Procurement Best Practice Execution

Explore Procurement Best Practice Execution with DMAIC Best Practice Model

PurchTips Edition #433

Procurement best practice execution is always a hot topic regardless of the industry. Procurement processes can be significantly improved by the leverage of best practice mechanisms. The key to operational and strategic transformation is the use of business improvement models. These models serve as roadmaps with specific criteria, tollgates, milestones, and phases, through which business optimization takes place.

The DMAIC (Define, Measure, Analyze, Improve, and Control) Business Process Improvement Model is a scientifically proven best practice system that has yielded billions of dollars since its first use back in the 1980s. General Electric recorded a net saving of US$10 Billion during its first four years of using the DMAIC Model.

For matters of context, we will note that the mandate of the Procurement Function is threefold:

  1. Control Spend
  2. Support of Operations
  3. Management of Risks

The DMAIC Best Practice Model can create value in procurement environments in the following ways:

 Define Phase: In this phase procurement professionals can identify problems in their procurement systems, such as over spend, supplier non-conformance, rising cost, late deliveries, the impact of risk factors, rising TOC (Total Cost of Ownership) and so on.

Once problems are identified a carefully drafted Problem Statement is formulated, which articulates which procurement process is compromised, how long the problem has been occurring, the degree of impact on the business and its customers, and the financial cost of the problem.

After the problem statement has been drafted, a carefully crafted Business Case is formulated. The goal of the business case is to justify why a problem should be urgently fixed, why resources should be spent on it, and what the ramifications of non-action will be. The business case is essentially an inspirational tool that creates a sense of urgency in fixing issues plaguing organizations and their customers.

A carefully designed Scope Statement which defines the boundaries of the procurement process improvement initiative is created. This guards against scope creep and laser focus the initiative so that SMART (Specific, Measurable, Achievable, Realistic and Timebound) goals are realized.

Tools in this phase: Project Charter, VOC Matrix (Voice of the customer), SIPOC Charts

Measure Phase:- In this phase, the parameters of the problem statement are measured to determine Current State performance relative to the desired performance. The goal is to calculate the performance gap. Data is collected on the pertinent metrics such as on-time delivery, TOC, product quality, price and degree of supplier responsiveness relative to specified targets. Operational definitions and data collective plans are used.

Tools in this phase: VOC Matrix, Pareto Charts, Data Collection Plans, Spend Profiles, Delivery Logs, Histograms, Value Add / Non-Value Add Matrix, COPQ (Cost of Poor Quality) Matrix, SIPOC Charts, Value Stream Maps, Flow Charts.

Figure 1, COPQ Matrix

COPQ Matrix

Permission for use given by USA LEAN Engineering. www.usaleanengineering.com

Analyze Phase

In this phase, the collected data on current state performance is analyzed to determine the root causes of poor performance. Root causes must be validated for robust solutions to be designed. The 5 Whys methodology is a powerful tool to determine root causation. Simply ask why a problem exist on average of 5 times and the root cause will be revealed. Procurement professionals using the DMAIC Model to improve their workspaces must resist the temptation to skip the analyze phase.

FMEA (Failure Mode and Effects Analysis is another powerful tool procurement professionals can leverage to analyze risks that exist in their processes.

Tools in this phase: ANOVA Test, CHI Square, 5 Whys, Fishbone Diagram, FMEA

Figure 2, FMEA Matrix

FMEA Matrix

Permission for use given by USA LEAN Engineering. www.usaleanengineering.com

RPN = S x O x D or Severity x Occurrence x Detection on a scale of 1 to 10

In the table above for “Information input into MRP System” the RPN=1000

  • Severity =10 (Extreme)
  • Occurrence =10 (Extreme)
  • Detection = 10 (Impossible to Detect)

Source USA LEAN Engineering, Solving America’s Business. www.usaleanengineering.com

Improve Phase

In this phase, procurement professionals design pilot test and deploy effective solutions. The key input of this phase is the root cause analysis from the analyze phase. All solutions must be practical, feasible and have proven ROI.

Tools in this phase: Cost-Benefit Analysis, ROI Matrix, Solution Selection Matrix, Implementation Plan, Pilot Test Matrix…

Figure 3, ROI Matrix

ROI Metrix

Permission for use given by USA LEAN Engineering. www.usaleanengineering.com

Control Phase: – In this phase, procurement professionals draft response plans to sustain gains accomplished from the improve phase. The goal of the response plan is to deploy the protocol to deal with any issues going forward. The plan articulates who is responsible for dealing with out of control points, how often and how processes are to be monitored.

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Want to know all the details behind world-class procurement talent management? Simply download the NLPA’s new whitepaper, “Procurement Talent Management: How To Recruit, Train & Retain a Modern & Awesome Buying Team.”

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Copyright 2019. This article is the property of the Next Level Purchasing Association and may not be copied or republished in any form without the express written consent of the Next Level Purchasing Association. Click here to request republishing permission.

By David Millington, SPSM, SPSM2, SPSM3 - Director of Education (Next Level Purchasing Association)

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