BDO Roundtable – „How to handle purchasing at SSC?”
At the end of April we held the first BDO Roundtable discussion gathering SSC leadership representatives in the BDO office, to share and learn about the following topics:
- Benchmarks: discuss and understand KPI measurements and approaches
- Partnering: strategic partnership between SSC and Business unit
- Best practices : processes, procedures, technology, organizational approach
- CPI: Continuous Process Improvement methodology driving improvement efforts
This session was focusing on purchasing and procurement, we had the opportunity to compare the world-class model with the ones applied by Shared Service Centers in Hungary.
World-class Procurement SSC model vs how Procurement is centralised in your SSC?
Today it is an undoubted fact that the SSC Model works perfectly for the back office F&A, IT, Customer Service, HR tasks, it is still debated by most companies, whether it is a feasible solution for Procurement and Purchasing. Procurement is considered to be a transaction-intensive operational function, where professionals are handling significant number of Maverick (off-contract) transactions, therefore not yet widely considered for Shared Services.
Nevertheless companies achieving Procurement mastery level via applying the Shared Service model, experience significant improvement in finance performance and realise 30% higher savings.
The World-class model detailed in Figure 1 is in sync with the strategic path the organisations represented at the Roundtable discussion, are aiming to follow.
Figure 1: World-class procurement SSC model
Source: Achieving High Performance with Procurement Shared Services Centers Consulting Technology Outsourcing by Kris Timmermans & Sven Ruytinx, Accenture
Winning factors that make the model work
Cost-saving is an evergreen item on the SSC priority list, though enriching the service portfolio with value-add and strategic elements is the real acknowledgement of the center performance and capabilities. The new generation SSCs are focusing on services that are geared towards profit margin growth, seeking performance improvements and the value-add. (New era of outsourcing by Susie West).
- Some examples of how Procurement by SSC is becoming a value-add function vs handling the pure transactional tasks
- Only strategic planning is staying with the category managers, all other functions are handled from the SSC (including management of bidding and auctions).
- SSC handling Supplier evaluation, which is considered being a real value-add task therefore enforces the business partnership between SSC and the business units.
- Procurement function in the organisation: Important and defining element of the centralisation is the reporting line of procurement. SSC is considered a safe solution for F&A functions. Decision of similar centralisation and its successful implementation for procurement could be enabled by a strong and respected sponsor from the F&A Function.
- Technology solutions:
- Successful implementation and operational management of AP module and function in the center
- Important pre-requisite for the success of Procurement centralisation is the introduction of standard technology platform, rationalising number of Contracts and Payment terms and also reducing number of requestors (1 requestor per team/department seems to be a good practice both from request quality and quantity point of view)
- Digitalisation of contracts enabled by related workflow is a great way to reduce turnaround time.
- Introduction of e-procurement tools often following the 80/20 model, where about 80% of spend or suppliers are handled by e-procurement systems, but 20% are not.
- Smart handling of the ‘Long tail’
‘Long tail’ of suppliers generally means unmanaged spend, which can have a huge impact on efficiency and quality of service provided by SSC. It does not make sense to look at these suppliers individually and neither to take the time and effort to introduce them to e-procurement solution. The participants of BDO Roundtable highlighted 2 potential solutions for this issue:
- Introduction of P-Cards for the small value purchases as a working practice to follow
- Outsourcing the purchases that consume significant time but involve small items (eg. facilities) could be another way to improve efficiency
How do you measure success?
There are some measures commonly used by the SSCs handling regional/global procurement:
- Cost Savings by procurement
- Managed Spend as a Percentage of Total Spend
- Cost Savings as a Percentage of Managed Spend
- Procurement Operating Costs as a Percentage of Managed Spend
- Return on Investment
- Percent of On-Time Supplier Deliveries
- Supplier Defect Rate
- Customer Satisfaction
- Procurement Cycle Time
In addition to above listed, SSC-s handling regional or global purchasing functions centrally also keep track of the following indicators:
- % of catalogue purchases vs all purchases
- Realised purchases vs Category Management plans
- % of PO auto-generated from requisitions
- Saving per person (individual targets)
- % realised Cost saving per year vs last year realised
Challenge of SSC Purchasing function
Procurement and Purchasing, just like any other functions handled by Shared Services for their clients is facing the challenge of finding resources with relevant experience. In case of procurement, the candidates would need very good negotiation skills.
Another general challenge on the plate of SSCs is the cost saving. In companies operating SSCs handling their back office tasks, it is often considered solely the responsibility of SSC to reduce costs and continuously improve efficiency and productivity. This causing very often reduction of staff and therefore work overload on the SSC side, triggering higher attrition rate than desired.
BDO SSC Basics and SSC Advanced training programmes are designed to ease the SSC resourcing which is becoming real Challenge thorough all functions.
So all in all the participants have agreed, that the SSC model works perfectly for Purchasing/Procurement and by moving this function under the SSC umbrella the company does realise significant benefits:
- Increased savings in the Finance area
- Integration with other core functions (inventory, logistics, F&A)
- Stronger negotiating position due to consolidated buys and increased volume discounts
- Ability to pool experience, knowledge, skills, purchases and contracts
- Contracts managed centrally
- Technology leverage – e-procurement, e-auction
- Increased opportunity to capture volume and early payment discounts
Encouraged by the interests raised by several partners, we are scheduling further Roundtable sessions as listed below:
• Does Customer Service satisfy the Customers?
• Improved visibility and control of T&E expenses