Lets change the game with Lean-Agile Procurement
di Mirko Kleiner e Philipp Engstler
Articolo estratto da Lean & Agile – The Procurement Magazine, Anno 5 N°2
Mirko Kleiner, Thought leader & President
Lean-Agile Procurement Alliance,
Philipp Engstler, agile coach & trainer,
Lean-Agile Procurement Alliance Board Member
Not just a new approach, but a new mindset, even a new age is needed to cope with the upcoming market demands. Cases using this new mindset have been proofed to source complex cases in as little as one day! No wonder do companies such as Barclays, Gazprom, Air France, etc. radically transform their organisation and so their strategic procurement. We live in an exciting, rapidly developing world where it’s possible, for example, to print an aircraft engine within 72 hours (1). Commodity sourcing cases are increasingly digitized or taken over by machines. That leaves the complex, mostly strategic sourcing cases for which our existing tools such as Rfi, Rfp, Reverse Auction, etc. areinadequate (2). In other words, we need new approaches to deliver added value to the business faster and so to stay relevant as procurement.
“It’s a matter of delivering fast added value as procurement” Stephan Chassaing de Bourdeille, former Vice head of group procurement, Axel Springer SE
How do we meet the challenges of increasing complexity and the demand for rapid time-to-market? The start-up scene has already shown how it can be done. They use approaches such as Lean Startup (3), Scrum/Agile (4), or the Business Model Canvas (5), and they have absorbed uncertainty into their DNA. Benefiting from their experience, Lean-Agile Procurement (6) opens up completely new possibilities for procurement, sales and partner management.
Designed for adaptive, strategic sourcing
Lean-Agile Procurement is an approach that can be used in both direct and indirect sourcing (6). Originally eveloped for the sourcing of agile development teams in digitalization, it is now used in all categories and industries (2). The prerequisite is a high level of complexity in terms of sourcing content or organization, which is usually the case in strategic sourcing. It is unsuitable for commodity sourcing, where it may even generate unnecessary overhead.
Barclays for example has started begin of 2018 to organize more than 100 people in pods (stable, cross-functional) teams. Idea is that these pods could handle complex, strategic cases as team much faster, than handing them over and over again. Their numbers showed, that they were able to increase lead time radically.
Four times faster from idea to first value delivered
The awarded success story of the CKW Group (7), an energy company in Switzerland with 1,700 employees and a turnover of ~850 million, showed that with Lean-Agile Procurement complex sourcing cases can be successfully processed in 4-5 weeks. While this could be done twice as fast without a problem as this included team setup, learning on the job, etc. Even though this represents four times faster time-to-market compared to classic approaches (4). New ideas can be introduced and tested in the market much faster, and the generated return occurs much earlier.
Companies applying Lean-Agile Procurement have a competitive advantage with direct impact on the company’s success. From a customer perspective this means a much faster availability of new services and/or products and high reduction of cost-of-delay. Focusing on time-to-market changes everything for procurement!
“This is a game changer”
Phil Thomas, Managing Director,
Head of global sourcing, Barclays
-80% Savings through alignment and focus
In complex sourcing cases, especially strategic sourcing, there is a very high degree of uncertainty as to what the customer or market needs (8). This makes it all the more important to focus first on the most important business goals (why) and customer needs (what), and only after that on solutions or products (how). During the development of a new business case we should already be entering into an intensive interaction with our customers and continuously collecting feedback (3).
Instead of creating huge specification documents it’s recommanded to have e.g. representatives of all customer segments in one room and directly ask them for their needs, priority, etc., we are using the Lean Procurement Canvas(6) to capture this. By consistently focusing on the most important customer needs we simultaneously increase our alignment, push nice-to-have’s to the back of the queue, and minimize unnecessary effort (4).
Radical risk reduction through adaptability
Tighter focus leads to smaller batches, which allow for increasingly faster sourcing, which in turn makes it possible to prolong or even change a partner/product/etc. more easily (6). The overheads incurred by suppliers, legal, etc. are reduced and incremental deliveries ensure a functional solution at all times. The fact that customer feedback is collected after each iteration ensures that the solution meets the initial expectations. This requires new, more agile contracts (9) with which a partnership can be adapted, or even stopped, at any time. This radically reduces risk.
Current cases that applied this principle e.g. co-created the contract with their potential partners in one room simultanuously. Doing so open questions, concerns could have been resolved immediately. Even more than that cost drivers could have been identified much earlier and adapted jointly even before starting the cooperation.
