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.

1. Global Procurement Shared Service
MAY | 2011
1Copyright © Beroe Inc, 2011. All Rights Reserved

2. 2Copyright © Beroe Inc, 2011. All Rights Reserved
Overview
„Global procurement shared services are used by large firms to
minimizethetotalcostofprocurementandimprovingtheirefficiency
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 (also
referred to as middle office) helps in establishing a relationship
between the transactional and strategic operations of the
company.
„Procurement shared services can either be operated by the
company itself or outsourced to a different organization. For
example, Philips outsourced its procurement transactions to
Infosys BPO and significantly improved its service levels. A global
beverage company established shared service centers across
multiple regions to reduce the procurement organization’s work
load and improve its service.
„Some of the challenges involved in establishing procurement shared
service centers include managing the change in the organization,
cost of setting up shared service centers, and gaining expertise on
the functions. Companies establishing shared service centers have
started conducting change management programmes to mitigate
this challenge. In addition, companies have started to leverage the
existing locations to reduce the cost of setting up a new center.
„Although the shared service concept has not been very successful in
procurement in the last few years, companies have started finding
different means, such as understanding functions and organizing
it to make it successful and attain significant cost savings. The
success of a shared service model depends on developing a clear
understanding of the business objectives and challenges, grouping
appropriate functions for the shared service and choosing the
suitable model for the implementation.
„Share services are mostly used as a means to mitigate the risks
due to the conventional procurement model, such as currency risk,
planned outages in offshore manufacturing facilities (for example
in buying bulk chemicals into the US from China and Middle East)
etc. These risks can be limited by associating with an offshore
procurement partner.
Levers of Procurement Shared Services Model –
Improved Internal Control
Consolidation
„Easy to monitor and manage processes when compared to self
procurement
„Improved knowledge sharing
„Training simplified
„More timely, consistent and improved consistency of people
Standardization
„Standardize documentation
„Standardizing supporting technology – e.g. common ERP system
„Increases effectiveness and efficiency by reducing number of
controls and increasing organizational awareness
„Reducing variation and eliminating duplication
Process Improvement
„Improves processes through simplification and sharing of best
practices
„Reducing complexity thus reducing the probability of error and
number of required controls
„By using best practices,shared services can leverage most effective
and efficient controls across the organization
Automation
„Improved automation due to benefits of consolidation,
standardization due to enhanced returns on investment in
technology
„Increased scope and scale
„Reduces number of manual controls, thus saving on time and
efforts
Leadership Model
„More integrated view of risks across organization
„Foster knowledge sharing and Improve transparency
„Talent better managed by balancing workload, and reducing
knowledge gaps thus reducing risks
„With fewer management teams, audit and control testing costs
are reduced significantly
Importance vs. Implementation in the Direct
Materials Domain
High
Leadership Model,
Process Improvement
Standardization
Low Automation Consolidation
Difficult Easy
Ease of Implementation
EconomicImportance
Source: accenture.com and Beroe Internal Knowledge Base

3. Forms of Shared Service Models
Companies have started adopting a hybrid shared service
model containing local/regional and global shared
service centers to maintain efficiency and achieve
significant cost savings.
„The functions that are not core to the company are outsourced to
multiple units that are local/regional or global.The shared service
functions can either be single or multifunctional focusing on many
different functions and sub functions.
„The advent of technology and the need to consistently improve
the efficiency has increased the number of shared service centers
regionally and globally. Regional centers support operations in
different countries across a particular region.
„The developments in technology has also encouraged companies
to adopt virtual shared service models where the members of the
group are no longer expected to be physically present in the center.
These members carry out all operations at home or are connected
to distant locations.
„Shared services can include outsourcing as the retained
organization can manage one or more outsourcing contracts.
„About 80% of the shared service model are offshore , thereby
ensuring the smooth and effective transfer of information.
Source: accenture.com and Beroe Internal Knowledge Base
Steps involved in Establishing a Shared Service
Model
The shared service model involves a significant amount of
organizational change. Hence, the pace of implementing this
approach must be clearly defined.
The ability to leverage the current location to avoid start up costs
and currency risks is another critical factor to be considered.
Source: www.sequeiraconsulting.ne and Beroe Internal Knowledge Base
Procurement Shared Services Model
„Identify requirements from business units
„Sending requests to procurement shared service provider
„Regular follow up
These services are derived from shared procurement service
providers due to its core competence and specialized expertize in
these functions .This advantage can be leveraged by buyers in terms
of reduced total cost of ownership, lesser risk in terms of availability
of 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
Regional 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 of
direct materials.The
spend on these models
is usually larger than the
indirect category and
are often prone to
changes.
Implement the
Shared 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 standardizing and localizing the different
functions across regions are also analyzed.
Analyze the various
shared service model
that suit the
objectives
Analyze and Group
the 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 by
the Procurement Intelligence Cell
Identify Suppliers
Value Tracking/
Budgeting Services
Shortlist Most
Promising Suppliers
Analyze Performance
Preparing RFIs/RFPs E-Sourcing Services
Coordinate RFI/RFP
Processes
Finalizing the Contract/
Negotiation
Category Managers at the Client’s End

4. 4Copyright © Beroe Inc, 2011. All Rights Reserved
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Author:
Pavitra Mohan | Senior Domain Lead