Many Indian SME manufacturing businesses struggle with inefficiencies in their procurement processes. These could be poor supplier management, excessive inventory, and high operational costs. Without lean purchasing strategies, these challenges can stop growth and reduce competitiveness. By using lean procurement techniques, SMEs can improve operations, reduce waste, and improve customer satisfaction.
In this blog post, let’s learn about the best lean purchasing strategies, their importance, and much more.
Overview of Lean Purchasing
Lean purchasing or procurement is a systematic approach to defining something that adds value to a manufacturing company and reducing anything that does not. It is based on lean manufacturing, and its primary objective is to improve operations and customer satisfaction. It allows you to continuously improve the quality of your goods or services.
It also lets you lower costs, reduce time, and eliminate wastage within the production processes. By adopting lean purchasing strategies, you can achieve cost-saving, improved supplier relationships and supply chain performance.
Key Principles of Lean Purchasing
The goal of the principles of lean purchasing is not to change much but to set up a purchase order management system that improves your procurement life cycle. Here are the key principles of lean purchasing:
- Using a Pull System: A pull system in lean purchasing is an approach that involves getting raw materials that are only in demand from a particular number of customers. Pull systems help you reduce the wastage of production processes and materials, and help you meet customers’ demands effectively.
- Chasing Perfection: Perfection in lean purchasing includes analyzing each production process to reduce costs, time, and resources used. In this you have to focus on elements that add value to your company and remove those which don’t.
- Creating Flow: In lean purchasing, flow refers to the manner in which your procurement progresses. Creating a stable and predictable flow of materials should be your goal to achieve lean purchasing within your business.
Importance of Lean Purchasing in Modern Manufacturing
A lean and efficient procurement process helps you to remove activities that add low value to your company. While reducing time and waste, it helps you boost the quality of your goods or services. Here are a few important factors of lean purchasing in modern manufacturing:
- Increased production speed and efficiency
- Lowered product costs
- Boosted flexibility of production processes
- Higher sustainability in production
Understanding Lean Procurement Process & Techniques
The main goal of Lean procurement is to improve your production processes and add more value to your business. The lean procurement process involves techniques that help in improving production efficiency and reducing waste.
1. Value Stream Mapping
From procuring raw materials to disposing of waste materials, the value stream includes the full lifecycle of a product. You have to identify and map out the flow of those products to determine the areas of wastage and errors.
2. Just-In-Time (JIT) Inventory
Just in Time is an approach that includes the arrival of parts or materials at the right time of utilization. Using Just-In-Time, you can avoid getting your inventory immobilized. This is because it can absorb your business capital without adding any value.
3. Supplier Kanban
In lean procurement, Kanban is a project management system that boosts the efficiency of production processes. It allows your team members to visualize the workflow on a board known as the Kanban Board.
4. TQM (Total Quality Management)
TQM allows you to make sure that every aspect of your manufacturing business is working perfectly. It work on customer satisfaction by letting you monitor KPIs such as supplier performance, delivery times, and product quality.
Identifying & Eliminating Waste in Procurement
Waste in the production process is a low-value activity that increases the product cost or reduces its quality, and the customer doesn’t want to pay for it. The goal is to reduce waste from the production process. The main challenge is to identify those wastes in your manufacturing rate and product quality.
Here are a few examples of waste in lean procurement processes:
- Equipment defects
- Overproduction
- Higher waiting time
- Non-utilising skills
- Poor transportation
- Excess inventory
- Lack of motion
- Extra processing
Once you have identified wastes in your production processes, it's time to remove/stop them. You can use Value Stream Mapping (VSM) to eliminate those wastes. This analyzes the existing state of your company and helps you design its future. VSM checks the flow of all the materials and gives a visual representation of all the processes involved. It tracks the connection between those processes and waste and helps you remove the activities that don’t add value to your company.
Streamlining Supplier Relationship Management
Supplier relationship management (SRM) is a systematic method of interacting with a supplier and assessing their capabilities to provide resources. After these interactions, you have to execute the deal in a coordinated way. The goal of SRM is to plan, track, structure, and make effective processes between your business and suppliers at every level of production. The following are the top benefits of supplier relationship management in a manufacturing business:
- Increased product quality
- Reduced costs
- Improved productivity of staff
- Increased profits
- Reduced risks
Implement Just-in-Time Inventory
Just in time inventory management is one of the most powerful approaches for a manufacturing business. With its help, you can easily optimize your inventory levels and reduce costs. However, implementing it can be tough without following proper procurement planning and strategy. Here are the ways to implement just in time inventory into your production processes without much effort:
- Understand demand patterns by analyzing historical data
- Build stronger supplier relationships
- Use technology solutions
- Establish safety stock levels
Utilizing Technology for Procurement Efficiency
In recent years, technology has improved the manufacturing industry's procurement processes. It has automated manual processes. It also provides real-time updates and collaboration across the supply chain. Let’s understand how technologies can improve your procurement process in the manufacturing business.
