ReEngineering For Purchasing Performance
Laurie L. Stover
Laurie L. Stover, Materials Manager, Lam Research Corporation, Fremont, CA 94538, 510/659-6624.
79th Annual International Conference Proceedings - 1994 - Atlanta, GA
The reason that we do not see astounding breakthroughs in productivity in the purchasing environment is that we are simply layering new technologies on top of outdated processes. What worked for us five or even two years ago will no longer work today. ReEngineering focuses on radical end-to-end process improvement to achieve dramatic improvements in performance. Empowerment at its purest, it allows individuals to innovate within a clear new vision of our challenges today and tomorrow.
"It must be considered that there is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle, than to initiate a new order of things."- N. Machiavelli -- The Prince.
ReEngineering is the radical redesign of business processes in order to achieve dramatic improvements in performance. It is based on six key concepts:
- Systems Technology
- Discontinuous Thinking
- Meeting Customer Needs
ReEngineering's first key concept is better utilization of time. In an article on reducing cycle times in Electronics Purchasing December 1992, an important point was made by an Intel executive when he said "Today, quality, on-time delivery and service are all givens. If you're in the technology business, you must get product to market faster." Another executive used more succinct terms: "Fast or dead." I agree. One reason other organizations in our companies attempt to work around Purchasing is that we tend to work too slowly, and not on the right things. We must look closely at the amount of non-value added time we spend, and then eliminate it by offering timely high-value activities to our internal customers. ReEngineering our processes will greatly reduce queue times, transition times, and internal cycle times, resulting in a larger contribution to accelerated innovation and faster time to market for our company products or services.
ReEngineering is also based on utilizing new information systems technologies. Professionals in Purchasing must develop a fundamental new perspective on the use of these technologies, instead of simply valuing them for their automation potential. Modern information technology is the basic enabler of new paradigms of how work can be performed and organized, and we need to recognize the ways that they enable new breakthrough processes.
Another focus is on prevention of problems instead of resolution after they occur. Do we spend our days doing work or doing rework? There are two components here: doing the right things, which means focusing most of our energy on proactive and value-added activities. And doing things right the first time, which is a measurement of our competence. When we ReEngineer our processes to maximize doing right things right, we will begin to spend our time on real work, instead of rework like approval cycles, paper trails and duplicate activities.
Empowerment is extremely important. Breaking down hierarchical barriers, understanding and focusing on the overall mission of the company, and delegating decision making and accountability into the body of the organization are the outcomes of good ReEngineering. This does not usurp the role of management, but instead frees managers up to concentrate on strategically creating an environment, a new context, in which each individual and the company can succeed.
The concept of discontinuous thinking is the opposite of conventional wisdom which accepts arbitrary boundaries, old rules and incremental thinking. This concept says we must recognize and challenge each outdated rule and fundamental assumption which underlies our current Purchasing practices. In the same article referenced above, Intel cut ordering cycle times 500% in the first year after ReEngineering its internal processes. They did not accept small incremental improvements, but instead radically changed the way they did business.
Finally, and most importantly, ReEngineering is based on meeting customer needs. The old Purchasing paradigms were price, sequential tasks fragmented from other organizations like Engineering and Manufacturing, and audit control. The new paradigms emphasize value-added support to all internal customers, cross-functional teaming for innovation, and total cost of ownership management of the supply chain.
Why should we ReEngineer our Purchasing processes? There are three main reasons:
- Competitive Pressures
- New Technology Enablers
- The Prospect of Advantage
You would not be here at the NAPM 79th Annual International Purchasing Conference, which this year has the theme "At the Crossroads", if you did not recognize the considerable competitive pressures in today's business environment. About a year ago, I wrote a short but controversial article for Electronic Buyers News entitled "Add Value or Leave", where I challenged purchasing professionals to take a look at whether their current purchasing practices were helping or actually hindering their own company's global competitiveness. There was valuable feedback from that short piece. Some people took the attitude, "if it ain't broke, don't fix it." To those folks, my rejoinder was -if you don't think it's broke, then you ain't looking at it close enough" because close examination of our current processes will nearly always disclose that even seemingly adequate procedures are bundles of complexity and layers of irrationality. Our satisfaction with them may say more about our acceptance of low standards than about their actual effectiveness in today's world. Other responders applauded the call for change, most notably business people who represented the internal customer groups of the Purchasing organization.
