The main objective of any company is to improve the bottom line and return equitable value to shareholders. This is achieved in three ways:
- Increase sales
- Reduce cost
- Be operationally efficient
Everyone in procurement and strategic sourcing is focused on delivering financial savings but have you ever thought you can do as much by improving the buying process efficiency and by aligning closer to the customer through applying the Lean Methodology? The concept of the Lean Enterprise and Lean are widely discussed, often implemented, but more often than not, misunderstood.
Lean Procurement is not a short-term fix and won’t be successful without a longer view. There are several critical success factors that will make Lean a way of life in the business and change the culture for the long run:
- Long term focus
- Seeking expert guidance
- Education and training
- Proactively addressing employee resistance to change
- Focus on corporate goals
- Stakeholder involvement
- Measurement of progress
If you know or are practising procurement, you will recognise relevant activities, engagements and goals mentioned that we deal with every day.
Lean is an ideal way of working for procurement as it start from the customer’s perspective and I have always been told, if it is not valuable for the customer, we should not be buying it. It is a relevant philosophy, applied by and through people. The goal is to provide perfect value to the customer through a perfect value creation process that has zero waste. Lean is not a tactical process, it is a strategic lens and should be applied in everything we do. We all know of inherent wasteful activities in procurement such as tracking down purchase order status; multiple approvals; multiple vendors; use of spreadsheets; misuse of ERP systems and messages
Womack & Jones, in their book Lean Thinking. New York, 1996 outline the 5 lean principles that gave rise to multiple interesting articles and reviews:
- Specify value (from the standpoint of the end customer.)
- Identify the value stream.
Applying Lean in procurement refers to the streamlining of procurement processes and practices to improve efficiencies and performance, minimize transactions, eliminate process waste, reduce total cost and working as an integrated team to provide optimal value to internal and external customers. Simply put, lean means creating more value for customers with fewer resources. A lean organisation understands customer value and focuses its key processes to continuously increase it.
In reality, what does this mean? Procurement needs to expose the 9 deadly problems of waste and provide solutions for improvement. Below is a graph of the main sources of waste identified and they represent the main areas where we can improve the flow and cut out waste.
In a different visual, from the customers’ experience point of view, we can clearly see where improvements can be made. Proactively, Sourcing Professionals can weed out these inefficiencies, wasteful activities and service and product defects by ensuring that the decision criteria for selecting the right supplier can identify and evaluate the main frustrations as outlined below.
Industry Standard Customer Experience Mapping Measurement Management, www.customerworthy.com
The Lean methodology brings incredible gains to Sourcing, Supply Chain, Procurement and to the entire organisation. But a methodology alone will not be sufficient to sustain the gains. It is a philosophy, a cultural change that can only deliver it’s full impact when strategies are developed to implement it top down and bottom.
So if we stand back, what do we need to put in place to become lean? A business needs to develop smart procurement strategies around the 5 keystones that drives procurement Value.
The below figure will show the traditional inputs, processes and outcomes model where the inputs are the starting point which will define the outputs, the customers’ requirements.
We would argue however, with the implementation of a lean mind set, that procurement function can best serve its purpose by enabling an open dialogue to commence our value delivery by defining the outcome for the customers rather than refining the inputs. To that extent, the below graph outlines the new value flow that lean procurement should proclaim to deliver direct benefits to the customer, and thus objectives of the business.
Outcome – Process – Input Model
Applying Lean this way can help us to get to the all-important questions for the customers:
- Strategy – Are we customer aligned?
- Technology – Are we using Smart Tools?
- Knowledge – Are we experts and relevant?
- Organisation – Are we empowered?
- People – Are we competent and customer-centric?
While so much more can be written about Lean Procurement, and I would urge you to do some further research how this can be applicable to your role, or alternatively to sign up to one of our Procurement training session on Lean Procurement, I want to give you a final business lens on the impact of Lean to the “people” and “strategy” keystone. An interesting article is written by Womack and Jones.
Traditionally, a leader’s job is to come up with strategies for what to do and how to do it, and managers execute organizational processes so that employees do what they’re told.
“Gemba” is an intrinsic part of Lean and Gemba leadership turns the above idea on its head, asserting that superior results will only be achieved if leaders spend all their time encouraging small-step continuous improvement at the workplace (“kaizen”) and then they’ll learn about their strategies and processes from working with their people rather than thinking in their stead. As Womack and Jones state, lean is about Purpose, Process, People. “Just as a carpenter needs a vision of what to build to get the full benefit of a hammer, Lean Thinkers need a vision before picking up our lean tools,” said Womack. “Thinking deeply about purpose, process, people is the key to doing this.”
Procurement Professionals should be in line with the purpose and process of customer- centric values. Beyond being lean do-ers, we need to be Lean thinkers, towards a customer-centric purpose. Ultimately, it is about leveraging change to the best way we can, and procurement should be the change agent of choice. We sit at the forefront of any innovation, incremental or disruptive, and from top down to bottom up, we can impact greatly on the bottom line of any business.
Are you ready to pick up the lean batten to commence the journey of change?