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Global Procurement Shared Service


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Global procurement shared services are used by large firms to minimize the total cost of procurement and improving their efficiency 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.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 helps in establishing a relationship between the transactional and strategic operations of the company.

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Global Procurement Shared Service

  1. 1. Global Procurement Shared ServiceMAY | 20111Copyright © Beroe Inc, 2011. All Rights Reserved
  2. 2. 2Copyright © Beroe Inc, 2011. All Rights ReservedOverview„Global procurement shared services are used by large firms tominimizethetotalcostofprocurementandimprovingtheirefficiencyand effectiveness in procurement operations. Procurement sharedservice involves consolidating the procurement services of anorganization into stand alone business units that focus completelyon this function. Functions that are not considered as a corecompetence of the company are usually outsourced to the sharedservice center.„Procurement shared service is essential to ensure efficient andeconomical performance of procurement activities, therebyincreasing procurement coverage and satisfying customers bothinternally and externally. The procurement shared center (alsoreferred to as middle office) helps in establishing a relationshipbetween the transactional and strategic operations of thecompany.„Procurement shared services can either be operated by thecompany itself or outsourced to a different organization. Forexample, Philips outsourced its procurement transactions toInfosys BPO and significantly 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 of the challenges involved in establishing procurement sharedservice centers include managing the change in the organization,cost of setting up shared service centers, and gaining expertise onthe functions. Companies establishing shared service centers havestarted conducting change management programmes to mitigatethis challenge. In addition, companies have started to leverage theexisting locations to reduce the cost of setting up a new center.„Although the shared service concept has not been very successful inprocurement in the last few years, companies have started findingdifferent means, such as understanding functions and organizingit to make it successful and attain significant cost savings. Thesuccess of a shared service model depends on developing a clearunderstanding of the business objectives and challenges, groupingappropriate functions for the shared service and choosing thesuitable model for 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 offshore manufacturing facilities (for examplein buying bulk chemicals into the US from China and Middle East)etc. These risks can be limited by associating with an offshoreprocurement partner.Levers of Procurement Shared Services Model –Improved Internal ControlConsolidation„Easy to monitor and manage processes when compared to selfprocurement„Improved knowledge sharing„Training simplified„More timely, consistent and improved consistency of peopleStandardization„Standardize documentation„Standardizing supporting technology – e.g. common ERP system„Increases effectiveness and efficiency by reducing number ofcontrols and increasing organizational awareness„Reducing variation and eliminating duplicationProcess Improvement„Improves processes through simplification and sharing of bestpractices„Reducing complexity thus reducing the probability of error andnumber of required controls„By using best practices,shared services can leverage most effectiveand efficient controls across the organizationAutomation„Improved automation due to benefits of consolidation,standardization due to enhanced returns on investment intechnology„Increased scope and scale„Reduces number of manual controls, thus saving on time andeffortsLeadership Model„More integrated view of risks across organization„Foster knowledge sharing and Improve transparency„Talent better managed by balancing workload, and reducingknowledge gaps thus reducing risks„With fewer management teams, audit and control testing costsare reduced significantlyImportance vs. Implementation in the DirectMaterials DomainHighLeadership Model,Process ImprovementStandardizationLow Automation ConsolidationDifficult EasyEase of ImplementationEconomicImportanceSource: and Beroe Internal Knowledge Base
  3. 3. Forms of Shared Service ModelsCompanies have started adopting a hybrid shared servicemodel containing local/regional and global sharedservice centers to maintain efficiency and achievesignificant cost savings.„The functions that are not core to the company are outsourced tomultiple units that are local/regional or global.The shared servicefunctions can either be single or multifunctional focusing on manydifferent functions and sub functions.„The advent of technology and the need to consistently improvethe efficiency has increased the number of shared service centersregionally and globally. Regional centers support operations indifferent countries across a particular region.„The developments in technology has also encouraged companiesto adopt virtual shared service models where the members of 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% of the shared service model are offshore , therebyensuring the smooth and effective transfer of information.Source: and Beroe Internal Knowledge BaseSteps involved in Establishing a Shared ServiceModelThe shared service model involves a significant amount oforganizational change. Hence, the pace of implementing thisapproach must be clearly defined.The ability to leverage the current location to avoid start up costsand currency risks is another critical factor to be considered.Source: and Beroe Internal Knowledge BaseProcurement Shared Services Model„Identify requirements from business units„Sending requests to procurement shared service provider„Regular follow upThese services are derived from shared procurement serviceproviders due to its core competence and specialized expertize inthese functions .This advantage can be leveraged by buyers in termsof reduced total cost of ownership, lesser risk in terms of availabilityof material, and quality.Source: Beroe Internal Knowledge Base3Copyright © Beroe Inc, 2010. All Rights Reserved 3Copyright © Beroe Inc, 2011. All Rights ReservedRegional or GlobalSingle ormulti-functionalCo-located orVirtualRegional or On-shoreor Off-shoreThese models areusually easy to monitorand are faster inadapting to the changes.They are very useful inthe procurement ofdirect materials.Thespend on these modelsis usually larger than theindirect category andare often prone tochanges.Implement theShared ServiceBuild governance structures and create appropriate roles.Support with funding.Communicating the new service model and developing supportfrom all members of the organizationThe functions that need to be executed centrally and locally/regionally are analyzed.The extent of standardizing and localizing the differentfunctions across regions are also analyzed.Analyze the variousshared service modelthat suit theobjectivesAnalyze and Groupthe Services to beSharedDevelop 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 CellIdentify SuppliersValue Tracking/Budgeting ServicesShortlist MostPromising SuppliersAnalyze PerformancePreparing RFIs/RFPs E-Sourcing ServicesCoordinate RFI/RFPProcessesFinalizing the Contract/NegotiationCategory Managers at the Client’s End
  4. 4. 4Copyright © Beroe Inc, 2011. All Rights ReservedDisclaimer: Strictly no photocopying or redistribution is allowed without prior written consent from Beroe Inc.The information containedin this publication was derived from carefully selected sources. Any opinions expressed reflect the current judgment of the author and aresubject to change without notice. Beroe Inc accepts no responsibility for any liability arising from use of this document or its contents.For more information, please contact Mohan | Senior Domain Lead