Cycle Time Reduction: A Procurement Perspective
Ernest L. Nichols, Jr., Ph.D.
Ernest L. Nichols, Jr., Ph.D., Assistant Professor and Associate Director of the FedEx Center for Cycle Time Research, The University of Memphis, Memphis, TN 38152, 901/678-4973
81st Annual International Conference Proceedings - 1996 - Chicago, IL
Introduction. Superior cost, quality and technological performance do not guarantee success in today's marketplace. Organizations must also be able to compete on the basis of time. This competitive environment presents new challenges and opportunities for the procurement function. This paper presents an overview of the cycle time reduction workshop at the NAPM International Purchasing Conference. Specific topics to be addressed include:
- The FedEx Center for Cycle Time Research and its Activities
- Cycle Time Reduction Overview
- Key Procurement Process Candidates for Cycle Time Reduction
- Common Causes of Long Procurement Process Cycle Times
- Techniques for Cycle Time Reduction
- Critical Success Factors for Cycle Time Reduction
- Characteristics of Time-Based Competitors
FedEx Center For Cycle Time Research. The FedEx Center for Cycle Time Research was formed in 1993 as a strategic alliance between The University of Memphis and Federal Express Corporation. The purpose of the Center is to conduct research concerning ways of reducing time in organizational processes -- that is, the amount of time it takes to complete a task -- in a way that reduces cost and/or increases customer service. Much of the Center's work focuses on finding new ways of using information technology and organizational change to speed the flow of information, thereby reducing paperwork and needless activity.
The Center operates from a grant provided by FedEx. Three-fourths of the grant supports research projects requested by FedEx. These projects may address FedEx internal activities or those of key FedEx customers. The remaining funds are used by The University of Memphis to enhance its information technology academic and research programs. The Center's research activities are directed by a steering committee composed of representatives from FedEx and The University of Memphis.
The research conducted by the Center is based on scientific investigation of cycle time issues using case studies, field surveys, field experiments, laboratory experiments, and model building. A key feature of cycle time research is that it is interdisciplinary; therefore, the Center's project teams are drawn from various academic disciplines to achieve results. Research projects completed to date have addressed:
- Interorganizational Supply Chains
- International Product Distribution
- Procurement Processes
- New Product Development
- Order Fulfillment
Individuals that would like to learn more about the Center are invited to visit our homepage on the Internet. The address is: www.memphis.edu.
Cycle Time Reduction Overview. Cycle time is the total elapsed time required to complete a business process. Cycle time reduction has become a key area of opportunity for organizations that are under increasing pressure to get more done with fewer resources in order to remain competitive. By reducing cycle time organizations can reduce cost, increase quality, and improve customer service. All too often in organizations, less than five percent of the total elapsed time performing a process has anything to do with real work. The rest of the time is spent scheduling, waiting, needless repetition, getting lost, getting found, "left hand not knowing what the right hand is doing," etc. Cycle time reduction is not just about working faster; it's also about working smarter. By making innovative use of information technology and organizational redesign, business processes can often be re-engineered such that non-value added activities are eliminated, thereby cost effectively reducing cycle time.
As organizations increasingly focus on time-based competitive strategies it is imperative that the procurement function has the capabilities required to support these strategies. However, cycle time reduction is an area that many procurement organizations have not yet addressed.
