Lean Principles in procurement

In the August 2011 issue of Inside Supply Management, Lisa Arnseth (Senior writer) is writing about about how Lean process methodologies are part of the global procurement leadership culture at Capital One Financial Corporation. Here we have compiled some of the highlights from her article “Transforming Traditional Lean Principles”.

Implementing lean processes

It was not long ago that lean supply management techniques resided primarily in the manufacturing realm. In 2009, two VPs at Capital One Financial Corporation in Richmond, Virginia, began to implement lean processes in their global procurement services function. With these efforts, their team has greatly reduced cycle time, maintained flat staffing levels while demand increased by 75 percent and boosted internal customer and associate satisfaction — proving that traditional services procurement can effectively transform itself by taking cues from widely used manufacturing principles.

Concept of lean production

The concept of lean production began in manufacturing, and is largely based on the principles used by Toyota in its Toyota Production System. Lean’s function is to identify and eliminate waste in the production process, as well as streamline and simplify the flow of work. Although lean was designed with actual nuts and bolts in mind, Capital One Financial Corp. has created ways to apply lean processes to the metaphorical nuts and bolts that comprise its procurement needs.

Mark Lareau and Edward Maiono

In early 2009 the two VPs, Mark Lareau and Edward Maino, created a strategy to dramatically overhaul the global procurement services function. Lareau had experience in consulting work with manufacturing companies, and knew how effective visual project-tracking could be. “Those massive white boards on the wall, covered with colored index cards, enabled everyone to organize the steps of different projects in a way that everyone could see and understand,” he says.

Maino had also worked with lean techniques from an operational background. After working in business development for Capital One Financial for many years, Maino was part of a build-out of the business when the company expanded to include Canada and acquired three additional banks. He learned how to apply lean to marketing and credit underwriting operations when he moved to that part of the business and began experimenting with lean.

“I got to see the transformation that’s possible when you bring lean into a service environment,” he says. “When I joined the procurement organization, I realized it’s basically a production environment, because every sourcing or contracting event was a project that had a unique start and a unique finish, and you need to manage the work throughout that process.”

Procurement associates didn’t initially see themselves as working in a production environment, according to Maino. Upon joining the global procurement services function, he noted that every sourcing and contracting event used a one-size-fits-all approach that could benefit from the segmenting aspect of lean. Additionally, many were caught up in the notion that you could not, as the procurement associates put it, “productionize” procurement. However, they eventually realized that work could be segmented into different types of projects according to complexity, and actively tracked through completion in a way that fostered continuous improvement.

More about lean procurement

Read the full article in the August issue of Inside Supply Management, or online: http://www.ism.ws/pubs/ISMMag/ismarticle.cfm?ItemNumber=21778