Question

Question 2 Lean procurement may have a lot of advantages but it could be difficult to implement. Procurement must be prepared for challenges and problems in the implementation process. Suggest the adjustments applying lean principles to purchasing in an organisation. [50 marks]

Answer 1

Applying lean principles:

While costs incurred in the supply chain, especially procurement and transportation is about 60 to 70 per cent of sales, there are few companies that emphasize largely on the traditional systems of minimizing the costs of material in supply chain processes.

The application of lean principles in procuring and purchasing can help identify the non-traditional systems that result in waste, and in particular situations creating a paradigm shift which eventually leads to more advantages in the supply chain.

Procurement can be referred to as the different tasks involved in the establishment of fundamental requisites, sourcing of business-related activities like market survey and vendor assessment, and negotiation of contracts. Other activities may include purchasing made to order and receive goods. In contrast, purchasing can be referred to as the process of placing orders of goods, including requesting, approving, and creating purchase orders and receipt of goods.

The application of lean thinking principles establishes opportunities in the process of internally procuring and purchasing goods and externally, linking with suppliers. Internally, there can be opportunities to enhance, restructure, and modernize the processes of procuring and supply chain management and to practice ways that can enhance efficiencies and overall performance, minimize or remove activities creating waste, and minimize the total cost. Externally, the application of lean principles may involve effectively integrating and collaborating with primary suppliers to make sure that they meet the set standards and performance requisites. The following are the types of wastes that can be considered to focus on these opportunities:

• Transportation: Undue paperwork and transportation in a particular layout
• Overprocessing: Invoicing, quotations, and purchase order processing
• Overproduction: Bottlenecks such as paperwork and purchase order processing
• Skills: Investing more than enough time on administrative jobs instead of focusing on incessant development
• Defects: Errors that may require rework, such as errors on the end of the supplier

There are different tools for lean application as well that can help minimize or remove waste. Some of these tools are as follows:

• Value stream mapping: The process of internally procuring and purchasing goods establishes an opportunity that is both modernized and simplified.
• One-piece flow: This can be established by connecting with local suppliers who can ensure flexibility in manufacturing and effective supply chain system with shorter inbound distances. Moreover, this can ensure the regular flow of deliveries thus stabilizing the supply and demand in the market.
• Quality at the source: This tool helps in effectively integrating with suppliers and building a competitive advantage by developing the total quality cost.

Eventually, what a business anticipates is that their procuring and purchasing activities are providing materials on time and meeting the demands in the market smoothly and timely. Business can enjoy multiple benefits in the process of the supply chain through the effective application of lean principles in procurement and purchasing.