By Tony Kelly
Some supply chain executives are starting to take a look over the fence at their colleagues in accounting and being somewhat envious of 40% cost savings, alongside significant improvement in productivity and quality delivered through outsourcing. They might then consider asking themselves, “What is the difference between supply chain back office processing and finance & accounting back office processing?” The simple answer is…Nothing! Fundamentally they are just business processing scenarios. So can the lessons and benefits from finance and accounting outsourcing (FAO) be applied in the supply chain environment?
FAO: A Brief Primer
FAO services are maturing in the accounting world and providing significant benefits of productivity (often more than 25% during the contract term) and cost reduction (as much as 40% is not uncommon), as well as improved quality, flexibility, economies of scale, standardized processing, applied technology, and general efficiency and effectiveness. Initially, CFOs were nervous about letting go of something they felt was critical and handing it to a third party.
However, CFOs have been using BPO business model alongside or instead of shared services in the finance and accounting back office for more than 10 years to great effect, and are continuing to use BPO models to help navigate safe passage through the choppy waters of the current economic crisis. Properly delivered BPO services are a tremendous resource to CFOs attempting to better manage their operating costs while gaining productivity and quality benefits.
If finance & accounting business processes have sufficient scale, are repeatable, can be managed by business rules, and can be documented, then many of them can be outsourced. There is no reason this statement cannot be applied to supply chain processing and services. Why shouldn’t senior supply chain executives share the benefits?
BPO Can Help Relieve Supply Chain Pressures
Harried supply chain executives must be under the worst economic and commercial environment pressures since the Second World War. Factors such as massive economic instability in North Amercia and European theatres, pressure from the up and coming BRIC nations and if you’re a supply chain exec operating from the BRICs, the “how to scale fast with resilient and robust global processes. These pressures and rapidly evolving technologies such as cloud-based “agile” supply chain solutions and the impact of social media on customer behaviors and increasingly strict environmental regulation create a “perfect storm” of potential problems.
The BPO services delivery model brings to bear highly skilled staff with domain knowledge, located in more attractive economic operating units and underpinned by enabling technology, deploying best practice in global process models driving down the total cost to process. In addition, best practices drive productivity improvement year after year, and all of this is contracted as an outcome commitment from the service provider. And the rest of the standard outsourcing arguments, such as freeing up your staff, scalability, and fixed cost to variable, all still apply.
A BPO business model can provide a transformational program and vehicle for implementing process re-engineering, global best practice models, upgrading technology and improving productivity, all while dramatically reducing operating costs.
Enterprises Recognize Supply Chain BPO Potential
Recent big deals such as Capgemini’s seven-year BPO supply chain management support contract for Nokia Siemens Networks (NSN) provides strong evidence that enterprises are recognizing that the supply chain has vast swaths of processing activity that has significant head count in expensive locations, large transaction volumes, is repetitive in nature, and often is not operating in an optimum fashion.
Furthermore, projects like NSN’s Capgemini contract provide evidence that a BPO model can deliver many benefits both financial and operational, with lower costs but also improved service levels, for the customer while reducing working capital through tighter inventory controls, better visibility in the supply chain and more standardized repeatable consistent processing. NSN saw 40% reduction in Order Management operations costs in the 1st year of BPO service whilst improving fulfillment by 15%.
So, to ask again, what’s the difference between F&A back office processing and supply chain back office processing? Well, perhaps not quite nothing; clearly there is specific subject matter expertise needed and domain skills, and the technology tools are different. But the underlying activity is fundamentally just a series of business processes that can be documented, standardized, managed by business rules and should be delivered using the most efficient, economic resources and tools that can deliver the desired targeted business outcome.
A BPO business model can help manage the supply chain executive’s basic challenge of doing much, much more with much, much less and gaining cost savings whilst simultaneously improving quality, gaining productivity, improving visibility, and reducing working capital. In some of the most aggressive economic and environmental conditions for six decades that must be an outcome worth investigation.
Tony Kelly is Head of Strategy & Innovation, BPO, for Capgemini.