How managed services can be the catalyst for supply chain transformation

Managed services can play a key role in supply chain transformations by creating a competitive advantage, but only if implemented correctly.

Three questions to ask:

• What is managed services in Supply Chain Operations and how will it bring value to companies?
• How do you find the right scope to implement managed services?
• What are the steps to engage in a managed service relationship?

The disruptions of the last decade have had such an incremental impact on operations and financials that companies were forced to transform their operations, creating more visibility and flexibility to ensure business continuity, resulting in an increased workload for the supply chain workforce.

A recent study of EY teams and the University of Oxford proves this statement and shows that 85% of senior leaders have been involved in two or more major transformations in the last five years alone. Imagine the pressure they had to withstand to keep running their business while transforming it in times of COVID-19 restrictions and the Great Resignation.

Supply chain departments are in a perfect storm of the war on talent. Many organizations are falling short of resources to run their operations while transforming their business, causing an environment in which people are under too much pressure and decide to leave for other opportunities, driving a vicious downward circle and impacting the positive vibe and culture within supply chain departments.

Managed services can be the answer to stop this trend and be the catalyst to run supply chain transformations while operating the business by creating a competitive advantage, but only if implemented correctly.

Finding the right scope to implement managed services

Every managed service collaboration is different because every company has its own needs, ambitions, goals or culture of outsourcing. Defining the matching managed service model is crucial for success and requires significant strategic alignment between the two parties to identify where to create major value. Managed services is a long-term relationship, meaning that the vision and the business case must be built in mutual understanding and is deemed positive for both the company and the service provider.

To find this balance, there are different variables to consider when selecting the right model:

Selection of the right processes

Not every supply chain process is easy to outsource. Some processes require very detailed information and an understanding of the company’s business, which requires time from the consultants to get up to speed. Managed service providers most definitely have consultants with operational expertise who have run operational processes themselves, even within similar companies or industries. That gives them a head start to be up to speed faster than an outside hire.

However, getting familiar with the small differences in the approach of a process between companies always requires time. Investing in training for outsourcing consultants is essential and can be intensive, depending on the complexity and customization of the supply chain process. For more complex processes, the managed service period needs to be at least 6 months to recover initial investments. It is crucial to have a well-designed roadmap for the handover of the responsibilities to mitigate risks.

For example, from a supply chain planning perspective it is much easier to outsource the forecasting and demand planning process than the supply planning, production scheduling or the entire S&OP or IBP process.

Desired evolution of the outsourced process

In many cases, companies use managed services to backfill for resources that are internally transferred to run a well-defined transformation. The reasoning behind this is that the resources who need to run the processes in the future should be the ones involved in the transformation to increase user adoption and engagement, and to leverage the multiple years of experience to design the best future specific to the company. In this way of working, the hiring company typically expects the consultants to run the selected processes ‘as is’ until it is time to transform them.

This might be a missed opportunity to leverage the experience of the managed service provider. We believe that it is far more valuable to have the external service provider list all the opportunities for improvement while operating the processes, benchmark the way of working compared to other players in the industry, and develop a continuous improvement plan that can be integrated into the transformation roadmap. In this way of working, the consultant has the mandate to define improvements, calculate the business impact, and put them on the table for discussion, allowing them to get more satisfaction from their short- or medium-term assignment.

Contract setup and cost model

Enabling the managed service provider to identify and improve process opportunities also facilitates value-based contracting. By allowing the consultant to identify improvements or even improve the process, it becomes possible to track the added value created by the external provider and set up a value-based fee.

Within the supply chain, there are multiple Performance Indicators linked to specific processes that enable such follow-up (e.g. forecast accuracy, OTIF,…), allowing for value tracking and the setup of a proper business case.

However, in this way of working, it is important to have a certain degree of trust between the different parties. We recommend not to step into this setup as of the beginning but only after a certain period of collaboration.

4 steps to engage in a managed service relationship

A managed service relationship can take many forms but is in essence a trusted collaboration between the hiring company and the service provider. A mutual base of trust should be built from the beginning. This can only be done by creating transparency and well-defined agreements.

When entering into a managed services collaboration, we follow these steps: