AN APPLICATION OF VALUE STREAM MAPPING TO IMPROVE A PURCHASE ORDER PROCESS

Abstract

This research is about an electricity generating company whose long lead time in its procurement process for spare parts after breakdowns caused internal customer complaints. The focus firm, Allied Generating Company (AGCo), is in a sensitive industry, that of supplying electricity to provincial and national grids in Thailand. Therefore, the procurement problem is a threat to the nation’s economy as well as to the reputation of the AGCo firm. To solve this embarrassing problem, this research applied the Value Stream Mapping (VSM) Lean methodology to identify and remove ‘wastes’ so as to reduce lead time delays and improve the procurement process.It was found that the problem originated in the Procurement Department’s purchase order process. Historical data for a one-year period found that the actual lead time was 26% higher than the standard set time. Of the three bidding methods by which suppliers could tender their bids, the Written Bidding method had the highest number of purchase order delays, 54% of its 151 bids. The average actual processing time of this method was 50.5 days, compared with the set standard of 15 days. The major cause of delays was communication waste in confirming specifications and conditions, and seeking bids from too many suppliers.

Work plans were redesigned to eliminate this waste and improve the purchase order process, thus achieving the standard time. Continuous performance monitoring was also begun, with KPI standards.