![]() ![]() These procurement and supply chain operational challenges should be measured and monitored with very simple and tangible KPIs that could, over time, provide insight about improvements or inefficiencies. Lack of compliance with delivery deadlinesĪdditional challenges to the procurement of goods and commodities include requirements to comply with expiration dates, as is commonly the case in the food, beverages and health care industry.Lack of compliance with quality standards.Other common procurement and supply chain issues repeatedly appear in multiple industries: We have also observed a similar problem in the telecommunication industry, where we have come across situations in which purchase orders of very low dollar amounts required the signatures and approval of two managers and three executives. For instance, in the mining industry we have observed that a significant source of delays and inefficiencies in the procurement process came from an excessive number of ‘approval steps’. Lean/Continuous Improvement within Procurement & Supply ChainĪlthough procurement and supply chain issues may differ from one industry to another, in our consulting practice we have observed similarities across several industries that are quite astonishing. The combination of Lean with Six Sigma results in a faster creation of value at the lowest possible cost. On the other hand, Six Sigma is a system developed with the goal of controlling variation and making processes more consistent and reliable to ensure the quality of deliverables. ![]() As a result, lean is heavily oriented not only to efficiency and cost reduction but also to creating value to ensure customer satisfaction. In the lean terminology, value is defined as ‘ what the customer is willing to pay’. The lean methodology was developed with the ultimate goal of reducing costs and increasing efficiency by identifying and eliminating activities in a given process (service or manufacturing) that fail to add value and yet consume resources. These success stories gave precedence to the point of becoming a trend for many businesses that seek the implementation of a Lean culture, not only to remain competitive but also to qualify as ‘ Lean vendors’ and gain new customers. The Lean Six Sigma methodology was successfully used for the implementation of that ‘ common language’ along the supply chain, generating substantial cost savings as mentioned above. This prioritization led them to partner with the most relevant vendors in order to develop a ‘ common language’ to set up mutual understandings of quality standards, compliance with lead times, etc. Lockheed Martin, in the same way as Toyota and many other businesses with a strong Lean culture, worked their way towards the improvement of their procurement and supply chain processes by a careful prioritization of their suppliers. ![]() One of the executives of this program said, “So far, we were able to reduce the cost of procurement by 50% while reducing the lead time for purchase order processing by over 40%, greatly improving our internal customers’ productivity and satisfaction.” Savings of about $4 billion were achieved after four years. When Lockheed Martin launched their “LM21 Operational Excellence” program to implement the Lean Six Sigma methodology in their procurement and supply chain processes, they envisioned cost savings in the order of $3.7 billion over a four-year period. The aftermath of the amalgamation within the procurement and supply chain department meant eighteen different MRP systems, eighteen different ways of purchasing, eighteen different ways of part numbering, and so on, creating a complex and inefficient process. This company is the result of a merger of two large companies (Lockheed and Martin Marietta) that resulted in the amalgamation of eighteen different corporations working as individual entities. One of the most well-known success stories of Lean implementation within the procurement and supply chains happened in Lockheed Martin.
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