The article below is written by Shaun Robert Cheyne on September 29, 2011

From tactical buyer to agent of supply chain integration…or how does procurement avoid to be an outsourced target  by justifying its continuing margin  contribution …

Consumer products companies are being hit with dual-margin pressure in the new market: Firstly, revenues are down as a result of an ever expanding set of consumer preferences and competitors – including private labels – and competing for continuously reduced household income. The second influence is cost escalation as a result of more demanding consumers, retailers’ expectations of value added services and higher raw material costs

Modern strategies need value stream thinking: key for these companies is to establish models that enable better value-based decisions. The complication that most face is that existing management models drive functional thinking due to the way teams are organised, processes are resourced, capabilities are developed and people are measured. By identifying the sources of value (value streams) and aligning resources to support these, irrespective of functional fit, leading consumer products companies are driving enhanced value.

A new approach to achieve Procurement’s original ambition: Procurement’s ambition has long been to tackle the full scope of cost levers  (demand, supply and total cost of ownership) – category management fundamentally aims to address these.  Short-term saving pressure often meant that strategic sourcing and hard nailed negotiations were prioritised over longer term and less certain efficiency improvement initiatives. This has wrongly forced Procurement into the abyss of functional excellence . Lean Supply provides a new Trojan horse to broaden Procurement’s influence on the full cost scope and will help the function regain its status as  holistic cost champion….its status as key margin contributor for the corporation

Re-focus on strategic levers: Today our Procurement professional needs to understand the comprehensive flow of information & material across the supply chain and apply the learning of lean in manufacturing. There are two areas which need to be addressed: firstly understanding your suppliers and developing mature relationships, and secondly engaging with peers to drive results to the bottom line. Lean thinking is an ideal change enabler.

As owner of supplier relationships, Procurement is uniquely positioned to be the champion of end-to-end supply chain optimisation and to leverage supplier capabilities for both cost reduction and revenue enhancement through the following:

  • supporting the business’s value streams
  • maximising value with an end-to-end supply chain view
  • harnessing the knowledge and capabilities of all parties across the supply chain
  • application of lean principles to drive procurement functional excellence

So what is Lean supply: It is the application of lean principles to targeted spend categories where procurement has achieved a sufficient level of category management maturity which redefines the role (agent of supply chain integration) and scope of procurement (lean continuum; end2end supply chain) and calls for a new way of engaging  with its stakeholders (open relationship; partnerships; innovation hot house –  with end-users, client, suppliers, business units). The benefit is a focus on the totality of the supply chain cost profile; that is from design to market. Lean is the tool which enables this new relationship to function efficiently.

A vision of the future: if the market challenges continue, then strategies need to adapt to break down functional silos and focus on value streams.  This provides the opportunity for Procurement to define the next phase of their evolution and overcome the limitations of their pursuit for functional excellence.  Lean Supply offers this opportunity – a shift from functional depth to becoming the agent of end-to-end supply chain improvement, and an enabler of top line growth.

(Shaun Robert Cheyne, Katri Jokinen, Hugo Texier, Sarah-Jane Mason, Herbert van der Raad, Michael Petevinos)