Optimizing the entire value stream system must always be the goal.
A company's lean journey usually starts in the factory. Sooner or later, roadblocks from processes that connect the plant's value streams with the outside world become visible. Procurement is one of those processes.
Manufacturing's lean experts are usually eager to apply their tools to accelerate the speed with which companies order parts, rationalize order quantities, increase inventory turnover, and track vendor performance. But according to Dennis Sergent, the founder and principal of Sergent Results Group, which has led operations organizations, technology deployments, service improvement programs, cost-improvement initiatives and organizational transformations for more than 20 years, if lean experts rush to apply lean tools to procurement processes, they risk optimizing the wrong things. He says the procurement improvement team must start by identifying its customer--usually the factory. It must ask the customer the real purpose of the purchase order process, what value it should deliver and about any specific requirements.
With this purpose in mind, the improvement team can gather the data for a value stream map (VSM) of the current process: volumes, cycle time, work time, delay time and any measurements of the value delivered. It can identify key issues and roadblocks, then prioritize them by the effort required and impact of any improvement. Only then, says Sergent, should the team apply process-management tools like PDCA, kaizen events, 5 Whys, 5S and kanban.
Sergent cautions that the team must maintain its focus on the customer, or risk unintended negative consequences. In one company, procurement concluded that the business could save hundreds of thousands of dollars each year by standardizing to a lower-cost paper. It hadn't found out that the most critical use of the paper was for binding kanban and audit records in three-ring binders on the shop floor. Because the cheaper paper ripped easily, paper reinforcements were being applied to thousands of pages. A year later, the shop floor was way over budget on labor hours and office supplies. Saving money on paper produced a net loss.
Procurement improvement programs, says Sergent, must look beyond efficiency, shorter cycle times, lower costs, greater quarterly dividends and greater annual profits. Efficiency and effectiveness are two sides of the same coin. The ultimate goal of improving any process is to support the productivity and sustainability of the enterprise for years into the future.
The most important factor in successfully implementing lean in procurement, however, is for senior procurement leadership to guide and support the journey and help build full engagement in the entire procurement organization.
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