Lean Sourcing: Proactive Preparation, Effective Execution and Intelligent Iteration
When looking for strategies to eliminate waste, drive efficiency and create value, becoming overwhelmed can be a common problem, particularly for manufacturing procurement leaders.
As such, let’s start with a simple idea about mastering the complex processes necessary to approach lean sourcing. One way to understand the connection between Kendo, the Japanese art of sword fighting, and the simplicity of Zen is to see absorbing knowledge and mastering practice as cyclical. Accept that the first lesson is the same as the last, that the least and most complicated lessons are one and the same, and you understand the key to lean thinking: continuous improvement.
In this post, we explore more than the lean approach to staffing for manufacturing in general, and focus instead on how the lean approach can be precisely targeted and adapted to your strategic sourcing process. To begin most fundamentally, Toyota Motor Corporation defines lean as a combination of two elements: “jidoka” and “just-in-time.”
The first allows for production to cease immediately when a problem arises, minimizing waste. The second allows for the amount of parts produced to match as closely as possible the amount required further down the line. Thus, lean too is a cycle of mastery: minimize waste, maximize value, repeat.
Further, each step of the process mirrors the whole, which is to say that each step should be repeated consistently while the process itself recycles. At the core of lean lies the idea that while perfection is the goal, arriving at that perfection is inherently impossible: there is always room for improvement.
Finally, while theory is important, practice, how to go about minimizing waste and maximizing value, is what you really want to know. Therefore, we take a deep dive into each step outlined below to facilitate practical application as much as possible, and finish with some examples of lean sourcing in action.
Traditional Approaches to Sourcing are Obsolete
In the simplest terms, sourcing is defined as the process of finding suppliers of goods or services, but the methods that have been traditionally relied upon are woefully out of date.
A lean approach is like an exercise in proactively creating a gestalt situation: once complete, the full scope of your strategy will be more valuable than the sum of its individual parts. While each element may contribute a certain measure of savings, those elements will also need to work seamlessly in combination with one another; they ought to be replaced with others if they don’t.
Simply, a short-term mindset can bring you savings today that may result in losses later, if individual steps are not linked to maximize value together across your entire process. With specific regard to sourcing, instead of just looking for the lowest possible price or greatest possible savings, the goal should be to find the highest possible value each step can provide to a total whole.
Below we have outlined the ways in which a traditional sourcing process can be shifted to implement lean efficiency to deliver ROI.
Reality Check: any lean strategy must begin with a detailed study of all current practices to identify strengths to be maximized and weaknesses to eliminated.
Buying in bulk: shift your mindset from one of simply buying the largest quantity possible to drive mass discount toward looking to maximize quality against investment.
Building relationships: a lean approach is not negotiating for the best price for the company, but looking to collaborate and develop long-term partnerships that pay off over time, the keys being compromise and symbiosis.
Efficiency in everything: the goal of the lean approach is maximization of production with the barest minimum amount of supply.
Proactivity: instead of waiting for problems to arise to come up with solutions, the lean approach focuses on constantly innovating so that problems can be avoided ahead of time, before they arise.
Repetition: it cannot be said enough that the goal of any lean process should be its perpetuation; there is always a new, cheaper supplier, a cleaner, simpler process and a different way of looking at an old problem.
Adapting Lean Principles to Sourcing
All lean processes begin with an evaluation of current processes to first identify valueless steps that can be eliminated and then adjust the necessary steps which remain to save both time and money. Externally, contracts with any vendors found to be providing low value should be canceled, as fewer vendors means less invoicing and paperwork, and fewer deliveries. Contracting with fewer vendors will also reduce the number of relationships you manage, saving time and effort.
Evaluation should also be focused internally on figuring out how to consolidate all like activities and processes across the full breadth of your business. Once you know how you are going to eliminate waste and consolidate processes, the savings of doing so will be easy to calculate; repeat this process to further drive savings.
The next step in a lean strategy is to standardize all processes, policies and practices identified as similar across all departments. While implementation may take time and adjustment may be difficult, standardization will save in the long term on training and will increase inter-departmental cooperation, synergizing operations. Like interchangeable parts in a machine, standardization across your entire facility will simplify operations and make future changes easier to implement more quickly as you repeat the full lean process over and again.