1. ERP Software
Enterprise resource Planning software improves your procurement processes by offering various features. ERP solutions for procurement provide functionalities such as P2P (Procure-to-Pay) automation, Supplier Relationship Management (SRM), analytics, reporting, and much more. These take care of procurement activities ranging from sourcing to payment management.
2. E-Procurement Systems
An e-procurement platform offers a cloud-based networking system to manage all your procurement activities. It connects your suppliers or buyers in one single digital place while boosting transparency. An e-procurement system offers features like sourcing optimization, supplier collaboration, compliance management, and more.
3. Blockchain
Blockchain is a technology that offers transparent and traceable procurement processes within your business. It helps you create tamper-proof records of all your transactions and contracts. Blockchain offers features like supply chain traceability and smart contracts.
4. AI and Machine Learning
AI and machine learning technologies are able to analyze huge amounts of your procurement data. These can predict future demands, identify patterns, and optimize your purchase order management. AI and ML offer features such as supplier risk management, predictive analytics, and more.
Strategies for Continuous Improvement in Procurement
Running an SME manufacturing business in India can be challenging. You manage complex purchasing and procurement activities while cutting costs and saving time. There are challenges like poor supplier management, ineffective labor processes, and more. Having suitable lean procurement techniques can help you improve your purchasing processes.
- Invest in a Digital Adoption Platform (DAP)
- Formalize procurement activities by tracking data and supplier performance
- Conduct due diligence by highlighting supplier criteria and contract management
- Train and onboard suppliers through consistent and effective communication
- Establish clear communication with your team
- Manage your inventory effectively
- Select the right purchase order management software or tool
- Automate all time-consuming processes
Improve Lean Purchasing Strategy With TranZact
Understanding and implementing lean strategies into your procurement processes is important. Whether your manufacturing business is small or medium-sized, lean purchasing helps you improve product quality, lower costs, reduce waste, and much more. TranZact procurement and inventory management software helps you automate processes from sourcing to payment management.
This procurement management software is specially designed for Indian SMEs to streamline their purchasing activities while reducing waste. Boost your lean purchasing practices with TranZact to stay one step ahead in this competitive market.
FAQs
1. What are lean procurement strategies?
Lean procurement strategies are approaches that help your business remove waste, reduce time, improve supplier relationship management, and much more. Its main goal is to reduce low-value activities and improve product quality in the manufacturing business.
2. How can the procurement process be streamlined?
You can streamline the procurement process by reducing costs, making sure of meeting compliance requirements, and improving transparency with stakeholders. You should also improve negotiation skills, build strong supplier relationships, and remove human errors through automation.
3. What is the lean process of procurement?
The lean process of procurement basically means to “achieve more by spending less.” Its main objective is to implement a tool like TranZact to bring your expenses into one centralized and transparent system. This allows your company to source needed materials while cutting out duplicate inventory and unnecessary expenses.
4. What is the lean purchasing process?
The lean purchasing process includes the following:
- Determining value-added processes
- Conducting value stream mapping
- Implementing a pull system
- Creating a smooth flow
- Continuously pursuing improvement
5. What are the 4 P's of lean manufacturing?
The 4 P’s of lean manufacturing are;
- Philosophy (Long-term thinking)
- Process (Eliminating waste)
- People and Partners (Respect, challenge, and grow them)
- Problem Solving (Continuous improvement and learning)
6. What are lean practices in the supply chain?
Lean practices in the supply chain involve the removal of wasted components or processes and implementing the JIT (Just-in-time) approach in procurement. It also includes delivering your product to end customers without any blockage.
7. What is the lean principle of procurement?
Lean procurement is based on lean production principles and focuses on continuously improving the procurement process within the company’s supply chain to eliminate waste, increase efficiency, and add value.
8. What is the difference between purchasing and procurement?
Purchasing includes short-term goals and your business needs. On the other hand, procurement is focused on long-term goals like corporate strategies and competition.
