8 minute read 20 Feb 2023

How managed services can be the catalyst for supply chain transformation

By Tom Van Herzele

EY Belgium Supply Chain & Operations Partner

Consultant at heart – passionate about building a better working world – hobby chef and golfer.

8 minute read 20 Feb 2023

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.



of senior leaders have been involved in two or more major transformations in the last five years.

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.

  • What is managed services in Supply Chain Operations?

    Supply chain managed services is the outsourcing of operational supply chain activities to an external party. It is an alternative and innovative long-term strategic relationship model where the service provider takes partial or full responsibility for running and/or transforming certain supply chain processes.

    The managed service model creates value for the operations and the transformation by unlocking best practices, attracting talent, bringing speed-to-value and leveraging technology.

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.

Depth and responsibility of outsourcing

Outsourcing can be done in different degrees of depth, resulting in different responsibilities that are handed over to the managed service provider.

The lightest form of outsourcing is providing assistance to the existing employees to improve the efficiency and effectiveness of the current process. The consultant acts as a coach, and there is no transfer of ownership, nor is the process executed by the external party. While this model has the least risk involved, it does not bring all value levers of the managed services model to life.

At the other end of the spectrum, you will find the full outsourcing model in which almost all responsibilities are handed over to the third party. The only responsibility that will remain at the company is the end-decision-making and  reviewing the performance management of the outsourced process to ensure there is no conflict of interest. The risks are higher, but this can result in opportunities in commercial negotiations and has the potential to bring the most value to the company.

Most actual models are in between those two extremes. This is where the customization at the beginning of the relationship happens and where the strategic alignment needs to take place. It is important to create a RACI matrix (Responsible, Accountable, Consulted, Informed) at this stage to map out the different responsibilities for all key supply chain activities that have been selected. Typically the following activities are considered:

  • Identify improvement opportunities and requirements
  • Lead improvement design and implementation planning
  • Support implementations of solutions along supply chain cycles
  • Provide E2E coaching to external partners
  • Support/Drive supply chain process execution

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:

  • Step 1: Align vision and define expectations

    In this step, the end-state is defined and both parties agree on which form the managed service collaboration should take. This includes selecting the processes that are eligible for outsourcing, defining the level of improvement that is envisioned and feasible, and identifying the governance or checks and balances to control the outsourced processes.

    Typically this is done in parallel with a full maturity assessment of the supply chain, which includes identifying improvement potential, benchmarking, and developing a business case for outsourcing.

  • Step 2: Map the journey toward the vision

    It is paramount to agree on the pace for change first and translate it into a roadmap to come to the end-state for the outsourced processes. Typically, the priority should be to focus on things that can be done quickly or activities that generate the most value with minimal investment. It is however impossible to transition to a fully outsourced model within a few weeks. We prioritize outsourcing based on the complexity of the processes and the associated business levers, mapping them in an impact effort matrix.

    We also identify the activities that require more investment in terms of time, training, and resources to coach the consultant taking over the processes and develop a resourcing plan to make the transition happen. This plan includes a ramping up of the external consultants and a ramping down of the internal resources.

  • Step 3: Train, integrate and transition

    During this step, the transition takes place. In addition to the handover of the responsibilities and the technical upscaling through a rigorous training plan, it is as important to work on the cultural fit between the consultant and the company.

    Since every supply chain process requires collaboration with different departments and functions within the company, it is crucial to map all the stakeholders, get acquainted with them, and build relationships to ensure a smooth collaboration when the process is fully handed over.

  • Step 4: Run Supply Chain as a Service and drive transformation

    When running the managed services, it is important to keep track of the created and added value to the processes. Value tracking based on pre-defined quantitative and qualitative metrics needs to be done in order to prioritize the effort and guide the decision-making. We typically set up scorecards based on the designed business cases and do performance management.


A managed service relationship is a trusted collaboration between a hiring company and a service provider, and can take many forms. Selecting the appropriate model requires consideration of different variables to find the right balance. The managed service model creates value for supply chain operations and transformation by unlocking best practices, attracting talent, bringing speed-to-value, and leveraging technology.

About this article

By Tom Van Herzele

EY Belgium Supply Chain & Operations Partner

Consultant at heart – passionate about building a better working world – hobby chef and golfer.