There can be little doubt that lean processes can help companies improve efficiency and eliminate waste. In procurement it can translate as buying the right materials at the right price at the correct time from reputable suppliers. This reduces inventories and prevents shortages. So why have some firms who have followed “lean” to the letter not fared as well as expected? The answer is they have taken “lean” too far.
Even in a downturn, processes should not be stripped back so brutally that a company finds itself unable to respond to change. If all the fat has been sucked out of a business it leaves itself open to failure should the unexpected happen – such as a sudden increase in demand or the effects of swine flu.
Getting the balance right between cost-cutting and responsiveness is key. Staff redundancies should always be a last resort. Instead, businesses should look at improving cash flow so salaries can be paid. Having fewer staff might save costs initially, but problems arise when key personnel, such as the only person who knows how to use a particular type of software or equipment, are let go. This can lead to business disruption, cancelling out any savings.
Suppliers and their selection are also critical. Ensure you are purchasing from companies that are flexible in terms of delivering goods. Some larger suppliers will have their own business continuity management systems to help guard against the unexpected. Supplier performance should be measured regularly, as should their creditworthiness. This also applies to companies you may have been dealing with for a long time. Poor credit ratings can affect their ability to deliver products and services and this could jeopardise your own operation.
Similarly, if you have trimmed back stock levels to a point where you are unable to respond quickly to fluctuations in demand, you could also land yourself in hot water. Output needs to be sustainable and that means building in contingencies.
Companies considering lean processes should always have business resilience in mind. Consider what your company depends on, then evaluate the risks. What’s the potential outcome of being let down by a supplier or business partner? How resilient are they? Imagining worst-case scenarios allows you to prioritise your concerns and develop action plans to minimise interruptions. For the critical supply chains, carry out a risk assessment and ensure foreseeable breaks in the supply chain have realistic contingencies built in.
Finally, identify the procurement processes that hinder the flow of the supply chain. Integrate your inventory and procurement software and define spending limits. This will help avoid bottlenecks.
There is a difference between lean and agile – and just plain skinny.
Roy Coldwell is operations director at Picme
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