-50% More efficient economically
Complex sourcing cases are correspondingly complex to implement. With Lean-Agile Procurement we reduce the overheads on the buyer side by an average of 50% (2). This is mainly achieved by setting up a cross-functional team of experts, that can do the job. Having an empowered team together reduces decision-latency to the minimum, so that things develop much faster. The reduction of effort on the suppliers’ side should also not be underestimated. From an economic point of view, what we are achieving is an optimization of non-value-adding work (10), which ultimately has a direct effect on market performance and the associated success of the company.
Collaboration increases innovation
Uncertainty about customer needs can only be minimized through direct interaction with customers and users. Consultation occurs not just once, but continues throughout the entire procurement process and beyond. Not just the customers but the providers too are included and bring their ideas into the discussion. A common understanding of customer needs leads to simpler solutions, better collaboration, and new ideas (2). That’s why it’s recommended to ask for a joint workshop with the potential partner/s, where both parties bring in the people that might cooperate and do the job.
Being agile is a mindset and we need to ensure even before we go into a partnership, that we have a social fit too. Often we run a proof-of-concept in parallel to the co-creation of an agile contract. This way the delivery capabilities and the behaviors of the people in the room could be observed while actually working. If we invite e.g. at the end of each day the real users we even get direct feedback for new innovative ideas implemented.
True partnership – Both sides win
Strategic sourcing is a two-way street. It requires an attitude of trust cooperation based on partnership and shared values (6). Binding contracts and cost focus are usually to the disadvantage of one party and do not lead to a genuine partnership. While in Lean-Agile Procurement the hard facts of quality, costs, etc. remain important, social facts, such as the behaviour of potential suppliers in concrete situations, become just as important, if not more so, as issues are worked out during contract fullfillment.
This leads to fundamental changes in behaviour not only towards partners but also within the company itself (10). This has consequences for the reputation, loyalty, and indirectly also for the motivation and work performance of each individual employee (2). In one case a new ERP has got sourced in just two days (!) with three potential partners in one room simulaneously. The buyer side decided as a team for one partner, but asked for another person from another competitor to join their team. This wouldn’t be possible sending papers back-n-forth.
Lean-Agile Procurement makes the existing sourcing process more efficient, while focusing on being more effective – doing the right things. In an uncertain environment (8) this also means saying goodbye to detailed specifications, and accepting that anything can change at any time. In today’s smart business development scene the Business Model Canvas (5) is a living document and 100-page business cases are a thing of the past. With Lean-Agile Procurement we demand the same, and the Lean Procurement Canvas provides it.
“Speed is the new currency of business”
Earlier return and fast feedback cycles is more important that costs
With innovative ideas, it is more important to learn from customer feedback and to be ahead of the competition than to optimize the last few percent of costs. Because we are only sourcing in small batches, the risk of a bad investment remains small (3). It’s not any more a question if agile will become a topic for procurement, then in most companies agile transformation programs are already in progress. Full stack Business Agility require an agile acting procurement department, start experiments with agile practices, approaches such as Lap and see what of it makes sense in your context.
- Lean-Agile Procurement is a proven approach for indirect and direct sourcing in all categories where the sourcing case has a certain complexity. Applied in commodity sourcing cases it creates unnecessary overhead.
- It is a practical approach that improves time-to-market significantly and radically decreases risk through incremental and value-added funding for improved business outcomes.
- Lean-Agile Procurement has a sustainable impact on the way we work together, both internally and with our partners – because the soft facts are evaluated by the very people who are going to be working together.
- With Lean-Agile Procurement it is once again possible to deliver added value to the business faster and thus remain relevant as procurement.
For more information go to: www.lean-agile-procurement.com
(1) Additive Manufacturing, GE 2016
(2) Survey/research about agile@procurement & sales, flowdays, Switzerland, 2018
(3) The lean startup by Eric Ries
(4) For example: “Twice the work in half of the time” by Dr. Jeff Sutherland, co-creator of SCRUM, author and founder of Scrum Inc.
(5) Business Model Canvas, Alex Osterwalder
(6) lean-procurement.com & Lean Procurement Canvas by Mirko Kleiner, flowdays
(7) “CKW case study”, CKW & flowdays, 2018
(8) Complexity theory by R. Stacey, 2019
(9) See agile contracts at e.g. www.flexiblecontracts.com or www.vestedway.com, 2019
(10) Decision latency, www.scrumatscale.com 2019 (11) Pull system by Lean Manufacturing 2019