A Transaction-Based Lean Six Sigma Success
When I took over as head of a procurement division for an integrated paper company, there were three plants with over $500 million in purchases per year. I was to transform Purchasing into Supply Management with some Lean Six Sigma tools. Plant senior management decided to downsize my department at the plant where I was located from eight to four, starting from day one. The plant manager was not committed to the transformation attempt and wanted it to fail. I decided to do everything in my power to disappoint him.
At the first meeting I had with the department team, two people started to cry. They didn’t know how they were going to keep up with the work. I pledged that within six months, they would have so much spare time; they would be coming to me, asking me what to do to move the business ahead. They all laughed at the statement.
I volunteered to take over buying of one of the major components in the plant. Of course, I had no idea about the workload involved in the buying process. The next day, four file drawers of paperwork for the component were moved into my office. I spent a week creating a database to help me manage the component, which had no previous reliable information. Eventually a supplier helped me improve the database and ordering process.
I soon found out that purchasing data was scarce or non-existent. Purchasing employees could not give me any good summary statistics and were so caught up in firefighting that confusion reigned supreme. No one could adequately explain the purchase-order process. There were no standard operating procedures. Undaunted, I rolled up my sleeves and typed purchase orders myself just to get an idea of what happened. We did a process map of the purchase-order process. We locked the doors to the department while we had process-mapping meetings.
We all went on a data expedition, and since I knew some computer programming and could query from the company databases, we started to compile our data. We discovered that we had approximately forty thousand transactions or buys per year. By using a Pareto chart, we saw that over 80 percent of the purchase orders were under $200. The majority of our purchases were small-dollar items. Additionally, only twenty people made about 90 percent of these buys. They were our superusers or power requisitioners. We decided to concentrate on them and educate them about our efforts to transform the entire process. We designed a short-order purchase form for purchases under $1,000 that they could use. They participated in the design of the form. No interface with purchasing was required for the form. The middleman (purchasing) was eliminated. The only catch was they had to buy from a list of our preferred suppliers. If they wanted to deviate from the list, they needed to get our approval.
We did a new process map for the short-order form with the superusers participating. We created a manual and SOP for the superusers that included the preferred-supplier list, contact information, and basic purchasing terms and rules. We posted a process-flow map in the department for everyone to see.
Our workload was drastically reduced, and the buyers didn’t have to worry about these small purchase orders. In addition our suppliers remarked that the error rate on these short orders was greatly reduced. We recognized superusers who had error-free months, and who worked well with suppliers. We eventually switched to purchase cards for these twenty superusers, which practically eliminated all paperwork.
Finally we had time for supplier rationalization or reduction-and-strategic initiatives. Again, we mined the data and found out that we had over twenty thousand suppliers. With hard work and consolidation of buys, we got that number down to 209. We set up preferred suppliers and greatly simplified the entire process from requisition to payment. We standardized payment terms, which greatly relieved accounts-payable’s workload—and they soon became our allies.
In four months (not six), my employees had the confidence and trust in me to come to my office and admit that they had nothing to do that day and ask what could they work on to move the business ahead. Most of this progress was due to using some simple Lean Six Sigma process improvement tools.
- Be a hands-on leader in crisis situations.
- Gather data before making major decisions.
- Build trust by keeping to your word.
- Avoid or streamline non-value adding work.