Tim Slorick
Tim is a founding partner of K Consulting, leading the organisation to develop a growing reputation for a combination of strategic throught and hands-on delivery.
How Lean is your Procurement?
- By Tim Slorick
- Published 28 April 2009
In the current economic climate, what competitive advantage can you secure by delivering more with your existing resources through Lean principles?
The financial pressures on many organisations will be hard to bear in 2009: the challenge to deliver against targets where economic confidence is low will be one of the toughest in recent years. An obvious option in the face of such a challenge will be to tighten the belt – most likely in the form of variable cost reduction, the most severe being headcount reduction. However, losing experienced procurement staff now who you would want on the payroll when the weather vane starts to turn might not be the best option if your organisation is in a position to consider alternatives.
Lean is traditionally the reserve of manufacturing organisations, and even there, something for the shop floor. However, Lean principles should – and can – be implemented across the whole organisation, although this is a challenge in itself. So, focussing on procurement, where’s the link, and what are the options? First, a quick lesson in Lean:
The key aim of Lean is to deliver greater operational efficiency through the elimination of waste and continuous improvement. In a procurement context, one example would be to optimise your processes to reduce the overall procurement cycle, thereby delivering any savings achieved faster. By reducing the ‘cycle time’, you can run more projects, deliver more savings, ensure better quality SRM… the options are there. Don’t forget, procurement can easily be the biggest contributor in an organisation looking to cut costs.
It is a well know fact that, assuming a net return on sales of 10%, a 1% procurement saving has same effect on the bottom line as a 10% increase in sales. By having the additional capacity to deliver a greater number of improved commercial agreements, outsourcing non-core business activities and so on, the procurement function can either be a real profit contributor, or give the business the opportunity to reduce prices whilst protecting net profit.
So, what are the ‘wastes’ associated with Lean? The classic seven wastes and how they could relate to a procurement context are:
In isolation, any one waste might be seen as a triviality that is not worth looking at, but this is where the concept of ‘continuous improvement’ (Kaizen) makes its contribution. The principle of continuous, small incremental steps to improvement is one of the bedrocks of Lean. ‘What did you improve today?’ should become a foundation principle in the organisation, underpinned by strong senior leadership.
Putting all of this in place is undoubtedly a challenge, but the benefits can be immediate, sustained, and above all make one of the single biggest contributions to your organisation’s financial health in these challenging times.
The financial pressures on many organisations will be hard to bear in 2009: the challenge to deliver against targets where economic confidence is low will be one of the toughest in recent years. An obvious option in the face of such a challenge will be to tighten the belt – most likely in the form of variable cost reduction, the most severe being headcount reduction. However, losing experienced procurement staff now who you would want on the payroll when the weather vane starts to turn might not be the best option if your organisation is in a position to consider alternatives.
Lean is traditionally the reserve of manufacturing organisations, and even there, something for the shop floor. However, Lean principles should – and can – be implemented across the whole organisation, although this is a challenge in itself. So, focussing on procurement, where’s the link, and what are the options? First, a quick lesson in Lean:
The key aim of Lean is to deliver greater operational efficiency through the elimination of waste and continuous improvement. In a procurement context, one example would be to optimise your processes to reduce the overall procurement cycle, thereby delivering any savings achieved faster. By reducing the ‘cycle time’, you can run more projects, deliver more savings, ensure better quality SRM… the options are there. Don’t forget, procurement can easily be the biggest contributor in an organisation looking to cut costs.
It is a well know fact that, assuming a net return on sales of 10%, a 1% procurement saving has same effect on the bottom line as a 10% increase in sales. By having the additional capacity to deliver a greater number of improved commercial agreements, outsourcing non-core business activities and so on, the procurement function can either be a real profit contributor, or give the business the opportunity to reduce prices whilst protecting net profit.
So, what are the ‘wastes’ associated with Lean? The classic seven wastes and how they could relate to a procurement context are:
| Waste | Procurement examples/questions |
| Over production |
What is your policy on supplier reviews? How are the thresholds set for
the frequency of periodic supplier reviews & assessments, and how
could this be optimised? Are there opportunities for demand mgt? Can
you reduce spot purchases? |
| Motion | What is your travel policy with regard to supplier meetings? Do you have the infrastructure in place for remote meetings? Have you optimised your transport – e.g. reduction in frequency of inbound freight? |
| Waiting | How optimised are your processes with regard to communication, qualification and assessment of your (potential) suppliers? Is time lost waiting for internal or external information, paperwork, tender returns etc.? |
| Conveyance | Are there legacy processes that require manual, hard-copy dissemination of information around the organisation unnecessarily, e.g. a process for HSE approval, or an HR review? |
| Over Processing | Do you optimise your department’s output with respect to reports, communications, publications etc.? For example, creating large reports that are no longer required, or when a smaller summary emailed to the relevant stakeholders would add as much value. Are there opportunities to reduce the duplication of reporting requirements? |
| Inventory | What options are there to review stocking policy on older or long-term contracts, for example the stipulation of unnecessarily high levels of consignment stock? |
| Correction | Do you capture the type and frequency of errors, missing details/information and so on that require documents, qualification forms, specifications etc. having to go round the system again – either internally or externally? |
In isolation, any one waste might be seen as a triviality that is not worth looking at, but this is where the concept of ‘continuous improvement’ (Kaizen) makes its contribution. The principle of continuous, small incremental steps to improvement is one of the bedrocks of Lean. ‘What did you improve today?’ should become a foundation principle in the organisation, underpinned by strong senior leadership.
Putting all of this in place is undoubtedly a challenge, but the benefits can be immediate, sustained, and above all make one of the single biggest contributions to your organisation’s financial health in these challenging times.
