Adopting Lean Processes in Procurement Can Lead to Efficiency and Lower Costs

This is an excerpt of the original article. It was written for the July-August 2014 edition of Supply Chain Management Review. The full article is available to current subscribers.

July-August 2014

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With a renewed focus on “doing more with less,” many organizations are looking to achieve efficiency and effectiveness in their supply chains. A variety of opinions exist on how organizations can accomplish this. One method organizations employ to achieve efficiency is the adoption of Lean processes within their supply chain functions. These processes aim to identify and eliminate wasteful activities from operations and emphasize the need to continuously improve performance. Data from APQC’s Open Standards Benchmarking in procurement indicates that 27.5 percent of organizations have invested in Lean process development for their procurement functions, and nearly 13 percent plan to invest in Lean process development within the next two years.

To understand how streamlining procurement processes through the adoption of Lean methods can affect procurement performance, APQC compared the procurement costs and efficiency of organizations that have adopted Lean process development against that of organizations that have not adopted these processes. It also conducted in-depth interviews of organizations that have embraced Lean concepts and have expanded their Lean initiatives to include suppliers. Through its research, APQC found that organizations investing in Lean process development for their procurement functions spend less on procurement and are able to process more purchase orders. Organizations that have expanded their Lean efforts to include suppliers have generated benefits from streamlined supplier processes that in turn provide value to their customers.

Lean Processes and Procurement Performance
APQC’s data indicates that organizations that have initiated investment in Lean process development for their procurement functions spend less on procurement than organizations that have not invested in Lean process development. Exhibit 2 provides the median cost of the procurement process and the median cost to order materials and services per $1,000 in purchases for organizations that have and have not invested in Lean processes. Organizations that invest in Lean process development spend $1.27 less per $1,000 in purchases on the entire procurement process than their counterparts that have not invested in Lean process development. For an organization with $1 billion in purchases annually, this difference would translate into $1.27 million in potential savings associated with investing in the development of Lean processes for procurement.

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