To achieve Lean in Procurement, focus on adding value rather than reducing costs
What really is Lean Procurement? From some of the descriptions of Lean in procurement that I’ve seen, it seems to have morphed into something that is either myopically focused and/or totally unrecognizable as Lean. Let’s start with myopically focused. Yes, it is a good thing to do more with less, i.e., run procurement with fewer people. But what are the survivors doing? Are they focused primarily on transactions or are they focused on strategic activities? Reducing procurement headcount is much like reducing inventory in manufacturing. It is typically a byproduct of lean best practices, leadership and tools, not a focus. Lean has to be done intelligently. Workflows need to become more efficient, and more importantly, the actual workflows and their underlying assumptions need to be questioned. When Procurement asks the question: how can I approach the work of Procurement so that I add more value to the customer (both internal and external), many exciting possibilities will open up.
- Improve the procurement process and workflows, reducing time and eliminating waste
- Reduce/lower costs while improving the quality of products and services
- Improve the performance and responsiveness of suppliers
- Increase the focus on those activities that add value to the firm
- Enhance procurement’s strategic rather than transactional focus
Going Lean will help you increase Procurement’s total value
Many companies need to get beyond the notion that lean is primarily for manufacturing companies and associates on the factory floor. While manufacturing historically has led the Lean charge, opportunities can and should go well beyond it, all the way to the supply base. It’s natural to assume that Lean means lean manufacturing, as it’s the area that has gotten the most focus and has shown the most dramatic transformations. Lean procurement is applicable to all industries, in the manufacturing and service sectors. And applying Lean to Procurement can yield remarkable operational and financial results.
Lean questions why particular Procurement activities are being done and addresses how to increase procurement’s total value. Cost reduction is, of course, important. However, how lean helps procurement add value should remain foremost in mind. The lean mindset focuses on adding value and typically requires eliminating waste and cost. The approach to lean procurement should be holistic and not solely cost-focused.
New technologies can make your Procurement leaner and more efficient
Basic Lean principles – value, value steam, pull, flow and perfection – have direct relevance to Procurement. Many tools in the lean toolset (value stream mapping, 5S, visual, Kaizen, standard work) can apply. In addition, adoption of supply management and supply chain technologies such as strategic sourcing software and spend analysis, when implemented properly, can help make procurement leaner. Organizations that perform supply base rationalization (and perform it well, of course) will be dealing with fewer, higher performing suppliers. Supplier proliferation is a major reason for increased transactions and waste in Procurement. Or take supplier performance management, which helps ensure a higher-performing supply base that requires less expediting results in higher quality and better responsiveness from suppliers — and less cost and more value. This readily translates into a more efficient and cost-effective procurement operation.
However, as in all lean practice, focus should be on leadership, overall strategy, people and culture rather than primarily on the tools. Lean tools are a means to an end, not an end in themselves.
For more information on how Lean can help improve Procurement and increase its value to your company and stakeholders, please download the White Paper.