Category Archives: Services

How advanced are your Shared Services?

Especially if you’re not a global 3000 working with a BoB (Best of Breed) Shared Services Advisory firm?

A recent article over on the Shared Services Link describes “Six Trends that define the Shared Services age today”. In particular, it notes that:

  • Shared Services Continue to Move Up the Value Chain
    The argument is that much of the finance function has been outsourced, the dynamic of staff in an SSO is changing (as teams no longer crunch and enter data) but instead judge and advise, and the model works.
  • Business services rather than finance services
    The argument is that we’ve moved on to business functions like HR, IT, and Procurement and this provides the organization with greater value.
  • Outsources gain share, but slowly
    Since 2007, there have been 850 major finance multi-process outsourcing deals.
  • Shared services find better ways to work in a multi-ERP environment
    They have adopted middleware technology to integrate the systems.
  • Data is evolving into insight
    Now that we’ve moved beyond process consolidation and off-shoring, we can focus on BI (Business Intelligence).
  • A new breed of being — the global process owner
    We have created end-to-end process guardians who oversee the global implementation of a process.

And while I believe this is true for the 850 multi-nationals that entered into big shared-services deals with “tier 1” shared service providers, for mid-size companies just jumping on the bandwagon, are they as lucky? Yes, the technology and processes will be there in the providers, but in order to take advantage of it, it often requires considerable restructuring and change management on the part of the company. Sometimes so much so that the leading organizations, uninterested in what will be a losing engagement during the learning curve, may inadvertently scare these organizations away to “tier 2” providers that mainly focus on process standardization and data consolidation and haven’t advanced to the third wave of BI and expert consulting. So if you’re not in the big leagues, have you yet to catch sight of the third wave?

Safety Stock or Service Levels?

The answer is easy. Both!

A recent article in Industry Week on “The MRO Dilemma” asked if you should focus on safety stock or service levels. The answer is both.

The article, which notes that waste is generated every time a piece of equipment breaks down or runs at less than optimal speed because of needed repairs, and that these repairs are delayed if there is not enough spares on hand, notes that more MRO inventory translates to higher inventory carrying costs but also likely higher service levels while less inventory will reduce the carrying costs [while putting] service levels in jeopardy. This is obvious.

It is also obvious that trying to maintain 100% service levels is likely not an option for most companies because that would mean you just about built a duplicate plant in your store room.

But what might not be so obvious is that the 95% service level recommended as a good target is not good advice at all. The target service level does not, as the article indicates, depend on what your company can afford, but depends on what is optimal for your company. And it is often production line / product specific. A production line producing your most profitable product line should never be down, and if that dictates a costly 98% service level, so be it. However, the turn around time on replacing a printer in the admin offices is not nearly as critical and you can accept a service level of 90%, or less, from your internal IT support, especially if they have outsourced the function to a vendor and a higher service level would increase costs 20%.

Just like you optimize your buy, you optimize your service levels. If downtime on a production line costs you $1,000,000 per hour, you spend $100,000 to make sure you have spares for every moving part that can break. If downtime on a secondary machine that is only required for custom orders, which account for less than 10% of profits, only costs you $10,000 an hour, and stocking the same level of spares would cost you $50,000, you opt for a lower service level. It’s all about optimization.

And, there are companies like Servigistics and MCA Solutions, just to name a couple, that can help you optimize this trade-off so that you’re not improving inventory carrying costs at the expense of service levels and vice versa. With optimization, you can have both … at the right levels that are the most profitable for your organization. Be smart.

Ariba Vision 2020: Tomorrow’s Shoes (Part I)

This is the first of two posts that address the fourteen predictions that were dead on in Ariba’s “Vision 2020 – The Future of Procurement” report. Any Supply Management organization that recognizes the truth of these predictions is well on its way to formulating a plan to be a leading Supply Management organization in the decade ahead.

01. Everything is automated

This prediction is dead-on. Next Generation Supply Management shops are investing heavily in technology to automate all non-strategic and low-value supply management activities, leaving the sourcing professionals to focus on strategic and high-value categories where they can extract the most value for the organization.

