Shared Services, lower costs: a pragmatic alternative to costly expansions and acquisitions - Brief Article

Modern Brewery Age, March 25, 2002 by Pat Jones

Shared Services is an important approach for providing high-quality and low-cost financial and support services through consolidation of "economy of scale" operations while continuously improving the customer experience. A shared service entity often meets the following criteria:

* It is an organizational unit with consolidated, dedicated resources.

* It focuses on its (internal) customer--this is not a corporate entity.

* Provides both transaction processing and selected knowledge-based services to various organizational entities.

* Operates as a business--they tend to charge market rate fees for their products and services and have a bottom line like any other business.

* Service center locations are typically located away from their customer's headquarters.

* Technology is leveraged to improve communications with customers.

* Operating units may be given a choice of whether to use the services (usually when scale has been achieved).

* Uses performance measures and service level agreements to ensure internal customer satisfaction.

* Generally operate, organize and are incented as teams to enhance overall productivity and quality of service.

Many opportunities exist within most wholesale beer distributors to share services...perhaps more than many believe. Moreover, proximity to another wholesaler is not critical to adopting a shared service approach. The following organizational chart illustrates the potential magnitude of the opportunity (see chart below).

With the continual consolidation in the beer industry it is surprising that more wholesale distributors have not turned to shared services in an effort to reduce operating costs. Information technology, finance, distribution/logistics, human resource activities, supply purchasing, customer service centers and telephone sales, etc. can all be accomplished less expensively, and often with improved customer service, using a shared service concept.

Many wholesale distributors are writing checks for hundreds of thousands of dollars to renovate and add space to warehouses, install new technology, purchase equipment and supplies, manage financial transactions without first seeking partnerships with other distributors. On the contrary, some wholesalers believe that they must acquire and grow to remain competitive and achieve desired rates of return on investment While acquisition is fraught with integration and cultural issues, shared services may pose considerably less risk and higher rates of return.

Shared services may very well be the best alternative for many wholesalers. As the industry continues to consolidate, many more wholesalers will be looking at selling their businesses that may have been in the family for decades.

The shared services approach--when well conceived, developed and executed--can positively impact sales and market share as well as reduce the overall cost of selling product.

Pat Jones is a consultant with the Garr Consulting Group. He specializes in helping wholesale distributors reduce the overall cost of selling and improve their revenue/market share. His e-mail is patrickwjonesl@home.com