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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.
3
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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."
"
4
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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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6
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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8
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
7/29/2019 Achieving High Performance With Procurement Shared Services Centers
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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."
"
11
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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
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