Arthur Andersen Report
Shared Services Business Case
INTRODUCTION
Southern Illinois University hired Arthur Andersen LLP in September 1998 to develop a business case to assess the potential benefits to be achieved by creating a shared service center for the University's purchasing and disbursement processes at the Carbondale, Edwardsville, and Springfield campuses. This business case provides a comprehensive assessment of the benefits, risks, and implications associated with creating this type of organization.
Two premises established by the University were fundamental to the development of this business case and should be considered in conjunction with our recommendations. First, a shared service organization must be operated and governed by its users. Second, if accepted, the University intends to address potential staff reductions through normal attrition and/or retraining for other comparable positions within the University. There would be no layoffs as a consequence of the shared service implementation.
The purchasing and disbursements processes (P&D) included in this business case include all processes between the creation of a requisition and the final payment for goods and services. The Purchasing function includes procuring goods and services, receiving and distributing goods, and management of obsolete property and equipment. The Disbursements function includes check processing and travel expense reimbursement. At SIUC, the Disbursements function also includes tax planning for non-residents.
P&D functions currently operate on each of the three SIU campuses. The Purchasing function consists of 44 full-time employees and costs more than $1.7 million per year to operate. During fiscal year 1997, the Purchasing departments processed approximately 44,000 transactions worth more than $132 million. The Disbursements function consists of 26 full-time employees and costs more than $700,000 per year to operate. During fiscal year 1998, the Disbursements departments processed over 250,000 payments.
We used information from our previous analyses of SIU's administrative functions as well as information collected through recent interviews with employees knowledgeable about the P&D functions at each campus in order to develop this business case. We identified the unique requirements of each campus that would have the greatest potential impact on the ability of a consolidated procurement function to operate efficiently. For example, SIUC purchases supplies and services for its aviation program, SIUE buys dental supplies and equipment for the dental school, and the SOM purchases medical supplies and equipment for its clinical practice
Principal Recommendations
Based on our analysis of SIU's current operating environment, we recommend that the University implement a shared service center for its purchasing and disbursement functions in two phases. The first phase should include the purchasing and disbursement functions at SIUC and SIUE, and the disbursement function at the SOM. The second phase should consist of incorporating the SOM purchasing function.
Support for our recommendation is contained in this business case. Section One, entitled Shared Services Recommendations, discusses five key organizational components and how these components should be organized within the proposed SSC. Section Two, entitled Key Implementation Decisions, outlines factors which will be relevant to the implementation of the proposed SSC. This section includes a cost-benefit analysis, an identification of the principal risks associated with this type of change, and a workplan for the detailed design and implementation of an SSC.
If this business plan is implemented (which we estimate would take about 3 years), the estimated annual cost savings of providing the purchasing and disbursements function through a shared service center is expected to be more than $500,000. The majority of these savings will result from a reduction in salary expenditures. While administrative support levels will likely be lowered, the number of buyers are expected to increase.
Successful implementation of the Oracle financial system is a critical component of the proposed shared services strategy. The new system should provide the opportunity to dramatically improve the flow of information between the user community and the purchasing and disbursements function, improve transaction processing efficiency, reduce or eliminate processing redundancies, decrease paperwork, and reduce the incidence of errors. Failure to successfully implement the software will adversely impact the ability of the shared service center to deliver the expected results.
In addition to the Oracle system, there are several other success factors which will be critical to the SSC. These factors include:
Copyright © 1998, Board of Trustees, Southern
Illinois University
Last updated: 07 December 1998