Lean Sourcing — Moving From Single to Double Digit Savings

Today, I've asked Lisa Reisman to submit a guest blog on lean sourcing. While Lisa holds a Six Sigma black belt, she’s also a believer in competitive negotiations and strategic sourcing. Lisa is a Managing Director at Aptium Global and is also a Director and board member of Azul Partners.

Lean manufacturing principles suggest that buyers should create close relationships with their suppliers. The number of suppliers should be few, as opposed to many and should be strategic in the sense that buyers and suppliers jointly work together. Under such circumstances the argument goes savings are achieved through the development of supply kanbans, JIT programs, joint cost take out programs and collaborative product development etc.

These are proven concepts. The point, however, that is often missing in any discussion around lean is how buyers actually identify their strategic suppliers in the first place. To select and develop a long term partner, buyers should first go wide and competitively search the whole (global) market and only then go deep focussing on those suppliers who have proved their ability to compete, offer quality product and meet tough delivery requirements.

Think of the process as scanning the radio for a station first, and then fine tuning for the greatest clarity.

The narrowing down of the many to the few can be done via competitive bidding events which receive only a mixed reception from suppliers. Some rightly recognise that the open bidding environment gives them instant market feedback and a ready introduction to new clients without the effort of a conventional marketing approach. Others have had bad experiences from bidding events run without strict marketplace rules or without a thorough quality analysis of potential bidders. These events are intended to beat down incumbent suppliers rather than to genuinely seek new competitive sources of supply.

A lean sourcing approach involves a combination of competitive bidding and running a professional, ethical and fair event, which supports suppliers and adheres to the best principals of supplier-buyer lean relationships. Typically such events should have detailed RFQ's and drawings or technical specifications thus enabling the supplier to make a fair and comprehensive assessment of the client's requirements. The event should explain for the benefit of suppliers some history of the part or product being sourced and why the buyer is seeking to re-tender the part in such a way. Lastly and most important, the buyer should only initiate such an event if they are genuine in seeking a new supplier for the part.

Having searched wide and followed a robust quality first policy during the selection process, buyers should then evaluate offers on a total cost of ownership basis. Low unit costs can be rapidly eroded by increased inventory carrying costs, poor quality and increases in delivery costs and delays. Too often a low ex works unit price fails to equate into a reliable decrease in overall purchase costs because buyers do not make a comprehensive cost assessment of the offers available to them. A bidding event with quality as its main driver can help the buyer sort and weight suppliers' capabilities such that the best performing bidders from a price standpoint are assured to also be suppliers with low defects, high quality credentials and of sound financial performance. It is only at this point that the buyer can go deep, developing close and mutually supportive relationships with suppliers who have proved themselves genuinely competitive in an open bidding environment.

I would not pretend that running a successful lean sourcing program is a simple proposition. But it is a practical and highly desirable process for companies seeking substantial savings while enhancing their lean programs. By doing so, buyers can enjoy the dual benefits of securing significant double digit savings and holding on to them through further cost reductions over the life of the contract.

Lisa Reisman
2005-02-21 07:02:00

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