Lean Procurement: Definition, Process, and Examples

You’ve probably heard of lean procurement if you follow procurement trends. The problem has been discussed extensively in papers, analyst studies, podcasts, and industry groups in recent years. Despite the wealth of knowledge, many procurement professionals struggle to define and use lean procurement.

This blog discusses lean procurement and its implications for you. First, we’ll define lean and examine its history. Next, we’ll discuss three processes and how one organisation used lean thinking to process RFPs. Finally, we’ll provide research resources.

• Definition: lean procurement
• 3 simple lean procurement steps
• Example of lean procurement
• Additional research resources

Definition: lean procurement

Lean procurement, sometimes called lean purchasing or sourcing, maximises value by improving efficiency and reducing waste.

If that seems unclear or obvious, you’re right. It is. It is broad since it relies on continuous improvement, which varies every organisation. Thus, the phrase is used in different ways. Procurement and Supply Australasia (PASA) provides six definitions.

In addition to definitions, lean procurement sentiments vary. Some procurement leaders think every company should use lean procurement. Some practitioners view it as an idealistic but impractical theoretical approach. Others are sceptical, seeing lean procurement as an attempt to recast perceptions amid labour shortages, a competitive market, and global uncertainties.

Dig deeper to grasp lean thinking’s reality and promise in your procurement operations.

Background of lean methods

Every lean procurement practice has its roots in manufacturing. Henry Ford’s early 1900s assembly line development and adoption may have been the first lean use. However, a book coined the term ‘lean’ for company operations in the 1990s.

The Machine That Changed the World: The Story of Lean Production by James Womack and Daniel Jones reported five-year Toyota manufacturing model and philosophy study results. The duo published numerous more volumes developing and investigating the approach over the next two decades. Womack also formed the non-profit Lean Enterprise Institute (LEI) to help firms implement lean.

Lean practitioners should always keep purpose, process, and people in mind, according to LEI.

• The main purpose of your organisation? What do you provide customers?
• Process: How do you achieve goals and provide customer value efficiently?
• Who manages customer-value-creating processes?

Lean thinking involves making decisions with your company’s mission or consumer in mind. Determine procedures and eliminate stages that don’t serve that aim. Finally, team members manage and optimise processes with ownership. Most lean applications are in manufacturing, supply chain management, and procurement. These concepts can be applied to any process.

Tech and lean procurement

As expected, technology has strengthened lean thinking. Popular procurement technology supports lean thinking’s goal of eliminating non-value-added manual or administrative tasks. RFP management, spend management, and contract management software automate and streamline procedures and reporting.

The McKinsey report found that procurement experts spend 40% of their time on administrative duties. These important but low-value procedures in crucial processes prevent practitioners from doing strategic work. This is where lean thinking and technology can make a big difference.

3 simple lean procurement steps

1. Prepare to question ‘why?’ and ‘what if?’ (a lot)

Before incorporating lean thinking into your sourcing approach, reset your mentality. Comfort makes bloated, inefficient procedures easier to trust. People do things because they’ve always done them without knowing why.

Mapping and analysing processes is the key to it. Ask why with each step. You do this why? Why is it used? Is it vital? So ask what if. If the step were removed? Is there a downside or significant risk? How does this step benefit the process and the organisation? How about shortening the step or trying something new?

2. Map purchases

Start mapping your processes with the appropriate mentality. Your procurement cycle is process-heavy. Thus, starting can be difficult.

Starting with your procurement intake procedure may simplify things. Map every process step for everyone. How does a user request procurement? Someone handles it? How is it assessed? Who checks approval?

After mapping the process, evaluate each stage. Ask yourself questions. Has this step value or would the procedure be basically unchanged without it? This step depends on the previous one, or may it be done simultaneously? Can technology automate or simplify this step?

• Lean procurement examples:
• Project procurement intake
• Discovery of requirements
• Finding and choosing vendors
• Managing RFPs
• Managing invoices
• Managing contracts
• Performance reviews for vendors
• Reporting and spending analysis

Breaking down your processes can help you uncover steps that don’t serve your purpose or don’t add enough value for the time they consume.

3. Change, assign, monitor, and review

After finding strategies to save time and reduce waste, implement them. First, revise internal procurement policy. Inform stakeholders of the modified procedure and logic. Tell them who owns and administers the process.

Saving time and being more efficient are the goals. Not all changes work. Stakeholders should be able to provide comments and voice concerns. Continuous improvement and optimisation define lean procurement. Consider reviewing process adjustments often to ensure they’re working as planned.

Example of lean procurement

AEG: RFP automation

AEG, the world’s largest sports and live entertainment organisation, started a project to streamline their RFP process. They mapped their process and explored RFP automation across teams and geographies.

“We used manual and paper. Each facility has unique templates, documents, and terms & conditions. We decided to standardise and streamline the process and build a library of scopes of work. Although there were many similarities between the services and festivities at the numerous venues, they kept reinventing the wheel.” — AEG senior vice president of business services Scott Bosarge.

They eventually implemented an RFP management system to streamline and decrease manual tasks. The outcome? Up to 50% faster RFPs were reported by AEG.