Lean Supply Chain Purchasing
50 to 75 % of sales revenues are traditionally washed away by Procurement and transportation. But plenty of companies are still too focussed on the reduction of material costs in the supply chain processes.
High time to take a closer look at this, and moreover, how to improve this by applying Lean principles into supply chain sourcing and purchasing and procurement. Professor Paul A. Myerson, Supply Chain Management at Lehigh University and author of the book on Lean for McGraw-Hill, identified 8 Lean tools that you can use to reduce or eliminate waste.
Applying Lean principles to procurement and purchasing processes can identify non-traditional sources of waste. In some cases, it creates a paradigm transition that brings complementary advantages to the whole supply chain.
Before we share the Lean principles, let’s define the difference between procurement / sourcing and purchasing.
Procurement is the act of finding, acquiring, buying goods, services or works from an external source, often via a tendertool.ahabr.teching or competitive bidding process. The process is used to ensure the buyer receives goods, services or works the best possible price when aspects such as quality, quantity, time, and location are compared.
Purchasing on the other side is the process involved in ordering goods such as request, approval, and creation of purchase orders and the receipt of goods.
Lean Supply Chain Purchasing: Internal versus external
To better understand the impact of lean principles for an organization’s procurement department, it makes sense to differentiate the internal processes from the external. Inside the organization, you can use lean to enhance and streamline indoor practices. As such, you improve the overall efficiency. Furthermore, it can potentially eliminate several wasteful activities and provide cost reductions.
Externally, Lean principles can involve better integration and collaboration with key suppliers to ensure they meet established product and service performance requirements
By applying these Lean principles to procurement and supply chain purchasing processes, businesses will experience multiple benefits throughout the supply chain. According to Professor Myerson, there are multiple ‘Lean tools’ that can be used to knock out waste:
The first tool is Value Stream Mapping. The Internal purchasing and procurement create a future state of processes that is streamlined down the road. Secondly, Quality at the Source allows early supplier integration and problem-solving competence by expanding the viewpoint to the total cost of quality. The final tool or method is called One piece flow. This can be created by working closely together with local suppliers. Together, flexible manufacturing and SC strategies can be put together and applied to decrease inbound transportation distances and improve delivery consistency.
Source: Supply Chain and Logistics Management Made Easy (Pearson, 2015)