we combineglobal industry expertise and skills in

supply chain strategy, sourcing andprocurement, supply chain planning,manuacturing and design, ulfllment,and service management to helporganizations transorm their supplychain capabilities.

We collaborate with clients toimplement innovative consultingand outsourcing solutions that alignoperating models to support businessstrategies, optimize global operations,enable proftable product launches,

and enhance the skills and capabilitieso the supply chain workorce.For more inormation, visit

www.accenture.com/supplychain.

Kris Timmermans is a partner in

Accentures Supply Chain Management

Service Line. He is the Global Lead o

the Sourcing & Procurement practice.

In the last 15 years with Accenture,

Kris has lead a large number oglobal procurement and supply chain

transormation projects or companies

across dierent industries, including

Automotive, Industrial Equipment,

Consumer Goods and Services,

Transportation and Resources. Kris

holds a master's degree in Mechanical

Engineering rom the KULeuven and

MIT, Boston. Kris is also a member

o the Procurement Leaders Advisory

Board. Based in Brussels, he can be

reached at

[email protected]

Accenture is a global management

consulting, technology services

and outsourcing company.

Combining unparalleled experience,

comprehensive capabilities across

all industries and business unctions,

and extensive research on the worlds

most successul companies, Accenture

collaborates with clients to help them

become high-perormance businesses

and governments. With 178,000

people in 49 countries, the company

generated net revenues o US$19.70

billion or the fscal year ended Aug.

31, 2007. Its home page is

www.accenture.com.

1 High Perormance throughProcurement: Accenture research andinsights into procurement perormancemastery, Accenture, 2007.

Notes

Sven Ruytinx is a senior manager

in Accenture's Supply Chain

Management Service Line. He

has an extensive background in

Sourcing and Procurement. He has

been involved in the entire range oprocurement transormation aspects,

rom procurement diagnostics (in

both sourcing and capabilities) over

strategic planning and strategic

sourcing to workorce transormation.

He has worked in a veriety o

industries, including Steel, Chemicals,

Insurance, Automotive and Beverages.

Most recently he has led the

implementation o the procurement

middle ofce concept at the client in

this case study. Based in Brussels, he

can be reached at

[email protected].

Achieving High Performance With Procurement Shared Services Centers

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