Can Lean Principles Be Applied to Procurement and Purchasing Processes?

While there are many books written on the basics of the "supply" side of the supply chain (i.e. strategic sourcing, sourcing/procurement and purchasing), however, there hasn’t been much written on those areas from a Lean perspective. That situation was rectified when Paul Myerson published his significant book entitled Lean Demand-Driven Procurement: How to Apply Lean Thinking to Your Supply Management Processes.

I recently spoke with Paul Myerson and asked him: "Why haven’t organizations placed more emphasis on applying Lean principles to procurement and purchasing processes?" Here is his complete response:

While there are a fair number of books, articles, and blogs written on the basics of the “supply” side of the supply chain (i.e., strategic sourcing, sourcing/procurement, and purchasing), there hasn’t been much written on those areas from a Lean perspective. This is quite surprising, considering not only that supply chain costs (primarily procurement and transportation), can range from 50% to 70% of sales, resulting in what is known as the “profit-leverage” effect (measured by the increase in profit obtained by a decrease in purchase spend), but also helps drive downstream quality, productivity, and efficiency.

If you were to ask someone who knew a bit about Lean thinking how they defined Lean procurement, they would probably say that it’s about increasing productivity for procurement staff so they can spend more time on value-added activities rather than administration. While that is certainly true, it is also important to extend the view to how it connects and interacts with other processes, functions, suppliers, and customers, as today, procurement plays an important role in improving the flow of information and materials throughout the entire supply chain.

It is important to establish best practice Lean procurement functions that go beyond contract negotiation and establish crucial operational requirements, utilizing strategic sourcing activities such as market research, vendor evaluation and integration to support Lean activities such as Just-In-Time and Vendor Managed Inventory (VMI) programs.

Furthermore, inventory management and sourcing supply chain decisions are directly linked to a company’s financial performance and can, as a result, can affect a company’s cash flow and profitability.

Therefore, a procurement organization must consider:

• The prevention of production disruptions due to inventory or material shortages, while remaining flexible to meet changes in customer demand or cope with market volatility.

• The trade-offs of inventory carrying costs and customer service levels.

• Optimal buying quantities that consider the trade-offs of inventory carrying cost and volume discounts.

• Moving from reactive to proactive procurement operations.

In summary, Lean procurement provides opportunities for process improvements and savings through cost reduction, eliminating wasted time and efforts, and improved cost analysis, and can improve contract compliance and develop better, sustained partnerships with suppliers and other business partners.

What do you think of Paul's perspective on Lean procurement? Does your company apply Lean principles to its procurement and purchasing processes? What results have you seen?


Employee Engagement -- Is it Increasing or Decreasing? Can it Be Sustained?

Most companies know the very visible and measurable benefits to having an engaged and involved workforce -- healthy workplace culture, lower turnover rates, and more satisfied customers. Many Gallup research studies are showing that employee engagement is rather low throughout many industries, and this topic is thoughtfully addressed in a new book by Lonnie Wilson entitled Sustaining Workforce Engagement: How to Ensure Your Employees Are Healthy, Happy, and Productive.

I spoke with Lonnie recently, and we discussed his book and the importance of employee engagement. I asked him: "Why are employee engagement levels so low?" Here is his complete answer:

The typical view of an “engaged employee” is some hard-working soul who asks few questions. He just keeps his head down and works hard to get the wash out.  Well, that falls far short of real engagement; which is an employee who is not only making a physical commitment (hard working), but an intellectual commitment (problem solving) and an emotional commitment (caring attitude) to his work, to his colleagues, and to his company.

The most comprehensive studies that have been done to quantify engagement levels in the US show that overall engagement is in the 30% to 32% range, with manufacturing even lower at 25% to 26%. These data are disturbing to most…and should be. That was not always the case.

Many years ago, engagement levels were higher, much higher. That changed when we grew as a country and as an industrial giant.  In the early 1800s, there were few factories and suppliers were very close to their customers. Think of the local tailors who made your clothes or the local smithy who fixed your wagon. They always worked hard. And at that time suppliers not only knew their customers, they cared about supplying them exactly what they needed and when they needed it.  Should problems arise, they would - Johnny-on-the-spot to fix the problems. These craft tradesmen were the epitome of engagement with physical, intellectual and emotional commitment attached to all they did.  

Then came mass production to make more products and make them cheaper. Next the railroads made distribution over long distances a reality and the craft worker became a mass producer usually making only part of a product as assembly lines were implemented. This effectively disconnected the worker from both the customer and the finished product. This drove a wedge between reality and any caring attitude they once had.  

Next, in an effort to improve both quality and worker productivity, the practice of “scientific management” was created. The most attractive aspect to the business owner was the concept of “best methods”. Known as Taylorism, it was now the job of engineers and managers, not the workers, to develop the best methods. This effectively drowned out any intellectual commitment the workers once might have had. 

With the impact of mass production, the advent of the railroads, along with the implementation of “scientific management”;  the concepts of emotional commitment and intellectual commitment were effectively severed from the worker and we are left with what we have today in manufacturing … 25% engagement levels. It need not be that way…..we can do much better.

