The Power of Global Process Standardization: Improved Intercompany Performance

Tim Tickle, Director, Intercompany Transformation, CUMMINS, INC., has spent the last six years working on moving Cummins from regional shared service to a truly global shared service. Today he reports to the Corporate Controller responsible for leading a global effort to fundamentally transform the intercompany process, policies and directives. It’s an initiative that promises big returns, as Tim explains to SSON’s Barbara Hodge. Manufacturing: Warming to Shared Services The manufacturing industry is characterized by relatively stable and mature processes, typically developed over many decades, and as such is not always conducive to the kind of Shared Services approach that has swept across less "asset-intensive" sectors like Banking and Financial Services. A case in point: Cummins Inc. was established in 1919, and initially focused on convincing a doubting public about the viability of diesel engines. The company has since evolved into a multinational Fortune 500 company supplying engines, power generation, components business and distribution, andoperating and serving customers in more than 150 countries around the globe. Given its near 100-year history, Cummins is defined by the kind of ingrained practices typical of manufacturing – many of which have grown to be inefficient. In 1998, the company embarked on a Shared Services initiative (Finance and HR run separate, but parallel, SSOs) to drive improved standardization and performance across the business. The early model focused on US operations and soon grew to 10 regional centers, with few synergies shared between them. This approach is typical within manufacturing, where local regulations at factory or plant level have traditionally taken precedence over concerns about corporate strategy or alignment. "The most important thing, from the factory floor perspective, is that we don’t ‘close down the line’," explains Tim. "For the end-user, what counts is not the SLA or the Work Statement, but that he or she can continue to operate as expected." ‘Keeping the line going’ is the constant end-goal for a plant, and it’s something Tim and his staff are highly sensitive to. "For us, one challenge is that the line workers and plant managers do not really care whether the plant controllers have bought into the Shared Services model for strategic reasons; they care about continuity and lack of interruption. We’ve learned to take a two-pronged approach to customer communication and service as a result: first, with the customer/plant controller; and second, and just as important, with the actual line workers and plant managers impacted by the service." An obstacle the SSO frequently comes across is that the plant managers may not understand the value of Shared Services as the plant controllers do. So, differentiating and communicating value on that differentiated basis is important: "Selling the Shared Services business case to the plant floor is as important as selling it to the business unit executives," explains Tim. [eventpdf] From Regional to Global: The Value of GBS While the loose regional hub approach drove some improvements, corporate management recognized that a more global perspective would benefit Cummins evolving global business. In 2007, it was decided that a shift to GBS and global processes would be the optimal model for the company. Tim has spent the last six years working on moving Cummins from the regional Shared Services model that was, to a truly transformed Global Business Services model that is able tohandle the expected growth in volume and activity over the coming years. During this time, he has focused onmatching standardized processes based on global definitions with the business units’ need to operate smoothly and without interruption, while allowing for regional variations to the model where necessary. One of the benefits to the global model was that it enabled management to evaluate comparative performance across countries and regions – something that had not previously been possible, and which they recognized as key for any enterprise wanting to leverage best practices across its global operations. In addition, the different business units liked this benchmarking capability, as it enabled them to pick up and implement best practices to drive their own performance improvement. At the same time, as process enhancements were introduced, they can now be rolled out to every region at the same time, without needing to tailor the enhancements to different processes operated within the 10 different centers, as would have been the case in the past. In creating a globalized approach, leadership started with P2P, and is now moving to bring R2R and O2C into scope, as well. What was crucial, Tim explains, was that the team ‘stepped away’ in creating a definition for a global process, taking a blank-piece-of-paper approach to developing truly improved and transformed processes that could be rolled out across enterprise operations. "We wanted to avoid templates, or copying some existing processes just because they were already in place," Tim says. "Instead, we really spent a lot of time and effort designing what we believe to be optimized processes that work globally." A crucial enabler of global performance in this regard is the new "Global Process Ownership" role that Cummins is prioritizing. While Shared Services covers only a part of the whole process, the crucial input and output variables that impact overall performance had always remained out of scope. This is now changing. "We can only drive true end-to-end process performance if one role is responsible and accountable for that e2e scope. That will be the responsibility of GPO leads, which are in the process of being nominated." The other obvious benefit to Global Process Ownership is that information can be far more easily cascaded down the line. Addressing the Elephant in the Room: Intercompany Transfers Global Process Ownership is also a key factor in driving Tim’s current project. As the Director of Intercompany Transformation, he has been tasked with leading a six-year initiative to assess, develop, automate and implement a new transformative intercompany processes across the entire intercompany landscape at Cummins – no easy feat, but a challenge he is relishing. Cummins, like many manufacturing organizations, conducts a lot of business with itself, much of which is costly to manage and administer, and highly manual. "Intercompany transfers are the elephant in the room that, thus far,most organizations have been loathe to address," explains Tim, "even though the numbers involved are fairly large, and the inefficiencies represent some fairly obvious low hanging fruit". There's a great push at the moment to eliminate the costs associated with these kinds of intercompany transfers, encouraged by the fact that the processes are 100% controlled by the enterprise, and therefore should present easy access for improvement. "It’s also a cost that comes straight out of shareholders’ pockets and manufacturing companies in particular are very sensitive to what this means," Tim explains. He plans to drive an estimated $10-$20 million in annual savings as a result of this review. GBS and the associated Global Process Ownership are both key to implementing changes to intercompany transfers, given the end-to-end, and cross-business nature of this activity. Without GPO roles it would be difficult if not impossible to wield the kind of impact and influence necessary to transform this area. GPO roles will be necessary to enforce the end-to-end changes that will need to be implemented. While Shared Services controls only a part of the total process, a Global Process Owner is able to oversee and influence both input and output variables – a crucial enabler in addressing intercompany activity. Tim Tickle’s 3 Tips on Launching Global Business Services To drive a GBS implementation, put together a team that is outside the existing process. Don't use the people doing the job today – they are to deeply embedded in the status quo. You will get better results if you step away to transform the process. Assign Global Process Owners. You cannot drive transformation from within the four walls of a Shared Services Organization, no matter how "global" the model. Most Shared Services cannot influence the many variable inputs and outputs that are beyond the scope of the SSO. Global process Ownership brings these remote variables into scope. Start small. Develop and identify business cases that represent easy wins and target delivering value as soon as possible, based on these business case projections. This builds trust in your ability to transform and deliver. Interested in finding out more? Register today for Shared Services & Process Improvement for Manufacturing, January 22-23 in Nashville, Tennessee, and join Tim Tickle’s session on The Power of Global Process Standardization in Moving fromShared Services to Global Business Services. Tim will explain why you should move toward a GBS model, highlight obstacles you may encounter, and share valuable tips and lessons learned to support you on your journey. Editor's note: If you like this content – please share it with your social media groups across Twitter and LinkedIn. 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