Sourcing and procurement professionals are being asked to perform an increasing amount of work as staffing levels remain flat and budgets constrained. However, applying Lean Six Sigma principles to your Source to Pay (S2P) process will allow your department to reduce low value-add activity and relieve stress on your employees by shifting focus to higher value tasks. While traditionally used in manufacturing, the concepts and tools are versatile, applying to many industries and functions. The Lean aspect of Lean Six Sigma focuses on removing waste from your processes, while the Six Sigma component focuses on reducing variation.

TIM WOOD is a name to remember. He is not a Lean Six Sigma guru, but a mnemonic  device for remembering the types of waste typically found in processes – (T)ransportation, (I)nventory, (M)otion, (W)aiting, (O)ver Production, (O)ver Processing, (D)efects. Historically, these have been applied to manufacturing situations. Some examples include: What defects are causing rework? Are we keeping too much inventory in our warehouses? Are our employees waiting around for a part upstream in the assembly process? Regardless of the situation, all processes have the potential for waste.

The following are areas within the S2P process to look for these different types of waste:

(T)ransportation: Unnecessary movement of goods, people or equipment between processes

Areas to Examine

  • Accounts Payable: Where are invoices coming from, going to and what is their final retention place? Are there steps and hand-offs that could be eliminated? How automated our your transactions with suppliers?

(I)nventory: Raw materials, work in progress or finished items that are on hold

Areas to Examine

  • Purchase Orders: How large is the back log of purchase orders or contract requests? Are there ways to consolidate or plan out purchases in collaboration with the business areas requesting?

(M)otion: Unnecessary motion/movement of goods, people or equipment within a process

Areas to Examine

  • Contract Negotiation: How many times is the document exchanged between the supplier, legal counsel and the contracting/sourcing agent? Are there ways to reduce these exchanges? Are these all necessary?

(W)aiting: People waiting, not adding value, while other dependant work is completed

Areas to Examine

  • Contract Negotiation: How long must the sourcing agent wait while other parties are reviewing contracts? Are there other ways to negotiate terms that involve all parties simultaneously?
  • Approval Processes: How are your sourcing, contracting and purchase order approval workflows managed? Are employees routinely waiting for manager approval to process or finish work? Is there technology or policy changes that could streamline these approvals without sacrificing controls?

(O)ver Production: Producing more of a product than the demand for it

Areas to Examine

  • Sourcing Events: What categories of spend are being strategically sourced? Are you focusing on the highest value opportunities? What return are sourcing events generating with each category? What is the criticality to the business for these categories?
  • Reporting: How many reports are being published to support the management of the S2P process? Are these read or acted upon based on the report purpose? Are there ways to automate the production and publication of these reports?

(O)ver Processing: Processing beyond the specifications required by the customer

Areas to Examine

  • Contract Language: Are the legal and/or business terms overbearing or unnecessary, causing extended negotiation periods? Is alternative boilerplate language available to satisfy request to modify template language?
  • Sourcing/Purchasing/Contracting: How many reviews take place on a given contract, sourcing event or purchase order? Are all required? Can authority be tiered or increased to reduce unnecessary oversight?

(D)efects: Outputs that do not meet customer requirements and/or require rework

Areas to Examine

  • Change Orders: What percentage of contracts are amended for missing scope? How many purchase orders are changed? Can collaboration with the business areas or an increase in project governance decrease the need to amend contracts or purchase orders?

There is an additional 8th type of waste to acknowledge-People Waste. People are organizations’ greatest resource. When their time is misallocated or wasted, so is their potential. Capgemini Consulting’s BeLean® approach champions the idea of having the right people, in the right place, doing the right work.  As you eliminate waste, you can begin to refocus your employees on higher value-add work within the S2P process.

With the help of Lean Six Sigma tools such as the DMAIC process, Value Stream Mapping, 5S Analysis, Root Cause Analysis and many others, procurement organizations can better serve their internal customers, add more savings to the bottom line and enhance their value proposition within the company. Keep in mind, Lean Six Sigma isn’t a cure-all or a onetime fix. It’s a mindset requiring staunch support from leadership, rooted in continuous improvement which recognizes the value of each employee in the process.