07. Spend management shrinks

I’ve said it before, and I will say it again: Spend Matters Not. It’s not how much you spend, how you store it, how you cube it, or how you report on it — what ultimately matters is how much you get from it, profit from it, and derive value from it. Next Generation Supply Management organizations are focussed on improving business outcomes, not cutting costs until quality and stability of supply suffer. Spend Management will shrink as true Supply Management focussed on value takes its place.

09. Service providers excel

Given the increasing cost of outsourcing complex and strategic functions to emerging economies where labour rates are rising exponentially, in order to maintain cost competitiveness and deliver value, the service providers will provide service that constantly improves in efficiency and execution.

13. Let’s get financial

Since overall financial success will still be the ultimate measure of value generation in public enterprises, Supply Management will revolve around the financial supply chain and will be heavily involved in optimizing cash flows, working capital, and financing programs from NPD through return and disposal.

14. SM pros get sophisticated

Supply Management professionals will definitely be much more sophisticated in 2020 than they are today. As the secret agents that essentially drive all aspects of the business, their business savvy, analytical capabilities, relationship skills, and overall execution abilities will be, for the most part, a level above where they are today.

15. Supply pros expand expertise

This is the obvious result of a supply managmeent professional getting more sophisticated. It should not have been included as a separate prediction because it’s impossible to get more sophisticated in Supply Management without expanding depth of expertise in key areas.

16. Strategy scope widens

One does not get to the next level by maintaining a narrow focus, so it should also be obvious that the scope of strategy addressed by an average Supply Management organization is going to expand as well. The strategy will be more closely aligned with the needs of the organization’s end customers and be more cognizant of the needs of the current, and future, customer base. Supply Management will be increasingly called upon not only to analyze merger and acquisition possibilities, but to lead the initiative as success will depend upon succesfull integration of the end-to-end supply chains. And it will be involved in all NPD from day one to help identify customer needs and supplier capabilities before any decisions are made.

The next post will address the other seven predictions that were dead-on.

Don’t Overlook the Soft Cost Savings from SOW Management

A recent article in the SIG Newsletter on the “best practices for managing and analyzing statement of work spend” that described the rapidly maturing market for centralized SOW (Statement of Work) management programs and the usefulness of a modern VMS (Vendor Management System) also described the one-time and continous benefits of managed SOW programs (under the guidance of a PMO – Program Management Office) and the hard and soft cost savings that resulted. While many organizations move to managed SOW programs, often through a MSP (Managed Services Provider), in pursuit of the hard dollar cost savings, that are often in the 10% to 15% range when done properly, the long term soft cost savings will often be more valuable.

In particular, the following benefits are invaluable to an average organization:

  • single point of contact for contingent labor needs
    no need to contact, and manage, multiple providers to fill different labor needs
  • reduced cycle times
    one call and the PMO or MSP uses a process already in place to locate and onboard your contingent labor
  • standardized criteria
    every department uses the same definition, and the company pays one rate for one type of resource
  • increased visibility
    one report shows the total spend on contingent / managed labour by type, department, provider, etc.
  • compliance firewall for classification, tax, and labor law issues
    which significantly decreases the risk of a massive fine when the same contingent workers are repeatedly rehired (and the government decides they are now employees and you owe more taxes and benefits)
  • standardized performance metrics
    and managed suppliers who know what is expected of them
  • better labor needs forecasting
    from complete and accurate contingent workforce data
  • payment management
    no interest from late payments, no overpayments, and, most importantly, no double payments

All of these benefits reduce complexity, increase reliability, and reduce risk — which keeps costs down in the long run as complexity, risk, and uncertainty only serve to drive up cost.

Apptio – Helping you with your IT Portfolio

Earlier this week, in reference to an article on the SCRC site on The Supply Chain IT Investment Enigma and Hackett group recommendations, I asked what is the right portfolio view of the Supply Chain IT Investment. Given the laundry list of Supply Chain Technologies — DM, PLM, PP, APS, SCEM, SRM, WMS — that one has to consider; the dizzying array of hardware, software, infrastructure, and support options; and the difficulty in capturing and computing cost metrics and comparing them to industry averages, it’s a good question.

