The seven step sourcing process is a well-established method of procurement that many businesses find themselves implementing (whether consciously or not).
It provides a step by step method to structuring your procurement activities to reach category management heaven. However where problems exist in your supply chain it can also be “flipped” to provide a systematic method to interrogate your supply chain, providing a checklist of best practice to help hone in on the problems that you might be experiencing. And then help in repairing the process making it more workable for the future.
Let’s take a look at the 7 elements and how they might to a continuous improvement plan.
1/ Catagory assesment
2/ Supply market analysis
3/ Supplier search
4/ Strategy creation
5/ RFQ process / solicit bids
6/ Negotiation & contract
7/ Implement / Benchmark / Review
To begin with, let us remind ourselves how continuous improvement works.
1/ You experiment with a process
2/ You gather some data
3/ You measure yourself against your objective
4/ You look for improvement opportunities that can be made at each step
(p.s, if you’re not convinced by the marginal gains approach to read this https://hbr.org/2015/10/how-1-performance-improvements-led-to-olympic-gold)
So, for example, let’s consider a position where the supply chain isn’t functioning as expected. Deliveries to customers are running late and your QCD metrics are on a downward spiral – just where would you start.
Clearly, the first step is to ascertain exactly what the problem is. This will typically fall into one of 3 broad issues, Quality, Cost and Delivery. Let’s assume in our example that costs have spiraled.
So where does the 7 step program come in?
Straight away, due to the cost issue, we can discount several of the 7 steps, our attention might zone in on what requirement we sourced against, the sourcing process and contracualisation process.
We might review how the RFQ was structured, how the bids were weighted (for example was cost a priority or was the bid weighted more on Quality or capability?
We might also look at how the supplier was contracted. How have we found ourselves with escalating prices?
The key to this is using the seven stages to prompt questions that then act as a learning aid. What did the step set out to achieve, how well did we do against that?
Following a systemised process helps uncover improvements (no matter how small) that you can make to your category management process. Far too many businesses fail to capitalize on learning opportunities when things go wrong.
Let’s say that in our example during the RFQ and contracting process, there was no cover given for price escalation within the contract and the strategy was to sole source.
Straight away we have important feedback that we can use to hone the process next time.
By using the 7 step approach as a path to follow our “improvement investigations” it allows us to focus on the process, assess each stages performance and enable us to ask ourselves, what went wrong last time and what could we do better next time.
While the benefits of the systematic method of Lean is well versed in the land of manufacturing, Supply Chain teams have much to gain from its approach.
The key mantra of Lean, and it’s principles of Value and Waste can bring key insight into Supply Chain improvement opportunities.
I’m not going to cover the key principles as they are covered in some excellent details at sights like https://www.isixsigma.com/ and lean.org but instead consider how they are applied to our particular industry.
Supply Chain by its very nature is very process orientated. Consider the humble purchase order and its process. From the origins of the requisition through to delivery of the goods themselves there are various steps to be taken (and often further steps within those). Such processes are ripe for value analysis with a view to honing the process to drive benefit.
Understanding the difference between steps that add value and create waste is at the heart of where you’ll get benefits.
I’ve been lucky enough to work for clients who have undergone value stream assessments where each area of the process is critiqued (through tools such as 5 why and 5s) to ensure that value is derived and when comparing processes from businesses that haven’t undergone such process transformation the difference is often stark.
If we think about the broader supply chain reducing waste creates both efficiencies and usually cost reduction (and who doesn’t want both of those). Consider for example how lean principles can impact elements such as:
- Lead Time reduction
- Product Quality
- Visual Management/Analytics
Consider Inventory, for many companies, it’s a buffer against supplier lead time, schedule adherence and an inability to forecast properly. Yes that’s right it’s a waste. And a particular waste that comes at a significant cost to the business.
Understanding the route cause of why that waste is there, breaking it’s contributory factors down and then honing/correcting can provide a systematic approach that can shed light on all areas of the supply chain.
One of my favorite aspects of using lean is visualization. I guess many of us will have seen visual management boards on shop floor areas of manufacturing centers but these fantastic tools can also be put to effective use in an office based environment. For example, visual management boards can be used to highlight critical actions / performance or visual tools used to identify the flow of work.
Fundamentally, it’s all about the benefits. Through implementing lean tools you can get quicker, reduce costs and improve quality. The trick is getting there. While there are plenty of “self-help” websites that can teach you the basics part of the problem if often understanding what “great” looks like and understanding how to get there. Because of this, it’s worth drawing on professional practitioners, people who have been there and done that, who can take you on your lean journey whilst improving your skills and knowledge at the same time.
Looking for further inspiration? Take a look at this article which explains how one hospital used lean tools to trim it’s supply chain costs by 2% and you know what they say, if they can then so can you.