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Lean Sourcing: A Better Way

It seems that after a severe economic crisis, we are finally recovering. One of the lessons learnt by businesses has been the need to be as agile as possible. In this way, they will be able to adapt rapidly to changing socio-economic conditions. The sourcing department must take into account this imperative, since in many cases an agile organization makes more use of external vendors for its non-core activities. In order to help the Business to become more agile, it is essential for sourcing to aim to make sourcing itself as lean as possible by improving its processes and right-sourcing. On this respect, there are more and more opportunities connected not only with outsourcing, but also with BPO (Business Process Outsourcing) and more recently with KPO (Knowledge Process Outsourcing).

The best methodology to reach the target of more agility is Lean Six Sigma and its tools. Lean Six Sigma combines the best of two distinct methodologies
- Six Sigma, which helps in reducing the number of defects and the variation of the outputs; and
- Lean Thinking which helps in reducing the cycle times and the lead times.
A certain number of companies, such as Motorola, GE and Toyota have achieved excellent results by the use of these methodologies, in fields such as production, maintenance, marketing and finance. Various consultancies and thought leaders have developed a specific adaptation of the methodology to help sourcing and procurement in its client organizations to become more agile. At GOX, for example, we call this 'Lean Sourcing'.

The methodology is based on the application of DMADV, one of the tools in Lean Six Sigma. DMADV allows companies to obtain drastic improvements in their business processes. The next step is to combine Lean Six Sigma with digitization. The idea is first to make the processes lean and then to digitize them. In this way, it is possible to reap the benefits of the automation of a process which has been optimized.

The name DMADV derives from the initials of the steps in the application of the methodology: Define, Measure, Analysis, Develop and Verify. It is essential to apply this methodology in strong partnership between the sourcing, quality and target organizations (such as IT, finance or operations). Stakeholders from all parties need to align in setting up and staffing both the improvement project and the project team. Lean sourcing specialists can assist, and even help lead these projects at a client organisation. Perhaps more importantly, the organisation must treat the initial DMADV project as the beginning of an iterative cycle that generates continual improvement. Process improvement should not be triggered by a 'problem' or 'challenge', but rather become ingrained in the organisational culture.

In outsourcing, the results of the methodology combined an outsourcing methodology that empowers multiple levels of the organisation to help attain its goals (such as Project Based Outsourcing), can yield significant results, on average:

- Cost reduction between 20% and 40%;
- Speedier responses to the need of the Business;
- More flexibility;
- A wider range and pool of talents from outsourcing companies,
- Reduction of risks with the Vendors.

In the next few newsletters we shall give more information on the methodology and its successful implementations.


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