Five Lean Initiatives for Government Contractor Procurement Teams
It was surprising to read this article from McKinsey & Company discussing procurement’s operating costs averaging below 1 percent of spend, while having read several articles highlighting the fact that many companies spend up to 70% of their costs buying goods and services.
It is no great surprise then, that many companies continue to focus on the 70% and how to squeeze out more savings and curtail rogue spending, keeping procurement in a tactical and transactional cost-minimizer role. McKinsey reports however, innovative market leaders focus both on improving procurement operational processes, and on the outcomes of the tactics they support, allowing procurement to be more efficient and more strategic.
In a strategic position, and as a tactical way of discovering how to add value, procurement aligns with its internal customers. Procurement can help internal teams assess if they can improve the way they deliver products, if in house manufacturing on certain parts or products should be sourced, or how a team can optimize specific services with categorization methods, benchmarks and strategic sourcing.
“Top performers view purchasing not only as the commercial conscience of the organization but also as its competitive eyes and ears.”
McKinsey & Company
Five Lean Initiatives for Procurement
McKinsey lists these attributes as their understanding of lean, “standardized activities, fewer processes, better-qualified buyers, continual people development, and resources sharply focused on activities that add real value.”
Costpoint integrates procurement seamlessly within its enterprise resource planning (ERP) solution. It can help you advance your procurement department’s lean initiatives. Here’s how:
- Standardized Activities – standardized text fields that can be saved for reuse in purchase orders and statements of work (made in America, subcontractor criteria), workflows to ensure proper approvals and ensure procedures are followed, consistent metrics to measure supplier performance, from accounts payable to receiving. Having all of your procurement data in one system also utilized by the finance, manufacturing and project management teams, ensures a similar user experience across departments and one version of the truth with only one, real-time set of data.
- Fewer Processes – Automating, or establishing digital procurement, can dramatically reduce the steps and amount of time procurement personnel spend creating requisitions, purchase orders and ensuring suppliers have the right information from the beginning. Costpoint allows you to create a requisition from a contract win, capturing and extracting the needed data and pulling it through the entire procure to pay process. Contract flow-downs can be automated as well, providing you with compliance support from the start. Additionally, Costpoint captures data on inventory – every transaction – every time, supplier communications and change orders, helping with Contractor Purchasing System Reviews (CPSR) and saving time (and improving supplier relations) by cutting down on the number of disputes with the new Supplier Portal.
- Better-qualified Buyers – An integrated human capital management system, as linked to your ERP, extends benefits beyond the human resource departments by making resources, to include subcontractors, visible to project managers, the procurement team, and accounting among others. The McKinsey article tells of companies creating cross-functional teams to develop strategies from sourcing efficiencies to cost cutting methods. When teaming procurement with their internal customers, all of whom may have unique experience in a particular field or industry, procurement takes on the ever more important strategic role, adding value throughout your organization. Having all of the human capital data in one system also helps with requisitions, receiving and setting up approval hierarchies; it allows for numerous process integration points.
- Continual People Development – Costpoint’s integrated Human Capital Management capabilities help you establish a continuous performance management program which are often cited as the best means of driving higher levels of employee engagement. High employee engagement levels are the result of consistent communication. This communication cuts down on confusion, helps employees feel valued and in turn, helps ensure that employees have access to feedback that will help them develop and advance in their careers.
- Resources Focused on Value-add Activities –the initiatives above will speed up procurement cycle times, foster collaboration and help you attract and retain the best procurement personnel. All of which help the procurement team better align with departmental and companywide goals, from the start, at a strategic level.
Lean initiatives in procurement go beyond maximizing procurement efficiencies; they cut to the individual buyer level and the value they create. Costpoint Procurement can help you digitalize your procurement processes and analyze costs and suppliers, while capturing data, to simplify tracking and reporting and support government contract compliance requirements. Learn more about Costpoint Procurement here.