Effective governance is a critically important enabler in achieving “top performer” status. “Governance” is the third topic in a supply chain learning series presented by ScottMadden and Shared Services & Outsourcing Network (SSON). In this session, we focus on the key building blocks of effective supply chain governance models including decision rights, performance metrics, service level agreements, and issue escalation/resolution. In addition, we discuss how to create alignment across an enterprise for a consistent supply chain strategy that clearly differentiates transactional efficiency from higher-value, strategic activities.
Supply Chain Governance: SSON Supply Chain Learning Series
ASSESS & PLAN Strategic planning Feasibility analysis Benchmarking Leading practice assessment Performance evaluation Project planning Leadership education and buy-in Staff evaluation Change readiness assessment Site visits
- BUILD Project management Service and transaction center build Detailed organizational design Staffing Process redesign Technology design, selection, implementation, and support Education and training Facility design and setup Change management Sourcing implementation
- DESIGN Current state analysis Future state design Business case development Service delivery model design Work scope delineation Sourcing evaluation Organizational design Technology evaluation Transformation planning Implementation planning Change management
- IMPROVE Analytics setup and deployment Operations improvement Governance Service expansion Cost reduction Process redesign Technology upgrade Merger and acquisition integration Field resource development Customer satisfaction measurement Metrics and performance management
- HUMAN RESOURCES
- INFORMATION TECHNOLOGY
- SUPPLY CHAIN
- BUSINESS ADMINISTRATIVE SERVICES
- FINANCE AND ACCOUNTING
- Capabilities and Areas of Focus
What We Do In Shared Services
- We are the leading shared services management consulting firm.
Transitioning to a Shared Services Delivery Model
- Moving from a reactionary state to a future state shared services model is a challenging endeavor. The graphic below highlights the key differences between these two states.
Transitioning to a Shared Services Delivery Model (Contd)
- Creating the type of service delivery model we covered during the previous article in the Supply Chain SSON series necessitates a keen focus on understanding business unit needs, an ability to align the work to be performed with the necessary skills, and managing information flows and issue resolution in an effective manner.
- Issue Resolution Issue resolution Vendor performance
- Assisted Support Build central call routing for clients and vendors Interactive voice response call routing Case manager issue capture, tracking, and closure Central transactions (purchase orders, vendor maintenance, AP, T&E, etc.) Automated and measured
- Self-Service Enable portal self-service Invoice monitoring, reporting, policies, etc. Vendor portal
- Service Delivery
- Policy and Programs
Shared Services Delivery Model Success Requirements
- Effective governance is one of the over-arching requirements for shared services success.
Source: Harvard Department/IRU School Press, 2004
- Firms with superior governance have at least 20% higher profits than firms with poor governance, given the same strategic objectives.
From internal customers: Resistance to let go Belief that we are different Desire for high customization Resistance to pay for services From shared services: Desire to take on too much too fast Poor perceived service Allowing no customization for exceptions Poor reporting practices
- Little formal governance is required when the potential for conflict is minimal, and the potential for conflict increases as the number of customer groups and services increase.
- A governance model is created to ensure that the shared services organization is held accountable for providing a consistent level of service to its customers (e.g., the business areas or corporate divisions). The model also provides structure for evaluating requests or arbitrating issues between the shared services organization and its customers. The level of governance required is often based upon the culture of the organization or the trust towards the shared service center
- The Case for Governance
- Formality of Governance
- Potential for Conflict
- Simple, Informal Arrangements
- Formal Structures, with Simple Arrangements
- Complex, Formal Structures and Processes
- He who governs least, governs best. Thomas Jefferson
Components of an Effective Governance Model
- A formal structure to manage the process Clear demarcation of decision roles and responsibilities Clear goals and principles Goals outline the purpose for the shared services organization The principles establish the ideals or values upon which the organization operates Well-articulated policies, processes, procedures, and standards Policies, processes, and procedures define how decisions are made, how issues are escalated, and what criteria are used to govern the process Standards determine what is expected and to what level of service the work is performed
Governance Board is comprised of executives from key business units, the head of shared services, and support organization leads (e.g., Supply Chain, IT, etc.) Functional Advisory Panels for each support organization are comprised of support organization and key business unit managers Board has strategic vision, service alignment, and high-level issue resolution responsibilities while the Advisory Panels handle tactical performance direction and issue resolution/escalation activities
- The formality and participating members in a governance structure is influenced by factors such as size of the organization, the number and complexity of services, organization culture, and hierarchy.
- Formal Governance Structure
- Governance Board
- Governance Characteristics
- Key Benefits
- Shared services organization obtains representation among senior management for key business decisions Business unit customers are able to strongly influence the direction of shared services and ensure that shared services are responsive to business unit needs Advisory Panels create a formal process to control spending, prioritize initiatives, and integrate with other business initiatives
- Functional Advisory Panels
- Supply Chain Advisory Panel
Roles and Responsibilities
- Each governance structure group should have key responsibilities identified within the overall model.
- Governance Board
- Advisory Panel(s)
- SSC/ Line Manager(s)
Goals and Principles
- Guiding principles represent the shared vision around which decision rights, policies, and standards will be established.
- Continuous Improvement Identify and deploy best practices quickly and globally
- Process Standardization Develop streamlined process standards that can be maintained and improved quickly
- Market Responsiveness Provide service levels desired by the Department/IRU
- Business Management Manage the service like a business, not a fixed cost
- Service Culture Treat the Department/IRU like customers, offering valued services and charging for each
- Price Transparency Each Department/IRU determines how much service it wants at that price
- Source: Shared Services: Management Fad or Real Value? Booz-Allen Hamilton
- Shared Services Guiding Principles
Policies, Processes, Procedures, and Standards
- Governance and operational rules should be documented and communicated in some manner.
- Policies Processes Procedures Roles and responsibilities Service level agreements Incentives Performance scorecards
Policies, Processes, Procedures, and Standards (Contd)
- Effective Governance requires establishing adequate methods for monitoring performance Shared visibility to both service providers and Business Unit customers Information updated on a real-time or near real-time basis
Governance Lessons Learned
- Mandates do not typically work well Must find effective ways to make decisions as a team and move forward Best to build and prove shared services from the bottom up Must include all the stakeholders in the P2P process Executive sponsorship and commitment reinforce the importance of process alignment If not structured properly, governance models can conflict with existing budget structures Communicate results and celebrate successes Multiple governance models can be used for different types of decisions the key is to develop an effective method to set strategic direction, monitor performance, and arbitrate issues that Advisory Panels or project teams cannot resolve
- The key is to develop an effective method to set strategic direction, monitor performance, and arbitrate issues.
Supply Chain Topics
- The ScottMadden and SSON Supply Chain Series includes the following topics: Topic 1: The Enterprise Supply Chain The key characteristics of the enterprise supply chain will be the focus for this topic. A discussion of each area (i.e., planning and forecasting, strategic sourcing, procurement, logistics, materials management, and accounts payable) will include notable characteristics of leading practice supply chains as well as key pain points ScottMadden has observed that keep companies from achieving an optimized supply chain Topic 2: How Purchase-to-Pay Fits Within an Enterprise Supply Chain This topic will focus on the key attributes of a successful P2P transformation and the role technology plays in enabling the capture of the synergies and savings associated with P2P in a shared services delivery model Topic 3: Supply Chain Governance This topic will explore the key building blocks of effective supply chain governance models including decision rights, performance metrics, service level agreements, and issue escalation/resolution. We will also present methods to create alignment across an enterprise for a consistent supply chain strategy that clearly differentiates transactional efficiency from higher-value, strategic activities
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