Implement a Lean Procurement Process for Just-in-Time Business Needs

Implement  a Lean Procurement Process for Just-in-Time Business Needs
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Lean Means and Their Significance

A lean procurement process is actually a modification of the traditional system of acquiring organizational needs. The objective of the modifications is to improve the system of procurement regarding issues about:

  • Long lead time before a material is received, inasmuch as long lead times equate to non-value-added costs before a particular transaction or manufacturing activity can be performed.

  • Maintaining the inventory at an optimized level to ensure that all stocks or materials stored or kept on hand are those that meet the immediate needs of the organization. That way, all purchases are converted into finished goods or items that are ready for distribution to customers at a moment’s notice.

In addressing these issues, the funds used to purchase the goods can be recovered at the soonest time possible, since deliveries to customers denote consummated sales. This is also known as “inventory turnover.”

However, before a system of procurement can be improved, it is important that one must have a clear perception that the traditional system is a reactive method of procuring the organizational needs.

The Traditional System

The traditional system is mainly concerned with cost determination and acquisition control. It is likewise important that a distinction is made between needs that are purely for administrative purposes from those that are intended for profit generation uses.

To control costs, there should be verifications against the approved budget to determine if funds have been allocated and if the purpose for acquiring an item is valid or justified based on organizational policies.

A part of the system includes the imprest or petty cash fund, which takes care of need-items that are ordinary, frequently purchased and require minimal funding. Hence, the business needs that are extraordinary and/or those that require substantial funding will go through the more formal process of procurement approval:

1. A designated employee is in charge of preparing and submitting a materials requisition form that furnishes the details pertaining to the item or service being requested.

2. If the request is for an extraordinary need, a supervisor or manager endorses the requisition to the proper approving authority or committee that will in turn review the request for cost justification and method of procurement.

3. If the requested material is part of a previous purchase, the requisition is forwarded directly to the purchasing department section that is in charge of the stockroom or warehouse. If the item is still available, then the items requested will be issued accordingly.

4. If the stock is no longer available, then the person in charge will initiate a request for stock replenishment and puts the unserved requisition on hold until the related inventory has been replenished. The request for replenishment will go through the usual procurement process, which commences with the preparation of the requisition.

5. Approved requisitions shall be forwarded by the approving committee to the purchasing department that handles the actual buying activities. Methods and order specifications will be based on the committee-approved requisition.

6. If the item being requested has been previously purchased it denotes that there is already a pool of approved-suppliers from which to choose. The choice of supplier will be based on the best price quotation and trade credit being offered.

7. If the item to be procured is extraordinary and costly, the traditional system requires a formal method of seeking suitable suppliers by way of issuing a bidding notification through newspapers and other forms of media publication. Interested suppliers will then submit their proposals by detailing their price offerings and their credit terms, as well as the manner by which they handle the processing and delivery of the goods or services to be acquired.

8. The proposals and bid prices shall pass through a selection committee in charge of determining which supplier has the capacity and capability to deliver the specific goods or services. After that process, the purchasing department shall be furnished with a formal approval of the selected supplier.

9. The first document that will serve as record of the acquisition process is the purchase order (PO) which shall be forwarded to the selected supplier.

10. The requesting organization’s copy shall be acknowledged as received by the supplier to denote agreement and commitment to delivering the goods.

11. The receiving section of the purchasing department shall handle the receipt of all delivered goods by verifying if the specifications indicated on the PO have been met. In addition, a physical count and inspection shall be performed by a representative of the auditing department, to determine if all goods are intact and received in good condition.

12. Receipt of the goods shall be acknowledged by the receiving section on the delivery receipt issued by the supplier while the audit representative shall indicate any exceptions noted. A separate document, the materials receiving report, shall be prepared to inform the supplier that the goods were received, which also contains the additional information if any defect or shortages were noted or if only a partial delivery was made.

