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Lean Strategic Sourcing: Another Way to Reduce Costs

by Wendy Buxton | Feb 07, 2019

These days, “lean” isn’t just a buzzword you hear and see in health and fitness advertisements. You see it in trade magazines everywhere, thanks to the push to lower costs while maintaining excellent products and services. So it shouldn’t surprise you to see lean strategic sourcing as a new method for reducing supply chain costs.

 

Tweaking strategic sourcing for better results

Before we dive in to why lean strategic sourcing is different, it’s important to refresh our understanding of strategic sourcing. At its core, this approach focuses on incorporating your sourcing strategy with corporate goals. Instead of looking for the lowest purchase price in a single supply channel, a company focuses on the lowest total cost across supply channels. While it might seem like an obvious approach, this integration of strategies didn’t gain traction until the late 1980s/early 1990s.

 

Lean strategic sourcing, the brainchild of a Monmouth University professor, takes this method a step further by including more cost considerations, especially in terms of more long-lasting relationships with suppliers. By considering operational goals alongside supply chain initiatives, lean strategic sourcing aims to:

 

  • Create greater buy-in within the company
  • Identify and act on potential savings from sourcing choices
  • Reduce waste while improving quality
  • Collaborate with supply partners to further reduce costs

 

Again, it’s more of an addition to strategic sourcing rather than a revolutionary new approach to your sourcing strategy.

 

How lean strategic sourcing differs in practice

Both strategic sourcing and lean strategic sourcing involve moving away from the antiquated idea of business silos toward more streamlined and collaborative business practices. Traditional strategic sourcing employs eight essential elements:

 

  1. Establish targeted areas common across the business where spending can be consolidated.
  2. Create a sourcing team that represent your entire company, not just one division.
  3. Determine a strategy and a communication plan.
  4. Gather preliminary market research and request information from potential suppliers.
  5. Distill information into a supplier portfolio and determine a small group of potential suppliers that will receive a request for proposal (RFP).
  6. Evaluate RFPs for their total system costs, total cost of ownership, and potential performance metrics.
  7. Negotiate with and select a supplier.
  8. Maintain your relationship with your new supplier.

 

Lean strategic sourcing has similar features, with a heavy focus on entire company buy-in and Kaizen strategies. If you’re unfamiliar, Kaizen is the Japanese business strategy for continuous improvement. It encourages everyone in the company to suggest small improvements on a regular basis rather than major overhauls of processes. Slightly less circuitous than its predecessor, lean strategic sourcing encourages four main components:

 

  1. Collaborate internally to map out your new strategy and create a cross-functional communication plan that not only shares the new sourcing process but fosters understanding and participation.
  2. Instill a constant focus on cost cutting without compromising quality or reliability.
  3. Incentivize your team members to improve processes through new incentive structures and compensation plans.
  4. Build relationships with your suppliers to work toward more favorable contracts, lower costs, and a lower-risk supply network.

 

The big emphasis for lean strategic sourcing is on creating the structure within a business that allows your sourcing strategy to flourish. It also strongly encourages employee participation across all departments. This differs slightly from traditional strategic sourcing, which is more interested in a cross-functional team. However, it’s worth noting that the Institute of Supply Management is also recommending more long-term agreements in its general strategic sourcing guidelines.