With compressed product life cycles, it is more important than ever to seek out and capitalize on new information system technology enablers such as Document Imaging, Computer Aided Design, Interactive Databases, E-mail, Electronic Data Interchange and video Conferencing. These allow entirely new ways of doing our business, and they are among the tools which can help us achieve outstanding performance increases in a very cost effective way.
Farsighted Purchasing professionals will recognize that there are extraordinary competitive advantages which can be gained by establishing new and much higher levels of performance through ReEngineering. It has been said that fully 60% of ReEngineering efforts are begun once a company is in crisis. Around 30% are begun with the recognition of an upcoming crisis; but only 10% are done with the prospect of advantage. The advantages of increased margins, revenue and customer satisfaction will automatically follow a real improvement in company productivity.
There are seven key principles to ReEngineering. They were first published in an enlightening article by Michael Hanner in Harvard Business Review July/August 1990; since then he has published an outstanding roadmap book on the subject, which is referenced at the end of this article. The principles are:
- Organize around outcomes, not tasks.
- Have those who use the output of the process perform the process.
- Subsume information processing work into the real work that produces the information.
- Resources which are geographically dispersed should be treated as though they are centralized.
- Link paralleled activities instead of integrating their results.
- Put the decision point where the work is performed and build control into the process.
- Capture information once and at the source.
The first principle says to organize around outcomes, not tasks, to have one person perform all the steps in a natural process, and to design the job around desired results. This will compresses the linear process and remove many steps, queue points and transitions between one group or person and another. This may take the form of combining several jobs into one. For example, our former Lam Machine Shop process changed from having the Supervisor meet with the Engineer and agree on timing and scope of work, which then was manually written on a job order, then scheduled by the Supervisor and passed on to the Machinist. In the new simplified process the Machinist would personally talk with the Engineer, and enter the job order on the database real time so a scope and delivery date could be agreed upon immediately. The Machinist was then fully accountable for meeting the needs of the Engineer, which of course was the desired result.
The second principle is to have those who use the output of the process also perform the process. For example, in one process Lam Buyers select the source in a team with the quality and engineering customers, and set up the business deal, and a Master Purchase Blanket Contract. Then the release, receipt verification and invoice approval is delegated to the requesting group. When the individuals who require the output of the process also perform it, there is little need for the overhead associated with managing it. Interfaces and liaisons have been or eliminated.
The third principle says to subsume information processing work into the real work which produces the information. People who produce the information should also process it, just as I created this paper myself on my personal computer, instead of drafting it and handing it off to a clerk to interactively interpret and retype. As you can see, sometimes this principle shifts work across functional or organizational boundaries to improve overall performance. Another example is our on-line requisition process. Lam internal customers know what they want. They enter their needs directly into the system to create their own on-line requisition, instead of writing it down and passing it to us for rekeying.
The fourth principle is that resources which are geographically dispersed should be treated as though they are centralized. Databases, networks, and standardized processing systems allow critical mass efficiencies and easy global coordination, so that work can be performed where it makes the most sense. For example, with our on-line requisition system, any Lam employee around the world can easily see for themselves whether the PO has been placed, the product received, and the invoice paid. Another example is Lam Field Service personnel who utilize notebook computers to quickly diagnose and solve problems at the customer site by linking into the technical service database.
The fifth principle is to link paralleled activities instead of integrating their results. Coordinating functions while activities are in process rather than after they are completed, means a fundamental shift to proactive involvement. For example, Lam R&D buyers colocate with and join the staff meetings of our engineering customers, so that they can hear about and begin working on procurement requirements concurrent with the design effort. Should there be a need for site visits, sourcing terms or lengthy contract negotiations, the Buyer begins these activities way up front, and also facilitates Supplier involvement in the design concept stage if appropriate. This early alignment with our internal customer groups, more than any other activity, has gained Lam Buyers the reputation for adding timely value and not becoming an obstacle.
The sixth principle is to put the decision point where the work is performed and build control into the process. It is no longer necessary for one individual to do the work and another to monitor and control it, if basic control is built into a self-managed process. The MRO and Capital Buyers at Lam, for instance, have the responsibility to identify and justify projects, and to lead or participate in cross-functional teams to complete and implement efforts which maximize quality, total cost of ownership, cycle time, leverage and risk for the company. I now enjoy the critical management role as their strategic supporter, coach and facilitator.
The last guiding principle is to capture information once and at the source. Information technology tools can be used to collect, store, transmit, manipulate and distill data for easy access and use. For instance, we utilize the system to automatically provide reports to us on all Supplier and Buyer performance metrics, with very few manual reports required. We no longer need to live with the delays, entry errors and costly overhead associated with manual compilations.