13. If the entire delivery does not meet the specifications contained in the PO, the goods and the delivery receipt will be sent back to the supplier. No materials receiving report shall be prepared for rejected goods.

13. The warehouse or stockroom section of the purchasing department will receive the goods that passed inspection and will use the materials receiving report as a basis for keeping track of all incoming goods.

14. The accounting department on the other hand will receive all the documents–the materials requisition, the PO, the delivery receipt, and the materials receiving report–to serve as the bases for recording the amount payable to the supplier. The supplier, on the other hand, will subsequently issue a sales invoice to inform the accounting department that a credit purchase is currently outstanding in favor of the supplier.

15. The purchasing department shall notify the requesting unit that the item being requested is now available and ready for release. The warehouse section will prepare a stock release form as the basis for recording and monitoring the goods taken out of the warehouse or stockroom.

16. At the end of the accounting period, usually at year end, the warehouse or stockroom section will prepare an inventory report, which will provide in detail the remaining stock held as inventory. The accounting department will conduct a physical inspection and inventory count to verify the accuracy of the data provided. The said report will also be used by the accounting department to determine how much of the entire purchases during the year were actually sold.

The Use of Automation or Electronic Processes


Most businesses today maintain only a minimum level of inventory; hence their demands are met by observing the “just-in-time” (JIT) technique. Suppliers or wholesale distributors therefore are selected based on their ability to deliver the organization’s needs within the shortest time possible, which could either be within an hour or within the day.

The prevalence of the JIT method prods most manufacturers to embrace the leanest method of purchasing raw materials. Doing so can lessen the lead time of a manufacturing or distribution cycle and the non-value added costs involved in procuring goods and services via traditional procedures.

Today’s advancements in technology make it easier for business organizations to adopt the lean procurement process by simply selecting those suppliers capable of handling their purchase orders through real-time order-fulfillment applications.

The traditional system of acquiring goods and services still observes the budgeting system as well as the procurement approval and selection controls. The matter of instituting lean improvements is implemented by:

(a) Automatically prioritizing business needs and setting up schedules for request submissions in order to eliminate bottlenecks in the processing of requests

(b) Electronically processing material requests from point of requisition, to budget confirmation, review, and approval, through the point of release from the warehouse and issuance to the user/s.

(c) Using a single electronically produced document for all related internal transaction as request are processed from point of requisition to issuance. This allows for more accuracy in monitoring inventory levels and less paperwork.

(d) Empowering supervisors and mid-level managers to approve procurement request within pre-set limits but subject to the review and confirmation of the approving or selection committee.

(e) Real-time recording and monitoring of inventory movements to determine stock that requires immediate replenishments. Retailers use cash registers with point-of-sale (POS) applications, which simultaneously deduct from the inventory records, the items or goods sold at the instance that a sales transaction is captured by the machine.

(f) Selecting suppliers based on their capabilies for providing e-procurement services:

  • Purchase orders can be coordinated online or through call centers that are hooked up to the supplier’s back-office system and to reliable shippers. That way, orders can be immediately processed by determining if the buying party maintains a good account with the supplier and if the goods are available.

  • Collaborate with supplier by involving the latter in inventory monitoring by increasing the buying entity’s visibility at the supplier’s end.

  • A single document is processed for all transactions related to the external processing — from point of order, to shipment and up to confirmation, the said document shall be used for monitoring incoming inventory and accounts payable.

  • Measure the supplier’s performance and ability to satisfy the organization’s just-in-time needs.

The lean procurement process is a proactive support for the lean manufacturing and distribution systems. All these will result in the creation of sustainable values that benefit not only the customers but the entire stakeholders as well.

Reference Materials and Image Credit Section:


  • Descriptions and explanations for traditional procurement processes and their lean improvements are based on the author’s experience as a financial consultant for small and medium sized businesses.

Image Credits:

  • Traditional procurement and e-procurement diagrams were created for this article by the author.