Procurement Outsourcing and. Shared Service Centers. SANFORD INTERNATIONAL I Global Sourcing I Supply Chain I Procurement I.

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1 Procurement Outsourcing and Shared Service Centers 3rd Floor Jonsim Place 228 Queen's Road East Wan Chai Hong Kong Telephone: (852) Fax: (852)

2 INTRODUCTION Procurement outsourcing has traditionally been concerned with indirect expenditure (non-core), this limited view of procurement outsourcing has been due to the reluctance of organisations to transfer ownership of expenditure and supplier negotiation outside of the business, however Sanford International s procurement outsourcing model these opportunities can be expanded upon widening the scope of procurement activity. Many of the existing service providers have refined their offerings over recent years and the emergence of niche players provide organisations with a unique opportunity to shape and drive the best service and commercial position for them. These service providers have focused on developing their capabilities and enhancing their services providing the next wave of organisations ready to investigate the benefits that they can realise through procurement outsourcing with far greater potential benefits. By implementing a Shared Service Centre to leverage common processes, resources and infrastructure an organisation can deliver a more effective procurement service, however many businesses are currently missing the opportunity to realise additional benefits by not investigating establishing a SSC or extending the scope of an existing SSC to include Procurement. The traditional procurement process is often viewed as a mainly transactional process without sufficient consideration of the potential strategic benefits procurement can provide if structured correctly. In addition to outsourcing, the establishment of Procurement Shared Service Centres (SSC) offers an alternative solution to outsourcing to 3 rd party vendors while realising many of the required benefits.

3 BENEFITS AND RISKS METHODOLOGY While the benefits for procurement outsourcing or Shared Service Centres are apparent, organisations should be aware of the risks and pitfalls and should have a clear view of their objectives before embarking on an outsourcing or shared service center project. Some of the initial questions that should be asked include: Is outsourcing procurement the best option to meet the organisations strategic needs? Will an offshore/tax efficient procurement solution be viable? Is the current procurement structure adding the necessary value to help the organisation achieve its strategic goals? Does your current SSC include procurement activities and is the structure of your Procurement organisation to operate effectively Does the procurement function have sufficient people with the correct technical and commercial experience to drive the procurement function forward? Sanford International applies a business approach to outsourcing projects that has been developed and refined over years of experience in procurement projects; this methodology includes assessment, analysis, development and design. A successful procurement outsourcing programme can: Enable the Procurement function to better achieve strategic objectives Deliver category savings of up to 30 % Realise substantial procurement transaction savings Focus internal resources on core categories and strategic priorities. Leverage offshore tax efficient locations Our systematic project methodology incorporates both outsourcing and SSC as well as offshoring, thereby ensuring that the correct models are chosen and implemented based on each organisations requirements. Many organisations fail to consider the complexity and risk associated with the correct change management requirements during a procurement outsourcing project and this is most commonly cited as the main reason for an organisation not achieving the expected benefits from an outsourcing project when later reviewed. Ensuring that the business is informed of the change and rationale for it at the correct time is vital, as is awareness of the culture in an organisation. Outsourcing projects generally place a far greater demand on the organisation and its employees than anticipated, which need to be carefully and sensitively managed before, during and after a transition.

4 Risk Management Project Scoping Change Management Offshore Outsource Shared Service Centre Offshore Project Management Procurement Outsourcing and Shared Service Centre Methodology Analysis and Assessment Design and Develop Preparation / Selection Implement Delivery Operate Review & Revise

5 PROJECT PHASES Analysis and Assessment Project Scoping and Risk Management Phase Identify Business Strategy and Objectives Opportunity Identification Benefits / Constraints Analysis Risk Assessment Assess various sourcing models Conduct Location Assessment Recommendations Initial Risk Assessment Report Location Assessment Matrix Market Analysis Documented Business Case Design and Develop Project Scoping and Risk Management Phase Development of project Plan Establishment of Baseline As-Is vs To-Be Analysis Detailed Risk Assessment Scope of Services Definition Detailed Financial Analysis Offshoring Finalisation Organisational Design Project Readiness Survey Services Framework Detailed project plan and scope of work Detailed Risk Assessment Report Final Location Strategy Commercial / financial Model HR Strategy Baseline Report Exit Strategy

6 PROJECT PHASES Preparation / Selection Project Management and Change Management Phase Operating and Commercial Model Completion Service Level Definitions and Requirement Negotiation Strategies Project plan Revision (Transition Plan) Change Management Plan Supplier Identification and Engagement RFI / RFP Supplier Due Diligence Offshoring / Tax Model Business Requirements forecast (HR, IT, Ops) Change Management Strategy SLA / SLR RFI/RFP To-Be Process Control Manuals Detailed Transition Plan Detailed Financial Model Vendor Selection Report Implementation Project Management and Change Management Phase SLA and Contract Completion Legal and Regulatory Compliance HR Change process Change Management Transition of Services Organisational Establishment Stakeholder Management Process Finalisation Establish KPI / Performance Management Final Process Control Manuals Signed Contract Performance Measurement and KPI s Compliance Report