Real World Sourcing – don’t forget demand and specification management

Back to our Real World Sourcing session sponsored by BravoSolution recently.

One point that I’ve gradually come to understand over the years is that we often jump to conclusions and solutions too quickly in procurement before we really think through the options. In particular, in category management , there is often an assumption that the answer is to “ run a competition / do a tender”.

Yet, of all the different mechanisms and tools available to procurement, competitive leverage is one of the toughest to pull off. Think of all the things that can go wrong – perhaps the market isn’t particularly competitive. Your current supplier(s) might actually be giving you a good deal already. Your internal users might not accept the new suppliers or the restricted preferred supplier list.

That’s not to say you shouldn’t look at these options, but there are others.

Demand management and specification management are two sometimes unfashionable but vital tools in the procurement armoury. Demand management can sometimes seem like cheating, but, as an experienced colleague said to me early in my procurement career, “stopping spending is the easiest way of spending less”.

It’s the main tool that has led to the impressive savings the UK government has made in the last 18 months. Not that it is always easy however – you often need senior management buy-in, but if you can get that, putting in controls or changing policies to control spend in areas as disparate as travel, professional services or IT hardware can pay real dividends.

Working to drive change in the specifications of what you buy is also not always an easy option, but just as in the case of demand management, the benefits can be significant. Moving your workforce onto the basic level laptop rather than the whizzy top of the range model; economy rather than business class travel; these are simple “specification” issues that can drive high percentage savings.

And as well as simply reducing specification, alignment is a further option  – so if you’re buying 10 different laptops or 100 different envelopes, rationalising can give you economies of scale and simplification. Then an additional step can be simplifying, re-engineering and applying cost reduction techniques to the specifications.

As we said in the Real World Sourcing session, demand management can save up to 100% of the spend. Specification management might give you 50% saving. It’s hard to get those sort of numbers out of pure leverage or negotiation approaches. So don’t disregard these options when you put your category strategy together.

You can download all the slides from the session here; and remember once you’ve had a look through the  slides you can take the “test” and perhaps get yourself on the way to winning the BravoSolution scholarship!

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  1. Tony Colwell:

    Two ‘obvious’ targets that may get overlooked, but I would hope that any category manager worth his/her salt would have these targeted, if not well and truly nailed. Do you have any evidence that these are unfashionable and not being practised?

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