Pop Quiz: What comes to mind when you hear the words lean procurement or purchasing?
You probably didn’t think of Japan in the 1950s, in which the process was designed to boost the country’s post-war economy by increasing production utilizing minimal resources. That’s right, the demand on purchasing to do more with less is not new.
Of course, the concept or model of lean purchasing has evolved. For example, in the 1980s, the Massachusetts Institute of Technology (MIT) “reworked and refined” the concept of what “lean” means beyond the “physical flow management” of the procurement process.
This article aims to expand your understanding of lean purchasing in a digital world. Or, to put it another way, it is no longer about buying less and buying better. Instead, there is a broader end-to-end focus on delivering maximum value to the end customer. To do this, organizations need to have speed and agility to ensure a robust supply chain that is competitive in a dynamic, global economy.
A New Business Currency
There is a reason we opened today’s article with the quote about speed (and agility) being the new business currency. Overall, a company’s ability to respond to changing demands in the marketplace is critical to long-term success—we will talk about how purchasing and the supply chain is the linchpin of this success momentarily.
However, before we get into the specifics of lean procurement, it is important to quantify or qualify the assessment of speed and agility’s importance to company survival.
According to research, in 2019, “only 10.4% of the Fortune 500 companies from 1955 have remained on the list.” Over the 64 years, more than “89% of the companies from 1955 have either gone bankrupt, merged with (or were acquired by) another firm, or they still exist but have fallen from the top.”
It is worth noting that there is a belief that “almost all of today’s Fortune 500 companies will no longer exist as currently configured, having been replaced by new companies in new, emerging industries.” Industry pundits suggest that the prospect of this turnover is a positive sign of the “dynamism and innovation” that characterizes a vibrant “hyper-competitive” consumer-oriented global market economy.
In other words, being able to respond to a consumer-driven market is why speed is the new business currency. And speed and agility are the results of a lean purchasing model that creates more value for end customers and improves product and service quality.
Getting to Lean Procurement
Beyond understanding the critical role of your purchasing department in “getting to lean,” organizations need to simplify and streamline their processes—this is where digital technology comes into play.
In addition to implementing the right technology, leadership must also ensure that the procurement team develops the necessary new skill sets based on a strategic versus functional role.
Finally, companies must develop and introduce the right metrics for quantifying procurement’s impact on crucial areas, including optimizing cash flow, enhancing the P&L, and ultimately fueling innovation throughout the entire chain.
By Michael Cadieux