Agile Procurement

Volume I: Adding Value with Lean Processes

Bernardo Nicoletti

• Publisher: Palgrave Macmillan
• Year: 2017
• ISBN:
  9783319610825
• Topic: Negocios y empresa
• Subtopic: Operaciones

This book is the first of two volumes presenting a business model to add value through Procurement. Including several case studies of successful implementation, it demonstrates how the increasing complexity of the business environment requires a significant intervention on the management of processes and information within individual organizations and through inter-company relations. Agile Procurement presents the application of the Agile method which optimises and digitizes processes in order to reduce wastage and defects. As a method, tool and a culture aimed at effectiveness, efficiency and economy of organisations, agile procurement requires a change of paradigm. This volume examines these areas of improvement and presents best practice in improving processes. Each chapter of the book presents and substantiates the costs and benefits of process improvement through agile procurement. This is is seen as the integration of Lean Six Sigma and digitization.

© The Author(s) 2018

Bernardo NicolettiAgile Procurementhttps://doi.org/10.1007/978-3-319-61082-5_1

Begin Abstract

1. Introduction to Agile Procurement Processes

Bernardo Nicoletti¹ 

(1)

University of Tor Vergata, Rome, Italy

 

End Abstract

Organizations need to grow, notwithstanding market volatility, the push to reduce costs and delivery times, and the difficulty of forecasting. As the world economy becomes more competitive, organizations intensify their external activities. Better procurement may allow the organization to substantially improve its margins, due to the increased number of components of services and goods sourced externally to the organization.

The increasing complexity of the business environment requires significant intervention in the management of processes and information within each organization and in inter-organization relations. The main stimulus for change comes from the need for process improvement and the evolution of information and communication technology (ICT) in terms of development characteristics and potential benefits. Digital transformation is the right solution.

An increasingly important aspect is the visibility and alignment between processes and the overall objectives of the organization. These changes have a major impact on the management of the value network of the organization and hence on its main processes.¹ Therefore, organizations put more and more emphasis on the management of these processes. They should work together with vendors to refine their strategies and practices aimed at achieving the objectives defined in terms of scope, cost, time, and quality.

This book does not use the term supply chain or value chain. The term it uses is value network, underlining the importance of taking into account the value provided by the organization to its customers and the increasingly non-sequential nature of processes in the organization (see Fig. 1.1).

Fig. 1.1

From the supply chain to the value network

In the management of the value network of the organization, procurement processes can be defined as those of procuring, receiving, and managing goods, raw materials, services, and maintenance in exchange for financial considerations. Due to the trend of concentrating on the core business, relationships with vendors have become increasingly important. Organizations have begun to review their procurement strategies. In the past, organizations saw procurement as a service to its other functions, but it now plays an increasingly central role in successful organizations thanks to management attention to the value network. Consequently, it has come to have a greater impact on the operations and the creation of margins of the organization. The increasing outsourcing and globalization have led to greater amounts of supplies and stocks of work-in-process. The quality is increasingly critical, and delivery lead time is fundamental to the competitiveness of the organization. Managers have to adopt new models that emphasize procurement in the value network as a strategic key to success rather than simply a service organization.

In the volatile modern world, flexibility is essential to the survival and success of an organization. This flexibility is only possible in an agile enterprise.

Business agility is the “ability of a business system to rapidly respond to change by adapting its initial stable configuration.”² Business agility can be maintained by adapting goods and services to meet customer demand, adjusting to changes in the business environment and taking advantage of human resources.³

Procurement is an essential function of the enterprise (it can control up to 80% of the costs of the organization). Therefore, it is fundamental to enterprise agility.

This book discusses an approach referred to as agile procurement to contribute to the improvement of value creation in procurement processes. It claims that in order for an organization to reach a state of agility, procurement must itself act according to an agile business model. The following chapters analyze in detail each basic component of the procurement business model.

In terms of the tools to be used to gain agility, this book underlines the importance of digital transformation. This can be achieved with a Lean Six Sigma approach combined with smart digitization.

The analysis of these concepts is the subject of this book.

The principles of agility and leanness, in combination with management automation, can provide a powerful support to enable organizations to meet their daily challenges, provide the needed flexibility, and make their strategies successful in the short, medium, and long term.

The current digital transformation affects not only production (Smart Manufacturing/Factory) and logistics (Logistics 4.0), but equally all other functional areas of the organization, especially procurement. The goal is to make processes more agile and at the same time to take into account the opportunities provided by process automation. Often one of the main problems encountered is the excessive separation between the improvement of processes and digitization, or between the organization and the information and communication systems. This challenge is even more evident if one considers the organization of services, where digitization increasingly manages the processes.

