Please click here for Part 1 and Part 2 of this series.

At the "Advanced" or "Level 3" maturity phase for lean sourcing, we see a mild transformation take place in the resident skills of procurement and supply chain. Often times at this level, they become somewhat interchangeable given the quantitative and analytical focus of both separate functions in driving continued cost out of the equation. At this level, organizations often place an emphasis on hiring former sourcing and operational consultants with an experience in data-driven initiatives. On the supply chain side, initiatives may include expanded integration programs with suppliers to support demand management. Or they may include programs designed to reduce produce complexity, drive part standardization and rationalize various SKUs.

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In the first post in this series, we outlined what we'd term "Basic" or "Level 1" maturity for procurement and supply chain organizations embarking on a lean sourcing Initiative. In today's post, we'll explore the "Intermediate" or "Level 2" practices most common as companies begin to move up the lean sourcing curve. It's important to note that at Level 2, we begin to see the origins of a joint coordination of efforts between sourcing and operations teams, occasionally even aimed at the same outcome such as a standardized supplier auditing and development process.

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Please click here to read Part 1 and Part 2 of the posts that inspired this refresher series: Of the "10 Supply Chain Concerns for 2011"...5 Are Clearly in Procurement's New Wheelhouse.

It's rare we ever recycle content on Spend Matters. In fact, that's probably our biggest fault to date (next year, you'll see us improve at repurposing material for different constituents at varying degrees of depth and focus, but more on that later). But we think it's high time we revisited a concept that our sister site MetalMiner pioneered back in the last decade: lean sourcing. You can click on the above links for an intro to the topic, as we'll start today by highlighting the first level in a three-stage maturity model showing the characteristics of organizations that do lean sourcing well.

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In the first post in this series, we shared the "10 top supply chain concerns for 2011" according to one consultancy which conducted some survey work on the subject. Of these, we'd argue that five are actually procurement-centric (encompassing direct materials spend, mind you) issues. These include supply chain network optimization (even more important today given the advanced sourcing capability we now have for direct spend, leveraging optimization technology), supply chain segmentation, supply chain risk management, material purchase price reduction and green supply chains. Among these concerns, we believe that supply chain risk management is actually more of a procurement and finance-led initiative than an operation one (increasingly, finance is seizing the reigns here, often staffing the executive role in charge of the area with a former procurement or supply chain resource). And the others are often falling into procurement's wheelhouse as well.

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Over on Supply Chain Digital, I came across a recent post quoting the study highlights from a consultancy, Crimson & Co, examining the top ten supply chain concerns of 2011. Curiously enough, we count at least five that are clearly in procurement's wheelhouse today. These areas are either jointly or increasingly owned by global procurement -- rather than operations -- teams. Without further ado, the "top ten issues ranked in order of frequency of occurrence" are:

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What Will 2008 Bring in the Metals Markets? Earlier today, Lisa Reisman and Stuart Burns penned a thoughtful and lengthy post over on Metal Miner offering up their predictions for the metals markets in 2008. Among the metals categories they take their crystal ball to, the two examine where steel, stainless, nickel, aluminum, copper and zinc prices might be headed to on a global basis. In the same article, they also tackle the impact of a falling dollar and rising oil prices on global metals sourcing. What are some the assumptions driving the forecasts they present in their post? According to the metals blogging dynamic duo, “In the face of a slowing US economy, a mixed position for the European economies and a still strong Asian market, it is a particularly tough call this year to judge where prices will go. Our call is the US will teeter on recession. Europe though restricted by high ECB interest rates will still enjoy some (if reduced) growth providing the Euro/US Dollar exchange rate does not strangle exports. Asia in general and China in particular are still enjoying robust growth. China may well drop from the double digit growth of the last 5 years to high single digit figures but that is still a very significant driver for the world economy and particularly the world metal markets.”

