lean procurement6

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2011 IBM Corporation

Lean Procurement

NEVI/HAN Event

April 14, 2011

Jan Buter Associate Partner IBM Global Business Services


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1. Lean procurement, the concept

2. Basic conditions

3. An outlook to the future

Agenda Lean Procurement


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1. Lean Procurement

L

eanSixSigma

(00s)

Deming/Juran(50s)

(14 points,statisticalquality)

Ohno(60/70s)

(ToyotaProductionSystem)

MotorolaSix Sigma (80s)

GE (80s 90s)

IntensityofChange

Kotter etc.Transformation& Leadership

Six Sigma (applied method for growth and productivity)

Customer Partnering (GE Toolkit, QMI, Customer CAP

Change Acceleration Process CAP (Change method and tools)

Process Improvement (NPI, Supply Chain, Suppliers)

Best Practices (benchmarking, across and outside of GE, ending NIH)Work-out (Kaizen type, cross functional teams, boundarylessness,values)Strategy No 1 or No 2 in each business. Fix, close or sell

(AlliedSignal)

Just in Time (80s)

Total Quality Management (80s)(culture change/benchmarking,Baldridge/EFQM, ISO9000)

Lean Manufacturing (90s)(Kanbans, Pull systems,Visual management)

(Machine that changed the world,

Lean Thinking, Value Stream Mapping)

(SPC,QualityCircles, Kaizen)

BPR (90s)(down-sizing, to beprocesses, process owners)

Lean & Six Sigma is based on over 50 years of improvement thinking

and experience. It s a company wide approach.


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The 5 Principles of Lean Thinking

3. The continuous flow ofproducts, services andinformation from end toend through the process

4. Nothing is done by the upstream process until thedownstream customer signals the need, actual demand

pulls product/service through the value stream

5. The completeelimination ofwaste so allactivities createvalue for thecustomer by

breakthrough andcontinuousimprovementprojects

1. Define value from thecustomers perspective andexpress value in terms of aspecific product or service

2. Map all of the stepsvalue added & non-valueadded that bring a

product or service to thecustomer

7 Wastes

Transport

Inventory

Motion

Waiting

Over processing

Over production

Defects

5Work to

Perfection

1Specify Value

2Map the

Value Stream

3Establish

Flow

4Implement

Pull

1. Lean Procurement


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7 Wastes

Transport

Inventory

Motion

Waiting

Over processing

Over production

Defects

5Work to

Perfection

1Specify Value

2Map the

Value Stream

3Establish

Flow

4Implement

Pull

The 5 Principles of Lean Thinking

1. Lean Procurement

Supply

market

The challenge of lean procurement is to roll out this concept to the selected suppliers

Internal

organization


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1. Lean Procurement

Jobbers (third tier)

Component suppliers(second tier)

Main contractorssub assemblies (1 tier)

OEM

Raw materials suppliers

The Original EquipmentManufacturer (OEM) has

impact on all layers

forward purchasing

development programmes

cascade process ofimprovement

accept dependency andmanage it

Toyota manages 4 tiers,Ford only 1

Keiretsu


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1. Lean ProcurementLean Procurement is often driven by a logistics pull concept:

JIT-example implemented 70/ 80 + inplants modular consortia

Can be a supplier as well


8/21 2010 IBM Corporation

1. Lean Procurement

Retail chain Construction companyIndustrial AutomationSystems (projects)

Lean (procurement) does not only apply to repetitive manufacturers

Essential is to optimize all processes including the processes of the suppliers inthe network, so act together!
http://www.google.nl/imgres?imgurl=http://www.therightenvironment.net/logo-bam.gif&imgrefurl=http://www.therightenvironment.net/Clients.htm&h=553&w=1152&sz=8&tbnid=h96w9PM0tnNzbM:&tbnh=72&tbnw=150&prev=/images?q=bam+logo&zoom=1&q=bam+logo&hl=nl&usg=__xJGtcJIvoMxBPRsKxA1SZaLXur8=&sa=X&ei=oJSITaAEzqDhBrjs0O4N&ved=0CDAQ9QEwAwhttp://www.google.nl/imgres?imgurl=http://www.therightenvironment.net/logo-bam.gif&imgrefurl=http://www.therightenvironment.net/Clients.htm&h=553&w=1152&sz=8&tbnid=h96w9PM0tnNzbM:&tbnh=72&tbnw=150&prev=/images?q=bam+logo&zoom=1&q=bam+logo&hl=nl&usg=__xJGtcJIvoMxBPRsKxA1SZaLXur8=&sa=X&ei=oJSITaAEzqDhBrjs0O4N&ved=0CDAQ9QEwAw



