Augment your Procurement Function with Lean Procurement Strategy
Is Lean Procurement Strategy the new buzz in Industry 4.0 environment? We bet not. The way lean management impacted modern business ranging from manufacturing to healthcare, financial services, and many, procurement was no exception. Reasons that led to the success of lean procurement strategy owe to the transformation it brought about in productivity and quality. Lean procurement strategy took within its fold the responsibility to empower procurement professionals and improve the procedures and processes that deterred their performance.
Contrary to the immense potential of lean procurement strategy, many organizations still view it as mere automation of procure-to-pay (P2P) activities. But it is time; organizations break free of such limited perception and allow its value to improve strategic procurement. With the discipline and systemic thinking of lean procurement management, purchasing can be aligned to internal customers’ expectations helping leaders make the end-to-end procurement process even more effective than before.
Before we proceed to the lean procurement strategies for your procurement function, let us first focus on the challenges that need a fix. Focus on the areas of requisition-to-PO, invoice entry, receipt, and reconciliation & payments and check out from the below list!
☐ Inadequate catalog impacting user-experience
☐ Lengthy requisition-to-PO process
☐ N Number revisions to requisitions
☐ N number of unaccounted suppliers
☐ Delay in invoices entry
☐ Lengthy receipt processing time
☐ Red flag for incorrect invoice-entry
☐ Payment duplication due to double invoice-entry
☐ Receipt exceptions due to invoice mismatch
☐ Invoicing without applicable discounts
☐ Payments without correct payment terms
☐ A high number of manual paper payments
☐ Delayed supplier payment
☐ Suppliers requesting payment advice
☐ Chaos with filing purchase requisition
Steps to Lean Procurement Strategy
Finding a solution to the challenges discussed above is now easier because the area of focus is always the shadow of the concerned problem. Below we’ve listed five simple steps of lean procurement strategy followed by an exhaustive to-do list for you to check out every accomplishment.
- The first step to bring lean procurement management discipline to effect will be to dig deeper into the requirements of all internal customers.
- In the second step, you got to simplify, automate, and streamline processes to efficiently and effectively contribute to strategic procurement.
- The third step will be to develop the skills and build structures that’ll help procurement achieve operational goals besides strategic.
- In the fourth step, consider improvising performance management through indicators that’ll signal the function’s overall profit-and-loss contribution.
- And finally, it is time for behavior management to systematically build a culture that orients people toward preventing waste and recycling opportunities.
To-Do Lean Procurement Strategy List
Take a print out of the below section if you are inclined and mark the check-boxes once you are done with each one of them.
☐ Review supplier management strategy from onboarding to verification, performance, and exit
☐ Inquire with internal customers (users) about concerns they face with the existing process
☐ Study requisition to PO process to determine the number of items, sequential flow, and approval threshold
☐ Introduce guided buying experience to steer users to contracted suppliers
☐ Look for opportunities to build-in catalog-type requisitions for pre-populated data
☐ Analyze root cause for receipt exceptions from the total number of receipts processed including those of low dollar value
☐ Evaluate the time taken to receive goods and services
☐ Identify handoffs that occur and the root cause of errors taking place from invoice receipt to payment processing; invoice exceptions, the threshold of invoice exception, and specific task authorization given to specific AP members
☐ Go paperless with e-invoicing by adding suppliers to the network
☐ Train suppliers to enter invoices via supplier network with data-validation feature
☐ Review the cause and effect of late and early payment
☐ Process all payments electronically
Lean management has proven successful for procurement functions around the world. It has helped procurement functions achieve rapid and significant impact. As a testimony to its effectiveness, an organization in the EU figured that on adopting the lean procurement methodology, they could scale direct-sourcing activities to around 20 percent and indirect sourcing activities to 25 percent. With the number of people freed through this implementation, they conceived the Center of Excellence (COE) where the resource was assigned to scale the adoption of new tools. Not only they met savings target; they could shift their focus on supplier negotiation.