Lean management in procurement.
May 13, 2024 - Lean management has expanded quickly through much of modern business, from manufacturing-related functions to even service industries. In most organizations, lean management runs into an important room: the procurement department. However, most procurement functions have thought about lean management as a way to streamline and automate procure-to-pay (P2P) activities. However, lean management’s capacity to deliver significant value in strategic procurement has largely been ignored.
That approach should change. Think of what procurement people do each day. How much time do strategic buyers or procurement staff spend on truly value-adding activities, such as building a deeper market understanding in key categories, identifying and qualifying new potential suppliers, or negotiating the best possible contracts? Likely, much less than you think—often devoted less than 40 percent of their time to these core activities. The rest is lost on distractions such as administration, reporting, and completing tasks that should have been the responsibility of operational procurement staff.
Now, imagine you could change that situation. Cutting your administrative and reporting burden and optimizing your core processes could allow your buyers or procurement staff to focus more than 70 percent of their time on strategic activities. That’s the equivalent of doubling the size of the strategic procurement function without adding a single person.
A broader and more understood lean-management perspective doesn’t just help organizations maximize the effectiveness of their current processes and activities. It also allows organizations to take a better view of the value each individual procurement staff creates. It helps them answer important strategic questions, such as which activities and processes should be kept in-house and which should be automated, allocated to shared-service centers, or outsourced. Standardized activities, fewer processes, better-qualified procurement staff, continual people development, and resources sharply focused on activities and processes that add real value—this is what we understand as lean procurement.
Bringing lean-management discipline to procurement requires action in five areas:
• Develop a deep understanding of the needs of procurement customers: not only the business units that work directly with the procurement department, but also the organization’s end customers.
• Simplify, automate, and streamline processes to meet those needs as efficiently and effectively as possible, both in strategic procurement and in operational procurement.
• Build the skills and structures procurement needs to achieve those goals, including a clear line between strategic and operational procurement roles and responsibilities.
• The function must tighten its performance management, using indicators that focus on real value creation such as the function’s overall P&L contributions.
• The organization must systematically change the mind-sets and behaviors of its people, creating a culture that focuses on continuous improvement in meeting customer needs and eliminating waste.
Lean management is about much more than cost reduction, making it a powerful set of disciplines for increasing procurement’s effectiveness. Procurement functions that embrace lean management will achieve rapid and significant impact.
Lean procurement is based on lean production. The focus is on operational efficiency and customer satisfaction. Improving the quality of goods or services while eliminating non-value-added activities and waste; such as inventory, time or costs is a must to improve the procurement process and workflows. Enhancing the performance and responsiveness of suppliers is also crucial.
At EPG, we focus exclusively on procurement, supply chain and supplier sustainability, and how they can create better results for our clients. Our services, capabilities, knowledge and methodology ensure you get increased savings, more favorable contracts, improved supplier performance and improved speed to value.
Lean management in procurement is about much more than cost reduction.
Related services
Procurement Outsourcing
How we've helped clients
Learn more by reading some of our client results stories