One vendor trying to make sense of the situation is Apptio. A Technology Business Management vendor with a background in system management and automation with capabilities in IT Services Transformation, Infrastructure Optimization, Application Rationalization, Cloud Business Management, Data Center Consolidation, and IT Financial Transparency, this week they released a new IT Service Performance Solution with supplier/vendor relationship management (SRM/VRM) capabilities. Building on their deep expertise of IT systems of record, application stacks, hardware platforms, and on-site and off-site infrastructure solutions, they have created a unique service performance management (SPM) solution that is customized to the unique needs of IT.

Designed to give an organization a holistic view of internal and external suppliers, and apply supply chain best practices to IT, the purpose-built vendor relationship management solution, which can import data from over 40 major systems-of-record (SAP, Oracle, JD Edwards, Peoplesoft, Ariba, etc.) out-of-the-box, allows an organization to define and manage vendors and contracts, understand spend by vendor and category, monitor and benchmark performance against pre-defined and custom KPIs, and hold vendors accountable to performance. In addition, due to their ability to also integrate with multiple major accounting systems out of the box, spend can be tracked against contracts at a category level by unit of time and IT managers can see how spend is trending relative to projections.

The Apptio VRM solution supports the full IT supply chain from IT planning and vendor identification, to Bill of IT creation, service costing, service performance, and IT benchmarking and allows IT sourcing personnel to effectively manage negotiations, contracts, costs, relationships, performance, and spending over the life-cycle of the relationship. In addition, a custom scorecard can be created for each vendor which can not only track custom metrics and KPIs, but also overall customer satisfaction.

Purpose built for IT, the solution allows the IT relationship managers to define a custom dashboard that displays, for each vendor, the current financial, quality, performance, and satisfaction ratings (which can be defined against pre-defined or custom KPIs) and whether the vendor scores good (green), satisfactory (yellow), or below contract requirements (red) on each rating — allowing problem vendors to be quickly identified. The user can then drill into the vendor and see the basic supplier info, contact info, contracts, debits/credits, and scorecard details summarized for each vendor (and whether each contract, balance, and scorecard is good, satisfactory, or below contractual requirements).

In addition, the top-n vendor and contract summaries allow the IT sourcing managers to quickly see which vendors and contracts are consuming the most spend and how these particular vendors and contracts are trending over time. In addition, the IT sourcing manager can just as quickly get breakdowns by internal vs. external spend, contract type, and vendor relationship. Given that most of the leakage will occur in the biggest contracts, this is a useful capability for IT sourcing managers. Especially since the metrics can be defined against activity based costing (ABC), which is not a feature common among many service or performance management platforms.

And while it’s true that most of the analytics can be easily computed with a good spend analysis tool that allows for the definition custom metrics in the hands of a spend analysis pro, if data needs to be pulled from mutliple systems, the reality is that performance will only be analyzed against most contracts one or two times a year, and by then it might be too late to insure real savings (as the organization is not likely going to get 1 Million in support overpayments back). Plus, most spend analysis tools or platforms are not going to be integrated with a benchmark database that allow an organization to quickly identify what the usual service/software/hardware costs are for its usage levels and save an average of 20% to 30% in its negotiations. (In fact, some beta testers saved 50% on some hardware, software and/or support categories due to a better understanding of usage, industry standard pricing, and past performance and the ability to do what-if analysis in conjunction with activity-based costing.) While it will be a while before we know ROI of the solution for an average organization, I agree that it is likely that an average organization with significant IT spend will begin to see payback within 90 days and that a 20% savings on major contracts will be common the first time around as only those organizations that have, or bring in, IT sourcing expertise tend to get best pricing in the IT category. It’s definitely worth a look for those organizations with a large IT spend as there are very few solutions out there that understand the unique nature of IT categories.