Demand Management – A Powerful Lever in Most Spend Categories

Comensura paperWe published a new Spend Matters briefing paper recently, written by our Managing Editor Peter Smith in conjunction with the Business Development Director of Comensura, Jon Milton. Comensura is a vendor-neutral managed services provider focusing mainly on the contingent (temporary) labour market, with clients in both public and private sector. The paper is titled Full Value Buying - Moving Beyond Price Negotiation. You can download the paper free on registration here.

In the paper, we point out that too many procurement people and functions put the greatest amount of effort into price negotiation and price reduction. But areas such as demand and specification management have the potential to deliver far greater value benefits in many cases, so we illustrate that and give some suggested areas of focus, applicable to any spend category. We also give some practical examples from the contingent labour spend category to show what might be done to drive better value.

Do download the paper - it's not too long or "technical" but we think it will give most readers some ideas at least that could be valuable. And here's an excerpt.

Demand Management

Even where demand management is considered, it is often seen as a simple matter of stopping people spending money. So at its most basic, it is a freeze on travel announced when the firm is struggling to make end of year targets; or the decision to stop all purchases of new laptops for six months. There is nothing wrong with this sort of action where it is really necessary, and it can certainly release short term savings; although in some cases, the costs are deferred rather than truly avoided. But there are more sophisticated methods of controlling demand which may also have less impact on the business than some of the more drastic actions.

Demand management can come at the point of making the initial purchase, or where costs are not just incurred at that single initial point, it can be an ongoing activity. So it might be around making sure that software licences are purchased for the correct number of users at a single point in time; or it could be relevant in a category where spend is ongoing and regular, such as stationery or contingent labour. Here are some ideas to consider, with illustrations from the contingent labour spend category.

Initial approval mechanisms - ensure that there are appropriate processes in place to approve the demand.  Whilst there are some situations where the need (whatever it is) may represent a genuine emergency and such processes must not get in the way of responding properly, it is a good discipline to question demand at source and to make sure that the right level of authorisation is applied. That will often be linked to delegated levels of budgetary authority.

This certainly applies in the contingent labour context; whilst the need may be genuine and even urgent, there is usually value in questioning that demand and indeed the specification (see below). Is the person really needed? Can the budget holder do without resource for a short time? Are there surplus members of staff available elsewhere who could move into the role? Or can other staff cover the requirement for a short time alongside their normal role?

Replacement spend and extensions - ensure that similar control processes cover replacement type expenditure or contract extensions, even where initial spend approvals are well managed. Often the processes within organisations are weak in terms of this further spend, but this is vital to make sure that an initial agreement to spend does not roll over into a potentially everlasting commitment. Systemisation of such re-approval processes can be useful to highlight action "triggers" and speed up processes.

Engagement of temporary staff should be approved on a time-limited basis, and re-approval should be sought beyond that. The same disciplines can then be applied as described above in terms of the initial engagement e.g. is the budget-holder content with the spend, are there internal alternatives?

Download the whole paper for more examples of demand management levers and opportunities.

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First Voice

  1. Mark Lainchbury:

    Isn’t this classically called “Demand Throttling” ?

    with “Demand management” more about understanding demand to focus on using planning and forecasting skills to anticipate need

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