Reading Stuart and Lisa reminds me about how much domain knowledge really counts in analyzing and covering specific commodities markets. Call me biased -- yes, I am married to one of the authors -- but relative to the price alerts and regurgitated crap that only mildly passes for journalism that the trades put out on metals, there's no substitute for the type of coverage that only true industry experience can bring to the table. Seriously, do we really want to know that the sky is falling and copper is up today, or do we care about why and where it might go tomorrow -- and what to do about it from a sourcing and trading perspective?

- Jason Busch

Over on Sourcing Innovation, Michael Lamoureux plugs the concept of Lean Sourcing, which combines elements of strategic sourcing and lean manufacturing to reduce the total landed / manufactured costs for materials (full disclosure: I have a financial interest in the concept he is plugging through my wife's consulting firm). Far beyond self interest, however, I firmly believe that in the years to come, we'll see a global environment ripe with opportunity for cost takeout opportunities for large and small manufacturers alike. But once companies achieve a degree of cost savings through deploying lean and strategic sourcing individually, they'll need to combine both elements to achieve next level savings.

For example, it will no longer be enough to optimize for lowest total landed cost on a delivered unit basis without taking into account additional value-added capabiliites that a supplier can offer such as vendor managed inventory (VMI) or just-in-time (JIT) sequencing. Only by truly understanding the components of a lean operating environment and combining rigorous, analytical- and process-driven sourcing methodologies will manufacturers truly be able to maximize their cost and risk reduction opportunities. And what's most interesting here, is that the opportunity is not so much around technology -- granted, better total cost management and scenario building / risk modeling tools would be nice -- but from an operational and educational perspective. Mandatory lean -- not to mention Six Sigma -- training for procurement, anyone?

- Jason Busch

I found an insightful article in Purchasing this morning that shows further evidence that procurement and supply chain are coming closer together. Titled Lean Drives Solectron’s Sourcing the article describes how "commodity teams will become more important as [the firm] moves to Lean production, which began about two years ago. It is relying on suppliers that can help support its Lean initiative ... Solectron has already done more than 1,000 kaizen events with suppliers to identify areas of waste that can be eliminated in Solectron's or the supplier's business processes. Eliminating waste is a key part of Lean manufacturing."

Solectron's lean manufacturing initiatives are changing how suppliers interact with the contract manufacturer. Suppliers must now deliver in smaller quantities at greater frequency than in the past: "A few years ago, Solectron had warehouses which took delivery of large volumes of parts from suppliers. Today, as a result of Lean, Solectron has closed many warehouses and has a "supermarket" on its manufacturing floor where parts are now stored. The supermarket doesn't have as much space as a warehouse so suppliers have to make more frequent deliveries of smaller quantities of parts. Solectron now has 50% of its parts in supermarkets compared to about 15% in 2003."

Solectron's embrace of lean and strategic sourcing in the procurement process is an early example of a global industry leader that is truly examining the total cost of doing business. For some, this might represent a quintessential reading of Spend Management and Six Sigma principles. But most important, it shows how a firm can get the most out every penny it spends. Benjamin Franklin would be proud!

- Jason Busch

Since I first wrote about reverse auctions in Information Week in 1999, I've been a staunch proponent of their use and effectiveness. But that's not to say that all companies use them correctly or maximize the potential savings and value they can create. Their misuse, has in fact, sparked a small critics' circle that abhors their very existence. This sub-culture counts such pundits as David Stec and Bob Emiliani of The Center For Lean Business Management as card carrying members. Now, this is a free country, and in a true libertarian free market sense, I believe that everyone is allowed to have their own opinion. But all too often, criticism is founded out of self-interest. In my view, as Stec and Emiliani attempt to drive down the value of "sourcing, online sourcing, sourcing event[s], online transaction[s], e-sourcing, supplier e-connection, or strategic sourcing" through their research, they also drive up the potential audience for the "lean" services and training that they provide (they do not, as they point out on the site, provide reverse auction consulting services). A parting thought: while Stec and Emiliani would disagree, I believe that lean and strategic sourcing / reverse auctions are not necessarily in conflict. My wife, who has a Six Sigma blackbelt, co-authored a recent whitepaper arguing this very point. Maybe we can get a good discussion going at Spend Matters about this very topic.

- Jason Busch