There are three phases to any ReEngineering program:
- Sponsorship and Mobilization
- Flow-charting and Redesign
- Implementation and CPI
ReEngineering needs full executive sponsorship and support, since the effort will transcend individuals and cross all of their functional organizations. If top management backs your ReEngineering team, then your efforts will be taken seriously, and you be able to outlast the cynics and achieve results. Remember, ReEngineering is not comfortable or predictable; it is disruptive to many or all accustomed processes. The mobilization team should consist of senior managers from all the organizations impacted by the effort. For example, when we worked on ReEngineering Lam MRO purchasing processes, we involved both Accounts Receiving and Accounts Payable management, as well as representatives from internal customer groups and some key Suppliers.
Once sponsorship is attained, and the ReEngineering team is formed, then it is necessary to understand in broad terms what the current end-to-end process looks like, and what results are required, identifying major value-adding activities. This will be achieved by much discussion and high level flow-charting. At this point, focus on the "what" and "why" of the process, not the "how". Identification and examination of all assumptions should take place, with unnecessary activities, queues and transitions removed from the process redesign. Keep in mind at this phase that, unless fundamental assumptions can be challenged and discarded if applicable, no order of magnitude improvements will be possible. When the new business essentials are clarified and agreed upon, then a new detailed flow-chart should be done with participation of all appropriate individuals, to develop and document the steps, decisions and control points needed to achieve the new plan.
After participative redesign of the new process, the individuals who now own the results can implement the plan. They should monitor and communicate status and key metrics to management, and work to continuously improve the process. Following is a Continuous Process Improvement Checklist which I developed for my team, and which has proven helpful to self-managed individuals when they change processes:
Continuous Process Improvement Checklist
1. Save Time. Does your improvement......
- Save time for you and everybody else?
- Reduce the steps/people in the process?
- Reduce queue times?
- Reduce the physical distance and non-linearity of the process?
- Reduce liaisons and interfaces?
2. Save paper. Does your improvement......
- Consolidate current forms?
- Make a form or series of forms obsolete?
- Reduce the need for photocopies?
3. Save effort. Does your improvement....
- Prevent current and future problems?
- Increase parallel activity?
- Make your job easier?
- Make other people's job easier?
- Build control into the process?
- Simplify the process?
4. Use the system. Can your improvement.....
- Be communicated via the computer system?
- Be extracted from the computer System?
- Be performed by the computer system?
5. Empower. Is your improvement.....
- Easily understood by everyone?
- Easily utilized by applicable groups?
- Performed by those closest to the process?
- Controlled by those using the process?
6. Meet customer needs.
Instead of showing Lam Purchasing ReEngineering productivity improvements in the form of metric deltas, it may be more relevant to note the changes in internal customer perceptions during the past two years:
|Lam Internal Customer Survey||Feb 1992||Feb 1993|
|My requisition was handled promptly||50%||89%|
|I received my goods/services promptly||44%||84%|
|You understood my requirements||66%||96%|
|You managed Lam Suppliers well||52%||88%|
|Your resources were accessible||68%||80%|
|You delivered quality results||72%||88%|
|You met my expectations||60%||83%|
|You added value||27%||73%|
In summary, there is no organization where ReEngineering is more applicable or needed than Purchasing. And there is no group of professionals who are more ready to discard bureaucratic roles and embrace value-added activities than those who are attending this conference.
The heart of ReEngineering is the development of radically new models of business processes. It demands that individuals first change their mindset and then change their toolset. Breakthroughs in performance will be never achieved by simply "cutting fat" or by automating existing inefficient processes. Significant improvements will be achieved by listening to and learning from the experts in ReEngineering like Michael Hammer who can lead the way, and by innovative use of new information systems technologies. Let's get started.
- Drucker, Peter F. Post Capitalist Society. New York: Harper Business, 1993.
- Hannner, Michael, and James Champy. ReEngineering the Corporation: A Manifesto for Business Revolution. New York: Harper Business, 1993.
- Minahan, Tim. "Fast or Dead: Intel's hard line on cycle times." Electronics Purchasing, December 1992, 22-27.
- Shonk, James H. Team-Based Organizations. Illinois. Business One Irwin, 1992.
- Tomasko, Robert M. ReThinking the Corporation: The Architecture of Change. New York, Amacom, 1993.