The Role of Lean Management in Purchasing
Speaking to Professor Peter Hines, Chairman of SA Partners, Europe’s longest established Lean Enterprise consultancy, he reveals how Lean is being applied to great effect in a range of industries. “I think we’ve seen in the last three years an increase in Lean in many organizations,” he explains. “If you go back to the 1990s, it was really only the automotive industry that was a must for Lean; but gradually it moved out into more industries, like construction, public sector, manufacturing and retail. Now, many industries are seeing it as a ‘must do’.”
But how can procurement and the supply chain in general benefit from this management system? Professor Hines puts the role of purchasing into context in order to reveal how Lean Principles can work.
“We think of lean as an approach to understanding the transfer of what is valuable to our customers into supplier services. If you think of the role of purchasing in the wider supply chain, it’s like a conduit between the organization itself and its main suppliers,” he says.
While many organizations apply Lean internally, Professor Hines believes it needs to be applied to the wider purchasing supply chain in order for companies to reap the potential benefits.
5 Principles of Lean
To explain, Lean Management has its roots in five Principles: Strategy Deployment; Tools and Techniques; People Enabled Processes; Extended Enterprise; and Value Stream Management.
Professor Hines explains that four of the five Principles are about taking Lean inside an organization. Strategy Deployment involves getting everyone in the organization to understand and become aligned to the strategy. Value Stream Management means understanding the customers’ needs, while People Enabled Processes is about “leadership, engagement, behaviour”. “That’s the essence of the Lean business system,” he says.
These five areas may all seem like fairly obvious processes within any business or organization but it seems they are also the areas that can all too easily be overlooked.
The Sentega Group, a supplier of bespoke labelling technologies to manufacturing firms, implemented Lean Management following its decision in 2002 to establish its Advanced Label Technologies division. This exposed the company’s shortcomings in terms of its existing capacity planning processes. Quality control came under significant pressure as the workload increased. Recognizing that Sentega lacked clear procedures, Managing Director Jean-Luc Verstraeten took the decision to adopt the principles of Lean Management.
Simpler Consulting provided guidance on how to practically implement Lean techniques within Sentega. In line with the Strategy Deployment Principle, Simpler involved staff from all sections of the business to decide how processes could be improved.
“The inclusion of direct feedback from employees highlighted where practical improvements could be made, and ensured that these were integrated into the new processes,” Sentega says.
Since turning to Lean, Sentega has reported a double-digit improvement in cash flow by reducing the level of excess stock. It also saw a 17 percent reduction in the volume of scrap created during the manufacturing process, and a yearly saving of over 133,000 euros in transport costs. Overall, Sentega has realized savings that equate to over 15 percent of its annual turnover.
Toyota – the “granddaddy” of Lean
One company that has fully embraced Lean is Toyota. Professor Hines observed how the automaker – whom he refers to as “the granddaddy of lean” – was able to utilize Lean when he spent several months at Toyota’s Japanese operations in 1994. He soon recognized that the production of cars in Japan was about twice that of Europe and looked closer at Toyota’s supply chain. Professor Hines identified the five elements to its success in his recently published white paper Creating a Lean Business System.
Firstly, Toyota had focused everyone towards a common aim of achieving added value for its customers. The company also deployed through the core processes quality, cost and delivery.
Speaking to Professor Hines today, he reveals that it was not simply a case of Toyota gaining a competitive advantage through labour productivity by being Lean themselves, but rather through their third and second tier suppliers.
“It was in how they were encouraging and developing their own suppliers, and getting those suppliers to do the same with their suppliers. The whole supply chain development approach was producing a much better result than in Europe,” he concludes.
While organizations are beginning to realize the benefits of Lean in purchasing and within the supply chain as a whole, there is still a long way to go before it becomes an industry ‘must’.
EU and US agree end to Airbus-Boeing supply chain tariffs
The EU and US have agreed to resolve a 17-year dispute over aircraft subsidies, suspending tariffs on billions of dollars' worth of goods that have plagued procurement leaders on both sides of the Atlantic.
Under an agreement reached by European Commission Executive Vice-President Valdis Dombrovskis and US Trade Representative Katherine Tai on Tuesday, the tariffs will be halted for a period of at least five years.
It will bring an end to punitive and disruptive levies on supply chains that have little to do with the argument, which became embroiled in the trade battle. Businesses on both sides of the dispute have been hit with more than $3.3bn in duties since they were first imposed by the US in October 2019, according the EC.
The US imposed charges on goods upto $7.5bn in response to a World Trade Organisation ruling that judged the EU’s support of Airbus, its biggest aircraft manufacturer, unlawful. A year later in November 2020, the EU hit back. The WTO found the US had violated trade rules in its favourable treatment of Boeing, and was hit with EU duties worth $4bn.
In all the tariffs affected $11.5bn worth of goods, including French cheese, Scotch whisky, aircraft and machinery in Europe, and sugarcane products, handbags and tobacco in America. Procurement leaders on both sides of the fence were forced to wrestle with tariffs of 15% on aircraft and components, and 25% on non-aircraft related products.
Boeing-Airbus dispute by the numbers
- The dispute began in 2004
- Tariffs suspended for 5 years
- $11.5bn worth of goods affected by tariffs
- $3.3bn in duties paid by businesses to date
- 15% levy on aircraft and 25% on non-aircraft goods suspended
Both sides welcome end to tariffs
European Commission President Ursula von der Leyen branded the truce a “major step” in ending what is the longest running dispute in WTO history. It began in 2004.
“I am happy to see that after intensive work between the European Commission and the US administration, our transatlantic partnership is on its way to reaching cruising speed. This shows the new spirit of cooperation between the EU and the US and that we can solve the other issues to our mutual benefit,” she added.
Both aircraft manufacturers have welcomed the news. Airbus said in a statement that it will hopefully bring to an end the “lose-lose tariffs” that are affecting industries already facing “many challenges”. Boeing added that it will “fully support the U.S. Government’s efforts to ensure that the principles in this understanding are respected”.
The US aerospace firm added: "The understanding reached today commits the EU to addressing launch aid, and leaves in place the necessary rules to ensure that the EU and United States live up to that commitment, without requiring further WTO action."
This week’s decision expands upon a short-term tariff truce announced in March this year. The EC says it will work closely with the US to try and further resolve the dispute, establishing a Working Group on Large Civil Aircraft led by each side’s trade minister.
Airbus last month signalled to suppliers that post-pandemic recovery was on the horizon, telling them to scale up to meet a return to pre-COVID manufacturing levels. “The aviation sector is beginning to recover from the COVID-19 crisis,” said Airbus chief executive Guillaume Faury, adding that suppliers should prepare for a period of intensive production “when market conditions call for it.”