Lean procurement: Learning from a manufacturing legend and a startup guru

Lean procurement sounds like another buzzword, but there's certainly a method to the phrase that sourcing experts should take note of. The concept is rooted in the idea of applying knowledge and information to purchase only what's necessary. As one can imagine, lean procurement is incredibly data-intensive, and requires sourcing officers to assiduously pay attention to real-time market trends. 

Of course, lean procurement can also be applied to indirect asset buys, or resources that are consumed by the workforce to help them perform essential functions. The key lies in determining exactly what employees need to do their jobs optimally without providing them with more resources than they're actually going to use. The process involves scrutinizing how different departments function and the manner in which their members choose how to complete work.

Taking a lesson from lean manufacturing

William Levinson, principal of Levinson Productivity Systems, wrote a piece for IndustryWeek describing famed automotive industry legend Henry Ford's approach to eliminating waste in factories. While the concepts discussed in the article may not relate directly to purchasing management, the idea is consistent with the practice. Ford emphasized the importance of essentially making things easier by choosing the logical route as opposed to the "put your head down and get it done" strategy.

"I believe that the average farmer puts to a really useful purpose only about 5 percent of the energy that he spends. … Not only is everything done by hand, but seldom is a thought given to logical arrangement," said Ford, as quoted by Levinson. "A farmer doing his chores will walk up and down a rickety ladder a dozen times. He will carry water for years instead of putting in a few lengths of pipe."

How does this relate to sourcing? Basically, to use Ford's example as a metaphor, finding out where to put the pipe consists of thoroughly assessing all procurement relationships. If you're a U.S. business, can a Mexican factory provide you with the same quality materials as a Chinese production firm? If so, it may be wasteful to continue to procure finished goods from the Chinese partner, because the excess exists within the lengthy supply chain. Why spend the capital supporting oceanic transportation when cross-border rail or trucking is available?

From the perspective of a community developer

Lisa Nisenson has worked with national, state and local governments to help them blueprint publicly-funded projects. She recently wrote a piece for Strong Towns, and is the co-founder of GreaterPlaces, a startup committed to community development. Based on her experience working with a plethora of municipal organizations, she's found that local, state and federal infrastructure development initiatives are hampered by misguided commodity procurement procedures, which are plagued by the following factors:

  • During the request for proposal stage, managers and lawyers often skimp over specific details as to how the purchasing body intends to use the purchased materials, or simply employ antiquated RFP language.
  • On a smaller scale, personnel may submit work orders simply to get something done in the easiest way possible, causing them to disacknowledge the impact these decisions may have on the greater organization.

In regard to the issues noted above, it's evident that strategic sourcing is required to mitigate them. Authorities must create a department or team that focuses on examining every purchase the organization makes. This will give them purview over which products are procured, whether doing so was necessary and how iterative purchases impact funding for large-scale projects.

From Nisenson's perspective, ad-hoc procurement is the waste, and eliminating it from an organization's spend portfolio is what will make the process "lean." Of course, some expenses are needed, but assessing them before submitting an RFP is best practice.

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