Standardization will also assist in alignment of goals across all departments, the next step of the lean process. Competing goals waste time and individual departmental successes detract from overall success when goals are different. Further, competing goals, which can pit departments against each other, often result in inefficiencies when departments dependent upon each other’s productivity are not aligned. Such misalignment can lead to out of sync delivery of products, which must move between departments according to your production process. Eliminating this type of waste is precisely what lean seeks to accomplish.
Aligning goals will also mitigate competition between departments that otherwise myopically view their own successes as more important than the overall production goals of the company. Remember that inter-departmental competition can be the wellspring of inefficiency and potentially lead to the kind of animosity that fractures a workforce, none of which results in smooth, profitable production.
Your initial evaluation should have identified the core strengths on which to focus, such that everything else can be outsourced. Whereas internal resources seem to do better in the short term, vendors often deliver better results in the long term. The reason for this should be obvious as they too are focusing on their core strengths, which means delivering you a better product than your own company or any of their competitors can at the lowest possible price.
Technology enters the picture in the next step, as using a supply chain management (SCM) software package to share data upstream with suppliers and downstream with clients will drive collaboration between your company and those you partner with. Increased synergy of supply and demand among all parties involved should be focused on the core goal of lean: decreasing waste while increasing profitability. This is achieved by decreasing inventory and improving fulfillment rates, both of which will increase customer satisfaction. Finally, the ultimate result of collaboration is the positive affect on product availability at point of purchase, driving customer satisfaction even further.
Last, but far from least, the lean process involves building and nurturing a culture of continuous improvement across all departments of your facility, company and business. Such a culture comes at the cost of total support from all members of every team you employ. While such a potential shift in culture may be difficult for some employees, particularly those who’ve been with your company the longest, ultimately the goal of its adoption should be to build, reinforce and maintain a team ethic across departments. This unified team spirit will result in increased loyalty to the company, providing employees with an increased sense of worth, fulfillment and happiness, and a happy employee is a productive employee.
The Benefits of a Lean Sourcing Process
No description of this kind of a process would be complete without a practical example, and for that we need look no further than some of the biggest names in the US manufacturing industry today.
In 2003, John Deere invested 100 million dollars to move from mass manufacturing to lean manufacturing. The process began with an evaluation of the company’s core business, to determine what parts they should continue to make in house and which should be outsourced. This initial process allowed the company to move from a 64,000-square foot transfer line production model to one centered on machining cells that takes up only 8,000 square feet.
Coca Cola’s lean production model focuses on local sourcing, ensuring 95 percent of the drinks it produces in Europe are sold in the same country their made in. Short supply chains and distribution channels minimize the time necessary to make and ship their products, meaning Coca Cola drinks are often consumed within 48 hours of its being produced in Europe.
The founder of Ford Motor Company, Henry Ford, invested his company in service and efficiency. While other car makers at the time focused on quick profits by selling expensive cars requiring costly replacement parts, Ford knew selling cheaper cars that used interchangeable parts would allow him to build a solid base of loyal customers. Ford also famously worked to reduce what he called “waste motion,” by implementing the efficiencies inherent to technological improvements in his factories.
Much more recently, Intel implemented lean principles at its chip factory in Leixlip, Ireland, to simplify a previously costly and time-consuming production process involving 25 production lines that each included as many as 300 steps. By optimizing production volumes, Intel was able to shorten the amount of time they needed to produce a chip from more than three months to only 10 days.
To maximize efficiency and productivity enterprise-wise, the Caterpillar Production System was initiated in 2005. Caterpillar knew from the beginning that limiting lean implementation to their factories would mean other departments, such as design, logistics and quality control, would miss out on what was otherwise designed to be a plan of company-wide achievement. What followed was dramatic success, as revenue reached $51 billion by 2008, while the plan had set a sales goal of $50 billion for 2010.
Now that you are ready to begin designing your own lean sourcing process, take a look at how Staff Management | SMX implemented a lean approach to cover a client’s peak season labor demand.