This book presents in detail the application of agile procurement to optimize processes by making them leaner and, at the same time, digitizing them. The objective is to reduce waste and defects while also improving cycle times. The book uses a business model applied to the procurement function, arguing that procurement is indeed a series of processes that should act as a business.

Agile procurement is a method and a set of tools. It is also, and above all, a culture aimed at the effectiveness, efficiency, economy, and ethics of an organization. It requires a change of paradigm. Agile procurement certainly presents an important opportunity, especially considering that there is already in procurement a base orientation toward effectiveness, efficiency, economy, and ethics.

The development of agile procurement is especially important during this time of financial and economic crisis. In such moments of crisis, any initiative for improving the value of business products for customers, reducing waste, and especially becoming more flexible and productive must be undertaken immediately and as a priority.

For this, especially in these years of economic crisis, agile procurement can be of great help in improving procurement, purchasing, logistics, and, in general, the end-to-end value network. In the past, organizations aimed to produce the best products to win the competition. Today they must try to implement all necessary measures to avoid waste, add value for customers, and become more flexible. This is what the agile procurement approach aims to do. This approach requires adopting the perspective of the customer and endeavoring to increase the value of products, services, and the organization for the benefit of the customer. The value added for the organization is a derived result.

The agile procurement culture must permeate all areas of the organization in order for it to achieve flexibility and, above all, ensure the survival and growth of the organization. This book examines all these areas of improvement in the procurement processes and suggests best practices for attacking them.

The treatment of agile procurement in this book is split into two volumes. The first volume deals primarily with the contribution of process improvement to agility. The second volume deals primarily with automation. While the topic is divided into two parts, this book argues that agile procurement requires an integrated approach that involves both leaning processes and digitizing them.

These two volumes take into account the existing challenges in terms of digital transformation. The final section of the second volume looks to the future and points to a series of very interesting emerging trends.

While these two volumes present a series of models, it substantiates them with many real-life examples of their successful implementation. Good practice should be the basis of any theory.

The book presents the more important tools for an agile methodology, leaving some of the others to specialized books.⁴ Some of these agile methods and approaches include speedboats, innovation labs, venture-capital funds (to establish or support start-ups and own employees with great business ideas), agile project management (design thinking, scrum meetings, burn out), and flexible working environment (work from home, virtual 3D conferencing).

Footnotes

1

Peppard, J., and Rylander, A. (2006). From value chain to value network: Insights for mobile operators. European Management Journal, 24(2): 128–141.

 

2

Leybourn, E. (2013). Directing the Agile Organisation: A Lean Approach to Business Management. IT Governance Publishing, Ely, UK. Wieland, A., and Wallenburg, C.M. (2012). Dealing with supply chain risks: Linking risk management practices and strategies to performance. International Journal of Physical Distribution & Logistics Management, 42(10).

 

3

Tsourveloudis, N.C., and Valavanis, K.P. (2002). On the measurement of enterprise agility. Journal of Intelligent & Robotic Systems, 33(3): 329–342.

 

4

Cummins, F.A. (2016). Building the Agile Enterprise: With Capabilities, Collaborations and Values. Morgan Kaufmann, Burlington, MA.

 

© The Author(s) 2018

Bernardo NicolettiAgile Procurementhttps://doi.org/10.1007/978-3-319-61082-5_2

Begin Abstract

2. Procurement Processes

Bernardo Nicoletti¹

(1)

University of Tor Vergata, Rome, Italy

End Abstract

Introduction

This chapter describes the main processes associated with procurement. It begins with a distinction between the terms sourcing, logistics, supply chain management, and procurement and presents the main activities that make up these processes.

In order to improve processes, it is essential to define the current processes, describe them, analyze them, and then improve them.

Procurement Cycle

The meanings of the terms sourcing, supply, logistics, supply chain or value network, and procurement differ from organization to organization.¹ The following section clarifies how this book uses these different terms (Fig. 2.1).

Fig. 2.1

Value network, logistics and sourcing

Sourcing

The sourcing function deals with purchasing products and services outside the organization as required by a department, a person, or an internal customer. This function acts according to a strategy and a plan aimed at achieving the organization’s objectives.

The traditional activities included in this function are:

• definition of the sourcing policy based on the strategy of the organization;
• analysis of the types and volumes of purchases;
• decisions on which types of purchases to make (for example, outsourcing, e-procurement solutions, and so forth);
• analysis of the market;
• planning of the optimization of supply requirements;
• definition of the portfolio of vendors an...