A truly lean purchasing department

Purchasing is a fundamental area in every company, responsible for supplying the company with everything it needs to operate, such as raw materials, inputs, materials and services.

In most cases, more than half of the final cost of products and services goes through the purchasing department. And a good part of performance in quality, lead times and even innovation depends on its relationship with the supply chain.

Today this is even more evident. We are living at a time when several markets are recovering from the impacts of the pandemic in a rather uncertain and even disorganized way, creating problems in various supply chains, which puts the purchasing area in the eye of the storm.

Despite this importance, in many organizations we see little priority given to evolving the management systems of this area. It is not uncommon to find cases where bureaucratic, slow processes still predominate, along with the old view of focusing only on the lowest unit price for each individual purchase, without considering the flow of the purchasing area as a whole, to cite a few examples of this gap.

If we look at the history of lean transformation in most companies, we can say that purchasing is one of the last areas to adopt the lean mindset, even after years of applying the lean philosophy in companies.

This usually has extremely negative impacts, reversing progress made in other departments.

For example, a production system that has started operating in continuous flow and pull may suffer from instabilities caused by suppliers with poor quality and delivery performance. The product development department may fail to achieve technology and innovation advances due to adversarial relationships with the supply chain.

In other words, it is now known that it is possible and necessary to apply the concepts and practices of the lean system in purchasing as well, integrating this important area into the lean journey as soon as possible. This makes the department strategic, innovative and optimized, creating purchasing intelligence that adds more and more value to the organization.

The strategic purchasing department

In traditional management there is still a “commoditized” view of purchasing, using very similar forms of relationship and processes for different categories of inputs. This practice often boils down to the traditional everyday operations of looking for the lowest price (for example, among three competitors) and closing the deal.

A strategic purchasing department must go far beyond that. It needs to carry out broader analyses of how each supplier can help the company be more productive and relevant to customers.

This involves deploying the company's strategic goals for growth and new business into objectives for competencies to be developed through internal and external resources. To do so, it is necessary to define the key suppliers with which the company needs to develop closer ties and what form of relationship will be established for different purchasing categories, such as raw materials, consumables, energy, transportation, MRO (Maintenance, Repair and Operations), general expenses, etc.

In a lean organization, the concept of the “extended enterprise” prevails. In other words, key suppliers are treated as a continuation of internal processes, jointly building ways to eliminate waste and add more value for end customers. This is completely different from the way many companies see their suppliers, as if they were adversaries rather than partners.

For selected supplier categories, this can be achieved through various forms of cooperation, supported by long-term relationships rather than one-off purchases made each time a need arises. Certainly, one-off purchases will always be necessary, given the magnitude of our country, with its continental proportions. However, they should, whenever possible, be minimized or eliminated through contracts and commercial agreements.

One way to do this is to support suppliers in adopting the lean system, working together on the analysis of industrial or service processes, as well as administrative ones. This will lead to increased productivity and quality, with positive impacts for both buyer and supplier.

This can be done, for example, by supporting suppliers in redesigning their value streams and adopting lean principles, such as just-in-time, production cells, continuous flow, quality at the source, etc.

The gains should be shared between buyer and supplier. The foundations of this relationship should be a “win-win” between both sides, in medium- and long-term contracts based on exchange, sharing, transparency and credibility, and never on the still-popular practice of pressuring or even squeezing suppliers. It is important to say that in a partnership where only one side wins, nobody wins.

The innovative purchasing department

The purchasing department can and should also work to fine-tune the relationship with the supplier base with a view to developing new products and services. After all, much of the know-how lies with the supplier, not the buyer. Buyers sometimes lack specific knowledge or technologies needed for innovation, which can be found in the supplier base.

This stance is part of what is known as “open-door innovation”. A finished product made up of various components can be conceived and manufactured based on the development and innovation of hundreds of suppliers. Likewise, conscious management and relationship processes can be completely reformulated, adding new solutions, through digital partners and startups.

Thus, it is up to the purchasing area to be an aggregator of innovation by selecting suppliers capable of it and establishing solid partnerships with this base, in order to make this joint development process feasible, a decisive factor in the increasingly accelerated competition that exists in the market.

The optimized purchasing department

It is quite common to see companies in which both the core areas that demand inputs and the purchasing area that serves them feel frustrated with the performance of the established processes.

Routines that would be justified for more complex or higher-value purchases are often required for simpler items, making the process unnecessarily bureaucratic. Lead times are far too long, sometimes months, when the competitive scenario would require greater agility, of days. Steps are sometimes skipped in the name of urgency, jeopardizing analyses of costs, lead times and even compliance. Cluttered records with generic and repeated descriptions lead to errors and missed opportunities.

These process shortcomings end up creating a climate of mutual accusations, with requesting areas complaining that the purchasing department demands impossible lead times, while the purchasing area points out that the other areas do not plan properly and do not follow the established rules.

Of course, the scenario illustrated here is not this chaotic in every company, but we are sure that most have already experienced some of these situations.

Lean office tools have been very successful when applied to analyzing and improving purchasing processes. There are countless cases in which the complete flow, from the requesting area's order to the payment of the supplier, was completely changed, with enormous gains, such as shorter lead times, elimination of errors, productivity increases, minimization of total acquisition costs, etc.

This can be boosted even further by taking advantage of the opportunities brought by lean digital transformation, such as the automation of repetitive routines and artificial intelligence resources.

Where to start

Of course, the purchasing department has been getting better in many organizations. However, there are still shortcomings in this area because, historically and for various reasons, many companies did not give due attention to the need to promote changes in this area.

The first step toward a turnaround in this department is recognizing its strategic importance as a value creator, and not only for cost reduction. This is undoubtedly a change in mindset that will only succeed if it is effectively pulled by the company's leadership, and not just by the purchasing area.

This means increasingly repositioning this department as a center for competitive excellence and one of the indispensable elements of an effective lean transformation of the company as a whole.

What is fundamental on this journey is creating lasting partnerships and relationships of trust along the supplier chain that bring more and more value to end customers, increasing the competitiveness and prosperity of everyone involved.

It is a change that is not trivial, but it is possible and cannot be postponed.