This article discusses the characteristics of a Shared Service Center (SSC), the differences between centralized operations and an SSC, and how R12 facilitates the implementation of a Shared Service Center in E-Business Suite.
Multi-National Corporations (MNCs) with widespread global operations must treat separate (usually location-defined) parts of their businesses differently due to local statutory requirements, taxes, accounting methods, languages, and currencies, yet still must comply with corporate standards. The business must manage issues around security, ownership, reporting, and control for all transactions.
For a MNC operating in 47 different countries spread across 6 continents, daily operations is a tedious exercise that requires that each business unit operates and supports operations independently while sharing data among other parts of the enterprise to leverage sourcing opportunities, inventory, and back-office transactions. Implementing a SSC enables the company to significantly reduce costs by having a central pool of employees to handle day-to-day tasks such as Procurement, Disbursement, Collections, Fixed Assets, Tax Compliance, Training & Development, and Payroll. Instead of carrying out these tasks in each of the 47 different countries and repeating each operation 47 times, a SSC combines similar tasks carried out throughout the enterprise and shares the overhead cost of providing these services internally. Offering these tasks as Shared Services enables the corporation to capitalize on the economies of scale and scope (in the form of reduced headcount, reduced operating costs, greater service levels, greater leveraging of resources, etc.) that come with the elimination of duplicate efforts.
Standardized business practices across the enterprise ensure that all parts of the organization conform to practices that are consistent with corporate objectives. A Shared Service Center offers the following benefits:
- Establishes global processes and accessibility to data.
- Hastens incorporation of new business units.
- Establishes the right balance of centralized and decentralized functions.
- Standardizes and automates processes with self-service.
- Focuses on core competencies.
- Assures that management everywhere is reading from the same page.
- An important impact of the deployment of shared service centers is that the number of control points in a process and the number of variations of a process are greatly reduced, dramatically mitigating the risk of process error. The consolidation of data and processes in Shared Service Centers also mitigates against the risk of error and of poor decision making.
Implementing a Shared Services Center is different than centralizing operations. A Shared Service Center generally operates as a profit center providing a specified service (i.e. billing or expense reports) for a unit cost. A Shared Service Center might charge the entities it services a fee for every invoice that it processes. The fees to each internal organization are usually subject to the terms of a formal service-level agreement and are based on the volume of invoices or expense reports it processes. Centralizing operations, on the other hand, is usually associated with conglomeration of resources in a central location for the purposes of offering services upward to executive management. Centralized services typically operate as a cost center focused on providing centralized controls and decision making and approvals for the organization as opposed to sharing resources and processing for different entities across worldwide operations.
A Shared Service Center, by its nature, enforces internal controls on inappropriate processing. For example, in traditional local operations, an invoice of one operating unit (perhaps a company in a country) cannot be paid by a payment from a different company in a different country. This would amount to tax fraud. By contrast, in a Shared Service Center environment, processes that allow one company to perform services for others – with appropriate intercompany accounting – require that users access the data of different companies, each complying with different local requirements.
The Oracle E-Business Suite allows you to be both locally and corporately compliant while increasing efficiencies through Shared Service Centers. Consider an environment where the orders are taken in several different operating units (OUs), each representing different registered companies. These OUs segregate the orders and data appropriately. However, all of these orders can be managed from a “shared service” order desk through a single Responsibility in R12 of the E-Business Suite.
Core components of the E-Business Suite architecture that support Shared Services:
- Operating Units (OUs) provide a powerful security construct in the applications by creating a tight relationship between the functions a user can perform and the data that a user can process. This security model is appropriate in a business environment where local business units are solely responsible for managing all aspects of the finance and administration functions.
- Responsibilities can be associated with a single OU or with multiple OUs.
- Multiple Organizations Access Control expands the relationship between functions and data. You can isolate your data by OU for security and local level compliance and also enable certain users and processes to work across them. (new R12 feature)
- Subledger Accounting enables transactions to be entered in compliance with local and regulatory requirements and reported to meet corporate requirements. Each operating unit of a corporation can enter transactions in a local currency and according to their local chart of accounts, calendar, and accounting method. Release 12 maintains a real-time global view of the company based on the way each OU has set up its Secondary Ledger. (new R12 feature)
- Subledger Users are assigned responsibilities. A responsibility can be attached to one or more operating units as required, using Multiple Organizations Access Control. In a Shared Service Center, users are given access to OUs that are owned by the legal entities that the Center serves. For example, users at an Ireland Shared Service Center will be employed by an Ireland Legal Entity and have access to OUs that represent the United Kingdom, France, Germany, and the United States. A shared service user with Multiple Organizations Access Control can select invoices stored in different operating units, combine them into one bank instruction, and send them to the bank for issuance.
- Ledger Sets are used to manage ledgers, including opening and closing of periods and running reports. Ledger sets support adjustments and allocations and specifically support adjusting ledgers. This separation of ledger data and ledger management is designed to support the creation of ledger shared service centers and moving ledgers into sets that are centrally managed. (new R12 feature)
- Legal Entities may share bank accounts over various operating units. Legal Entities may be governed by different tax jurisdictions.
- Customer and supplier bank accounts are now in the Trading Community and can be shared. (new R12 feature)
To learn more about Release 12’s Subledger Accounting, see this article.