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Lean Sourcing: Design

In the last newsletter, we covered the third step of Lean Sourcing, "Analyse", as based on the Lean Six Sigma methodology. This month, we will review the fourth step, "Design", in our DMADV approach. As in previous steps, we will address several risk mitigants to avoid common project failures.

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 name DMADV derives from the initials of the phases in the application of the methodology: Define, Measure, Analysis, Design and Verify.

At GOX, we often refer to this as a "build" phase, because the primary goal is to execute the pilot defined in the Analyse phase. While virtually every activity undertaken should ultimately reside in refined, ongoing processes, there are often several "one-off's" that fall outside of future sourcing processes. For example, vendor consolidation is (ideally) a one-off or as-needed activity, while managing and maintaining the right supplier mix is an ongoing process. The other caveat to remember is that unlike many internal processes, it may be very tricky to fully ring-fence a Lean Sourcing pilot. For example, if part of the solution involves introducing a new project-based outsourcing process, or moving from single- to multi-sourced models, your suppliers may react as if the entire organisation has committed to the shift before it actually has.

The key objectives of the "Design" or "Build" phase include the following:

- Vendor Preparation. The vendors that will be involved in the pilot run of your Lean Sourcing programme will need to be prepared for upcoming changes. In cases where a process is significantly changing, use incentives to help ensure their compliance. Incentives can be direct (e.g. promising more business, penalties, bonus) or indirect (e.g. making it clear that new projects and services will only be procured via the new process).

- Contractual Work. Depending on the nature of your pilot, you may need to either renegotiate certain aspects of existing contracts and/or negotiate new contracts with suppliers that you are introducing. In many cases, however, it may make sense to work off informal agreements throughout the Design and Verify steps as it is likely that additional process and strategy changes will be necessary.

- Process & Technology. The new processes must be laid out and communicated thoroughly to internal teams. Additionally, now is the time to install and configure any technology to be used in supporting these new processes.

- Stakeholder Prep & Close Monitoring. In analyse we did the analysis - now its time to get ready and ramp up. In the same way that your suppliers need to be informed and bought into the new processes, so must your internal teams. Frequent and regular updates and open forum meetings should be scheduled throughout the late Design and Verify stages.

- Support Structure. Any tools or people that will be used in supporting your Lean Sourcing initiative should be put in place. These can include instructional websites, a help line, sourcing support staff. It is important to use your support team both as a facilitator as well as a measurer of the challenges and successes of the programme.

- Pilot Kickoff. Once the stage has been set, your processes laid out, technology pilot in place (where applicable), and your suppliers and internal stakeholders are ready, it is time to begin using the new processes and enter into the "Verify" phase.

A few things to keep in mind when conducting the "Design" phase of a Lean Sourcing initiative:

- Your suppliers are not machines. Don't lose sight of the fact that strong supplier relationships can still trump any process rigor you've put into place. A competitive bidding process, for example, can reduce costs dramatically, but if your supplier becomes disenfranchised, quality and timeliness will be impacted.

- Stay flexible. It may not be feasible to change some or many of the processes and contractual agreements that are currently in place... at least not in the short term. While you do not want to treat these as barriers to success (or an excuse for failure), you may well need to work around them. If any of these incumbent factors seriously impact the success of the programme, they should be thoroughly addressed with top-level stakeholders so that they can either remove the barrier, or reset expectations accordingly.

- Empower your operational team. Possibly the single biggest source of failure in big sourcing initiatives is the mismanagement of operational stakeholders. Once the sourcing groundwork has been laid, the programme and project managers responsible for delivering those services become both your biggest weapon and potential failure point. While sourcing teams can manage and monitor overall spend and service levels, the people who interact with your suppliers on a daily basis have the ability to closely monitor and manage these services. They can detect service erosion far earlier than IT or sourcing leaders, and if properly empowered, they can also resolve these issues before they snowball. Conversely, disenfranchised managers may use new sourcing processes as an excuse for failure, undermining the entire initiative.

At the end of the "Design" stage, you will have your processes and in-scope teams ready for the pilot run. The goal should be to have strong buy-in from senior management, your operational teams and your suppliers . The solutions that you plan to pilot may have changed somewhat during this phase due to incumbent processes and contracts, or because concessions needed to be made in order for all parties to work together successfully. Provided that the ultimate solution set you plan to pilot has a strong projected ROI, you can move on to the "Verify" phase, which you can read more about in our next monthly edition.

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