I was reading the recent blog post at the Spendmatters: Beyond Shedding the Deadweight in Procurement and Operations. Instead of just cutting headcount, particularly in procurement, Jason Busch suggests other ways to approach cost reduction. Among the suggestions are: driving better efficiency by fully using software solutions in the Procure-to-Pay cycle; using third parties to help you outsource and cut spend; and last, cutting inventory as much as possible and working with critical suppliers to help them reduce their cost structures. I’d like to add lean to list, both as a continuous improvement toolset and as a way of thinking. Companies should be deploying lean thinking and lean enterprise practices to help remove waste in the entire company. Waste is defined as creating no value and as something that a customer would not want to pay for.
OK, so you’ve heard a lot about lean and maybe your company has a lean initiative going on. Many people still think lean something you do only on the factory floor and it doesn’t pertain to them if they work in an office. No, it’s not just for manufacturing wonks. Or else I hear, “Yeah, we’re lean. We’ve cut everything to the bone.” That’s lean and mean or lean anorexic, not the real meaning of Lean Enterprise. Lean and mean is a cost-cutting exercise and is not real Lean, which is a systematic elimination of non-value added activities (i.e., that do not add value to the customer or that the customer would not want to pay for). Cutting 10% across the company is a desperation mentality, value-add and customers be damned, like amputating your own limb. Desperate measure for desperate times.
So what about lean in relation to all things procurement and suppliers? Lean thinking, tools and culture afford the opportunity to reduce and eliminate the sources and causes of waste and cost that come from doing things the way they’ve always been done. It means not just helping suppliers improve their operations and cost structures, but also addressing one’s own internal process inefficiencies that often adversely impact suppliers’ ability to meet customer requirements.
Traditional procurement maintains a big supply base, a short-term focus and is internally driven. Lean procurement is system-oriented with a focus on total cost and internal and external customers. The traditional mentality is to get a better price (’cause that’s what we’re measured on), but potentially pay later in quality, delivery and service issues. Now is the time to look at the supply base and decide based on best value, including performance, which suppliers to focus precious resources on and whom to disengage. Procurement can adopt lean practices such as value stream mapping to identify non-value added activities. It can look at internal workflows and at those involving suppliers. Visual systems (5S) in the office can be used to improve the procurement and supply management work environment so that people don’t waste time looking for things or even waste space. Procurement can identify not only the problems, the root causes of the problems. It can uncover: Where are the bottlenecks? How much do people have to wait for the next step in the process or for resources due to work imbalances and bottlenecks? And who manages the waiting, which is in itself only additional waste? Procurement should work in concert with other functions to expose and eliminate hidden cost drivers such as: customer complaints, long lead times, systems issues, quotation errors, incoming inspection, expediting, excessive paperwork, poor controls, poor communications, poor supplier quality, etc. Or, eliminate the extra steps and waste in what can be called the inter- and intra-company circle of waste – that is, the waste that occurs in the business processes pertaining to and between customers and suppliers or in the white spaces.
But most importantly, in addition to working on important supplier performance improvement and development projects, procurement can adopt a continuous improvement/lean mentality and culture within its own function both as a model to its suppliers and as an important step to do its part to help restore the entire company to financial health.