Is Your Supply Chain Shared Services Model Built to Adapt?

Supply chain shared services models are now well established in supply chain organizations.

In Gartner’s recent Fit for Purpose Supply Chain Organization Structure survey, 88% of respondents said they operate one or more supply chain shared service centers.

However, inquiries with Gartner clients reveal dissatisfaction with how shared services models are set up, both from internal customers and shared services leaders themselves. Shared services leaders struggle with new and diverging business unit requirements; business units complain that shared services do not have mechanisms for investment and adaptation to new needs. As personnel on both sides change, implicit understandings about the role of shared services are lost. Tensions emerge over who does what, the performance requirements and the amount of time internal customers still need to spend supporting issue resolution for the service delivery organization.

These issues can be traced back to how a shared services model is set up from the outset. The top three purposes of a shared services center are to improve service, reduce costs, and ensure standard delivery of processes and services (see Figure 2). However, these motivations can differ in different parts of the business.

To help resolve these differing perceptions about service delivery, Gartner distinguishes between shared services and centralized services. Both of these models provide low-complexity services that have commonality across business units. Both enable cost efficiencies, scalable growth and standardization.  However, there are three ways in which genuine shared services models offer solutions to the challenges mentioned above (see Figure 3 for a summary).

First, Gartner has found that shared services organizations have formal service level agreements (SLAs) from the outset, clearly describing roles, responsibilities and expectations from both the service provider and the internal customer. This allows for some differentiation between the service levels provided to different business units for the same service — flexibility grounded in documented agreements that allow shared services to resource accordingly. Centralized services adopt a one-size-fits-all approach — great for minimizing cost and maintaining complete standardization, but frustrating for internal customers whose business and external customer needs are changing.

Second, shared services adopt pricing mechanisms that balance effectiveness in influencing internal customer behavior with efficiency in the process of pricing and charging out costs. The aim is to price services in a way that demonstrates value-for-money and avoids underutilization or overutilization of a service.  A shared services organization can adopt different pricing models for different services — for example, variable pricing for high-volume transactional services, and fixed allocation based on dedicated headcount for activities where each transaction is labor-intensive. Centralized services are generally cost center-based, disconnecting cost from usage and value.

Finally, shared services organizations contain roles designed to be responsive to business unit needs.  Gartner has received inquiries from clients who, as internal customers, are frustrated by the lack of capability of their services organization to invest in changes essential for them to grow and adapt their business. These service organizations were set up as centralized services — providing immediate cost efficiencies but lacking the internal capabilities to adapt in the years that followed. Adaptation roles within shared services manage the internal customer relationship and, most importantly, have clear governance mechanisms available from the outset to develop and get approval for changes to service provision, and their associated investments.

This is not to say that centralized services are always inferior to a fully-fledged shared services model. If an organization is aligned that service delivery will be fixed and standardized to achieve minimized cost, centralized services is a viable model. To determine which model is required, organizations need to:

• Strategically define if and how much differentiation is acceptable between SLAs to business units
• Create a roadmap and investment mechanism for the evolution of service delivery
• Clearly allocate responsibility for adapting the service delivery organization to future needs

Gartner clients can check out these additional resources:

• 3 Advantages of Shared Services Over Centralized Services for Supply Chain
• Use These Best Practices to Scope Your Supply Chain Shared Services Center

Alan O’Keeffe
Senior Director Analyst
Gartner Supply Chain
Alan.OKeeffe@gartner.com