Is Your Company Ready For Shared Services?

The many benefits of shared services include savings, quality and response time

Supply Chain Merger
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Businesses need to be as cost-effective as possible and one option that companies can take is to adopt a shared services model for some of its functions.

Shared services can cover a number of processes, such as sales department or purchasing. Normally these types of functions can be decentralized, standardized or centralized. There are many benefits to creating shared services, including economic, quality, response time, and strategic benefits.

Organizational Functions

Apart from the shared service model, businesses can adopt other functional models such as decentralized, standardized or centralized.

  • Decentralized - This type of model is found where a function, such as purchasing or sales, can be located in each of a company's locations. This function is autonomous, with its own separate staff and possibly separate technology systems. However, this model is very responsive to the needs of the users at the facility.
  • Standardized - In this model, there is a separate function at least of the facilities operated by separate staff. However, in this model, the processes are standardized and they may use the same or similar technology systems.
  • Centralized - This model operates with a single department that exists at one facility that is used by every facility in the organization. In this model, the emphasis is on efficiency and does not have any service level agreements (SLA) with users at any of the facilities.
  • Shared Services - A shared service function may be located at one low-cost site but is customer focused with agreed upon service level agreements. The performance of the shared service function is based on measurement of the service level agreements.

Benefits of Shared Services

A shared service function is usually based on a location which has skilled employees but is lower in cost to host.

For example, creating a shared service function at a company headquarters may have skilled staff, but would likely be more expensive to fund than a location in a low-cost area.

A centralized function is similar to a shared service function, but it based on reducing the cost of the function rather than operating a function that is aimed at improving customer service.

In a survey by the Shared Services and Business Process Outsourcing Association (SBPOA) identified ten areas where shared services were most popular. These were - Accounts Payable 83%, General Accounting 65%, Fixed Assets 57%, Accounts Receivable 56%, Payroll 55%, Travel and Expense 50%, Financial Reporting 48%, Human Resources 44%, Credit and Collection 43%, and Help desk function 39%.

Risks of Shared Services

Although there are many benefits to adopting a shared services function, on occasion there are some problems for companies after such a move. Some of the reasons why a shared service function can falter include the following:

  • Lack of Costing - If there was a failure to complete a comprehensive measurement of costs, then the cost reductions expected by the implementation of shared service function may be grossly overstated.
  • Lack of Documentation - For a shared service function to be successful, the processes must be fully documented so that the shared services have all the information they need to perform the necessary functions.
  • Lack of Leadership - Many shared services functions are not successful as expected as they lack the necessary leadership to make important decisions.

Outsourcing Shared Services

If a shared service model has been decided upon, it is possible to outsource the shared service function to a third party. The outsourcing company who will be performing the shared service function will need to consent and abide by the service level agreement.

The outsourcing of shared services is successful when there is an executive management buy-in when the processes are standardized across the enterprise, and the scope of the function is clearly defined.

The most popular shared service function that is outsourced is Accounts Payable. Other shared services that are frequently outsourced include IT, Tax Services, and Employee Benefits.

Updated by Gary Marion, Logistics and Supply Chain Expert.