How to Create Continuous Improvement Processes for Procurement Organizations (Part Three)

Key Takeaways:

Introduction

In our previous posts, we discussed the importance of leading indicators and benchmarking in procurement. To be successful in gathering that type of information, the procurement team will invest a lot of time in collecting data, analysis, and driving insight around a range of performance metrics and risks.

Once all this data gathering and benchmarking has been done, however, a simple question must be answered: Now what? At this point procurement teams face a decision to either continue collecting, analyzing, and reviewing information, or take action. ?

Unfortunately, many organizations fall into the trap of believing that monitoring and early warning flagging are enough for risk management processes. They believe that this alone offers them protection. Others in procurement use this data and benchmarking to develop risk playbooks with reactive plans to use in the event of disruptions. Both of these levers, however, typically create a false sense of security, coupled with crisis management, and followed by a reset back to the current state after a crisis passes. Does this sound familiar?

The key question is, why hit reset when the information, benchmarking, and learnings offer a chance to use continuous improvement processes for your supply chain development and risk management??Isn’t the definition of insanity doing the same thing over and over again expecting different results?

In this post, we will discuss the importance of continuous improvement for procurement organizations, as well as some best practices for implementing a continuous improvement plan.

The Importance of Continuous Improvement

How do you react to a smoke detector going off? ?

95% of us ignore it or even worse, take the battery out or dismantle it. ?

Fewer actually investigate to determine the root cause. Perhaps, the detector is faulty, the batteries bad, maybe there is an electrical issue, someone burned dinner, or some other issue. ?

But what happens if there really is a fire? With our smoke detectors turned off or ignored we are underprepared and have to react quickly to either put the fire out or risk losing the house or worse. ?

Afterwards, many of us react by saying, “But we had smoke detectors.?Not sure why they didn’t work.” ?

The above example illustrates the importance of using procurement “smoke detector” data and benchmarking to create continuous improvement plans.

Continuous improvement focuses on developing a sound problem statement and driving to the root cause. Too often in risk management and procurement, teams focus on symptoms, not root issues. Within a continuous improvement framework, however, analysis is performed specifically to look for trends and correlations between data points, such as leading and lagging indicators, among other key performance indicators (KPIs) like cost, quality, OTD, and lead-times, to get to the root cause of supply chain risks and disruptions. Warning flags such as noncompliance, lack of insurance, or poor safety metrics, are all potential risk indicators with operational and financial impacts. Ultimately, the continuous improvement analysis converts all this raw data into actionable information that allows procurement teams to implement plans to improve their processes.

There are many proven continuous improvement methodologies including Six Sigma and Lean. Within the continuous improvement frameworks, tools like A3s, 8Ds, DMAIC, and FMEA provide structure in determining relentless root cause analysis (RRCA) and developing mistake-proofed solutions.?Any one of these frameworks will provide the necessary support to develop continuous improvement plans and lead to a successful implementation. ?

The key is being sure the team develops a sound problem statement and in performing the RRCA, determines the real root cause. Otherwise, the results will not be sustainable as the team will likely have addressed a symptom of a larger issue. ?

As the team drives to root cause of impact from risks and disruptions, tying the solutions that are developed to KPIs supported by benchmarks allows for effective development of larger strategies, and a more powerful continuous improvement flywheel. Showing changes in these KPIs and benchmarks also provides evidence that measures progress and demonstrates impact.

Make sure to document each continuous improvement project. This simple step ensures the organization builds a history of what has been done and provides a valuable research tool within the organization to learn, share, and communicate. ?

If investment is required in resources (quality, engineering, supplier development), new designs, suppliers, or technology to address and eliminate the conditions creating the risk, these factual references offer proof and credibility that many executive teams require to make an informed decision. They want assurance that investment in continual improvement will positively impact their strategic plans and are aligned with corporate goals (revenue, profit, customer satisfaction, etc.).

Additionally, it is important to note that this process must be repetitive and continuous. Business is dynamic—conditions in the world change minute by minute. The way to remove uncertainty and the unexpected while developing supply chain resilience is by proactive continuous focus on using information to identify vulnerabilities, opportunities, and then take action.

Best Practices for Implementing Continuous Improvement Plans

Conclusion: Take Action in the Face of Uncertainty

As with any large strategic shift, the most important thing is to take action. Don’t merely gather and analyze data but use those KPIs along with benchmarking to develop plans for taking actionable steps to improve your procurement organization and supply chain resilience. By proving your case with data, getting leadership buy in, breaking down siloes, following a PDCA process, and making sure to first crawl, walk, and then run, you will create a virtuous continual improvement cycle that transforms your organization from just monitoring to systematically eliminating risk in your supply chain.

Avetta is a SaaS software company providing supply chain risk management solutions. Avetta’s platform is trusted by over 130,000 suppliers in over 120 countries. Visit Avetta.com to learn more about our supplier prequalification solutions.