Key Procurement Process Candidates For Cycle Time Reduction. Within the procurement function the following activities are prime candidates for cycle time reduction efforts. Very few procurement organizations are truly satisfied with their current performance in these areas from a time perspective. Specific procurement processes that should be examined include:
- Strategy Development
- Overall Purchase Cycle -- "Requisition to Receipt"
- Make/Buy Decisions
- Cost/Price Analysis
- Supplier Selection
- Negotiation/Contract Development
- Supplier Development Activities
- Material Transportation
- Material Receipt/Inspection
- Supplier Payment Cycle
- Material Review Activities
- Supplier Performance Measurement
- Strategic Alliance Development
Common Causes Of Long Procurement Process Cycle Times. There is no shortage of reasons for long procurement process cycle times (Nichols et al. 1995, Kivenko 1994). In conducting detailed examinations of processes typically one or more of the following is found. Specific causes include, but are not limited to:
- Non-Value-Added Process Steps
- Serial Versus Parallel Operations
- Repeating Process Steps
- Excessive Controls and Bureaucracy
- Unnecessary Transfer of Materials or Information
- Long Material/People Travel Distances
- Ambiguous Goals and Objectives
- Poorly Designed Procedures and Forms
- Outdated Processes and Technologies
- Process Variability
- Lack of Information
- Poor Communication
- Limited Coordination
- Ineffective Training
Techniques For Cycle Time Reduction. Wetherbe in his 1995 article, "Principles of Cycle Time Reduction: You Can Have Your Cake and Eat It Too," offers a collection of tools and techniques that have proven to be effective means to reduce process cycle times. Over forty specific techniques are presented that address key business areas including 1.) organizational management and structure, 2.) human resources, 3.) operations management, 4.) product development and management, and 5.) interoganizational processes.
It is beyond the scope of this paper to discuss each of the techniques. However, an overview of these techniques will be provided during the workshop session.
Critical Success Factors For Cycle Time Reduction. Tools and techniques are necessary to reduce procurement process cycle times. However, there are additional enabling factors that must be present in order to successfully complete a cycle time reduction initiative. Hendrick (1994) identified a number of "critical success factors" that include:
- Top Purchasing Management Involvement
- Collaboration With Suppliers
- Use of Multi-Disciplined Teams
- Identifying Purchasing's Internal Customers' Time-Related Requirements
- Top Company Management Involvement
- Setting, Monitoring, and Reporting Strict On-Time Delivery Goals For Suppliers
- Use of Total Quality Management (TQM) Tools
- Implementation of Computerized Purchasing Systems
- Setting Aggressive Cycle Time Reduction Goals
- Requiring Formal Cycle Time Measurement and Reporting
- Implementation of EDI Systems
- Training in Cycle Time Reduction Concepts and Tools
Characteristics Of Time-Based Competitors. Characteristics of time-based competitors have been identified by several authors (Hult et al 1995 and Kivenko 1994). Time-based competitor organizations exhibit characteristics that include:
- Flat Organizational Structure
- Process Focus
- Commitment to Organizational Learning
- Heavy Emphasis on Information Integration and Sharing
- Performance Measures Based on Organizational Effectiveness, Not Functional Efficiency
- Passion for Continued Cycle Time Reduction for Competitive Advantage
- Application of Cycle Time Reduction Efforts to All Parts of the Organization
Note: This paper provides partial development of the presentation to be made at the International Conference of the National Association of Purchasing Management. Specific case examples and managerial implications will be discussed during the workshop session.
- FedEx Center for Cycle Time Research at The University of Memphis brochure, 1995.
- Hendrick, Thomas E., Purchasing's Contribution to Time-Based Strategies. Tempe, AZ: Center for Advanced Purchasing Studies, 1994.
- Hendrick, Thomas E., "Reaching Your Cycle Time Goals." NAPM Insights, February 1994, 6-7.
- Hult, G. Tomas M., Mark N. Frolick, and Ernest L. Nichols, Jr., "Organizational Learning and Cycle Time Issues in the Procurement Process," Cycle Time Research, Vol. 1, No. 1, 1995, 25-39.
- Kivenko, Ken, "Cycle Time Reduction," APICS-The Performance Advantage, February, 1994, 21-24.
- Nichols, Ernest L., Jr., Mark N. Frolick, and James C. Wetherbe, "Cycle Time Reduction: An Interorganizational Supply Chain Perspective," Cycle Time Research, Vol. 1, No. 1, 1995, 63-84.
- Wetherbe, James C. "Principles of Cycle Time Reduction: You Can Have Your Cake and Eat It Too," Cycle Time Research, Vol. 1, No. 1, January 1995, 1-24.