Adding Value while Reducing Costs with Lean Procurement

Did you know that most definitions of “Lean Procurement” describe it as “doing more with less?” Pretty straightforward as most of us can agree, but often, we see procurement professionals take this definition as running their department with fewer people. Just because it is Lean does not necessarily mean reducing headcount, in the same way that a company might reduce inventory.

This sort of construct is a byproduct of Lean best practices for leadership and tools, not Focus. Lean Procurement can be done strategically, in a manner that adds value on top of reducing costs.

For example, optimizing a workflow for efficiency can impact an organization at a grander, more sustainable scale than say, cutting out technology because of costs.  As procurement professionals, we must ask ourselves: how can I optimize procurement processes in a manner that adds value to my customer (internal or external)?

Lean Procurement and Supply Management can be approached as:

• Reducing time and eliminating waste by improving procurement process and workflows
• Improving the quality of products and services while reducing/lowering costs
• Improving supplier performance
• Increasing focus on activities that enable procurement to become strategic partners to the organization
• Enhancing procurement’s strategy instead of putting all efforts on transactions

Going Lean in Procurement to Increase Value

To ensure competitiveness in today’s global marketplace, organizations must go beyond the concept that going lean is just for manufacturing companies and associates on the factory floor. It is true that historically speaking, manufacturing has always been at the forefront of going Lean.

Because manufacturing has been the leaders in lean procurement, it is an area when professionals will find the most case studies and the most dramatic transformations. Lean Procurement can go beyond the manufacturing vertical, all the way to the supply base. It is applicable to all industries, both in manufacturing and the services sector. Adapting a lean procurement strategy can yield fantastic results financially and operationally.

How to become strategically focused in Lean Procurement

• Question why particular activities being performed a certain way, and ask if it increases procurement’s total value
• Instead of focusing primarily on cost reduction, ask how procurement can add value to the organization either through process improvements or adoption of technologies to reduce errors and manual processes
• Examine if your procurement approach is solely-focused instead of holistic

Procurement Technology Can Make You Leaner

Lean procurement principles—value, value steam, pull, flow and perfection, have direct relevance to Procurement. While many tools can apply (value stream mapping, 5S, visual, Kaizen, standard work), adopting supply management and supply chain technology can enable strategic lean procurement. For instance, supplier performance management can ensure a higher-performing supply base that requires less expediting results in higher quality and better responsiveness from suppliers — with 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 our White Paper.