In his book, Lonnie examines engagement from top to bottom integrating the theories of the scholars, with the experiences of the practitioners. He explains, in simple terms, how engagement can be achieved and why people try so hard to create a fully engaged workforce with both the best of intentions and a true passion to achieve it … yet fall short.

He believes there is a simple reason -- achieving engagement is all about management and the many changes that must be made, and that raises the crucial question: Is management both willing and able to recognize, accept, and execute the needed paradigm shifts? The stark reality is that the changes that must first occur are in the thoughts, beliefs, and actions of the management team. This book gives you a path to follow that may achieve just that. And the remaining question for the senior management is: What are you prepared to do?

How engaged are the employees in your company? Do you feel management is contributing to increasing or decreasing employee engagement?


On the Quest for a Lean Office

Back in January, Timothy Schipper published an important new book about transforming workplace culture entitled The Highly Effective Office: Creating a Successful Lean Culture in Any Workplace. I spoke with him on the phone recently and asked him: “How can Lean work just as well in the office as it does in manufacturing?” Here is his complete response:

When David Mann (author of Creating a Lean Culture) suggested to me to write a book about how Lean could be successfully applied in the office, I was a bit reluctant at first. The scale of the project was daunting.  He encouraged me, however, and said if I don’t tell the story of how it was being done in organizations, the story wouldn’t be told. 

The story begins with wondering if Lean concepts could be transferred from manufacturing and be applied effectively in the office?  And could Lean principles be applied to build a culture of continuous improvement in any workplace?  It turns out that the transfer of Lean principles from the concrete floors of manufacturing to the carpeted areas of the office required some fresh approaches and counter-intuitive ideas. 

As the story unfolds, it turns out that Lean does transfer from manufacturing to the office. While the principles of wastes eliminate and flow through a value stream apply, “some translation is required."  The wastes in the office value stream are hidden from view and not in plain site as is inventory between machines in the manufacturing. Because of this, wastes must be exposed. Mapping the informational value streams of office work reveals the waste in the system.  Once the wastes are in plain view, then work can be done to improve what are typically push systems with pull systems that are more visual.

The opportunities for removing wastes from the information value streams in the office can yield dramatic improvements in flow.  To build the practice of making these improvements into the culture requires employee involvement with the support of the leaders.   

The Highly Effective Office describes a road map for the journey of building a Lean culture in the workplace by providing methods to build a workplace that engages both the knowledge worker and the leader in continuous improvement. 

What do you think of  Tim's perspective? Have you applied Lean in the office environment and mapped the value stream?


How Do Service Organizations Translate Lean Principles into Sustainable Practices?

In January, Karyn Ross published  a new and very important book entitled How to Coach for Creativity and Service Excellence: A Lean Coaching Workbook -- It is a self-contained workbook, in which the reader completes twenty-one days of practical exercises and activities focused on creativity, Lean, and coaching (one set per day). These exercises enable readers to develop their capability and confidence to be creative, adapt Lean principles, practices and tools to their unique service organization, and coach others to do the same.

I had a chance to meet and discuss the book with Karyn during the recent KataCon5 conference in Savannah, Georgia. One of the questions I asked her was: “Why do service organizations struggle to translate Lean principles into sustainable practices?” Here is her complete and enlightening answer:

Michael, that’s a great question. And, as a Lean coach, consultant and practitioner who has only worked in services, I could give you any of the traditional answers you might expect:

•             Lean is for manufacturing.

•             Senior leadership doesn’t really support it.

•             Lean is just another "flavor of the month."

But while all these may be contributing factors, over the years, I’ve come to understand that the real reason people in service organizations struggle to turn Lean principles into sustainable practices is the same reason people in manufacturing organizations struggle: They aren’t able to overcome what I call the long list of "I can’ts" -- those underlying assumptions that each of us has about what is and what isn’t possible. Possible for our organization, our team, and for each of us as individuals:

  • “We can’t possibly customize our service for every customer. There are too many of them!”
  • “I can’t ask my team for 100% accuracy. It’s demotivating and they can’t do it.
  • “I can’t work more efficiently. I know the way I do this is the best way.”

As a Lean community, we’ve spent a lot of time focused on tools and some time on principles. But, we haven’t spent any time at all helping people learn how to use their innate creativity. That’s why this book, written as a workbook, focuses so heavily on two factors: 

  1. Coaching people to use my simple, disciplined, practical approach to PDCA so that anyone, at any level of the organization, can generate creative ideas to overcome those “I can’ts."
  2. How to then turn those creative ideas into more effective and efficient ways to work by adapting Lean principles such as flow, leveling, and standard work in services.   

These factors ensure that customers are satisfied – now and for the long-term -- and the organization will be able to fulfill its purpose. And, whether you’re in services – or manufacturing – that’s exactly what sustainable Lean practices are all about!

Do any readers work for service or transactional organizations that are applying Lean principles to achieve excellence? What do you think of Karyn's perspective?