2. Basic conditions

For Lean Procurement knowing and managing the supply base is crucial,but it starts with understanding the demand

Goal:

find optimalmatch

Supplierstrategies for (group) of

products services

(commodity)

Influence factors

Supply

# suppliers

entry barriers for newentrants

substitutes

currency

political environment

Characteristics of thesupply market

Drivingforce

demand pattern

life cycleforecast horizon

specification

R&D plans

budgets

Characteristics ofdemand

Demanditerative process



2. Basic conditions

Supplier strategy ispart of the sourcing

strategy

Long-term supplier relation=

partnership=

part of supplier strategy

Monitor andfeedback

Execute supplier

strategy plan

Setup supplierstrategy &

development plan

Determine futureneeds &

development

Analyse actualsituation

Managing suppliers is also a process



Reduction of the supplier base

Limited number of good and attractive suppliers

Stronger position of good suppliers

Shift in client portfolio

Client selection?Be attractiveas a client!

Supplier Management could have the following result

2. Basic conditions



2. Basic conditions

Lean Procurement also means streamlining the P2P process, necessary for

contract management (incl. compliance)

Multi channel purchase to pay directs spend traffic through the most efficienttransaction lanes



Overview of basic conditions and differences from traditional procurement:

Basic conditions for Lean Procurement: Traditional Procurement

Understand overall business strategy andobjectives, align procurement strategy

Understand spend pattern (DNA)

By management agreed category strategies

Supplier management and supply market

investigations is a continuous process

Optimal operational procurement process, inputfor contract management

Procurement professionals who are able toinfluence all contributors to the procurementfunction (internal and external)

KPIs reflecting contribution of processes andmonitoring compliance

Value contribution and TCO approach

Value Management in particular ValueEngineering (incl. ESI) to reallize cost avoidancefor new products

Business strategy not well understood

All spend not known on a regular basis

Category strategies not a vital part of decissionmaking process together with management

Suppliers have to perform against contract,

contract mainly product related and what if....

Tactical and operational procurement twodifferent worlds

Procurement professionals focussing ongetting the deal done

KPIs mainly base on contribution of thedepartment

Focussed on lowest price and savings

Focus on Value Analysis to realize cost savingsof existing products

2. Basic conditions



............. the speed of future changes will be exponential..............

Quote CEO*:

We are starting to think about things we couldn t do before, butwith the restrictions of our limited global resources .

* IBM Publication Rethinking the Enterprise Jan. 2010




Companies/sectors are blurring already, this will evoluaterapidly in the future

IT MediaTelecom

Hybridproducts/services

Traditionalsectors

New products show theinterlinkages/interdependanciesalready

This will evoluate very fast in allsectors/industries




Vast majority of CEOs experience the New Economic Environment

as distinctly different

More volatileDeeper/faster cycles, more risk

More uncertainLess predictable

More complexMulti-faceted, interconnected

Structurally differentSustained change

Not at all/to a limited extent To a large/very large extentTo some extent

Last years experience was a wake-up call, like looking into the darkwith no light at the end of the tunnel.

President and CEO,Industrial Products, The Netherlands

Source: Q7 To what extent is the new economic environment different? Volatile n=1,514; Uncertain n=1,521; Complex n=1,522 ; Structurally different ,

18%13% 69%

21%14% 65%

22%18% 60%

21%26% 53%

The New Economic Environment




3. Impact of developments by procurement

Find optimal mix between costs and value, if necessary differentiate: suppliers (networks) focssed on low costs

suppliers (networks) focussed on value by being front runner

Cost reduction

CapitalCost of Activities

Cost of Goodsand Services

Value Generation

Internal Productivity

Market Valueof Goods and

Services

Strategy

Process Organization

TechnologyPerformance

Management

ProcurementFoundation/infrastructure

Marketing contribution



More end to end projects/processes, less functional hierarchy

For new products sometimes completely new supply markets have to be explored

To speed up time to market engage with supplier networks

Intergrated systems for supplier networks

More integrated/delegated responsibilities

From mainly cost to value focus

Waste management becomes as strategic as bying direct materials (cradle to cradle)

An agile/LEAN organization is necessary to adopt the rapid changes of the market

Impact of developments by procurement

Speed of change is key, end to end processes necessary





Charles Darwin (1809 1882) discovered ( to his

surprise) that not the strongest and biggest speciessurvived but the most adaptive!



The message is clear:

LEAN (PROCUREMENT) IS NO OPTION BUT A PREREQUISITE TO SURVIVE!

Are we (human beings) adaptive enough to meet this challenge?



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contact:

Jan Buter

IBM Nederland B.V.

[email protected]

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lean procurement6

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