Procurement Intelligence Unit

As the make-up of the procurement professional has evolved, so has the route that many have taken into the function, which could prove a significant advantage. With many procurement organisations now populated with talent that has previous experience working in areas such as marketing, human resources and engineering, the function has an in-built advantage when it comes to spreading the demand management word.

The very nature of demand management dictates that not every conversation procurement has with the wider business is going to be a polite exchange of views. There are going to be some very tough decisions to be made on both sides and there are also times when procurement is going to have to deal with some notoriously change-resistant areas of the business. History has shown that changing attitudes and behaviours is rarely something that happens overnight. But experience also proves that doing so can deliver significant advantages.

Change levers

Corporate culture, and in particular the degree of "cost consciousness", was highlighted as an important organisational factor in the acceptance of demand management. Companies that had adopted 'lean' philosophies in the past and associated practices – including six sigma – were seen as well suited because of their emphasis on eliminating waste and inefficiency. As ever, a "burning platform" for change was helpful.

• Senior-level support was seen as critical, both in terms of top executives leading by example in following demand-control policies and in actively backing the efforts of procurement and others to challenge the status quo. A strong relationship with the CFO was viewed as particularly important.
• There were mixed feelings about the usefulness of top-down mandates (something that 40% of survey respondents had), because they tended to be either too prescriptive or too general.
• A centralised procurement structure was seen as an enabler of demand management, although the function's internal network and relationships also had to be strong.
• Procurement's maturity level is a factor, with the most developed functions more than twice as likely to be using demand management systematically and more than three times more likely to be able to demonstrate the financial payback.

A company that has tackled change management problems head on is Xerox, an organisation that has pioneered demand management techniques over the past decade. The Connecticut-based printing giant estimates that of a percentage of the savings it delivered in 2009 (10% of indirect spend), almost two-thirds could be directly attributable to its demand management activities. And crucial to that success is the constant communication between procurement, the CFO and the company's key internal stakeholders. 

With the savings that demand management has enabled Xerox to achieve, it's little wonder that finance has bought into the idea, but procurement's role shouldn't be underestimated. Through Tom Roberts, VP of non-production purchasing, Xerox has introduced a number of relationship managers who work hand-in-hand with key decision makers and budget holders within the business so that they fully understand and appreciate the factors behind procurement's decision making.

Where necessary, these decisions will be interrogated to ensure that Xerox's demand-management strategy continues to deliver.

This is collaborative working at its very best, although Xerox is far from alone in demonstrating the difference that a robust approach to demand management can have. British Airways has endured a torrid time over the past 12 months and announced a half-year loss of £292 million in September 2009. But while the company's profits have nose-dived, procurement's influence is being felt as the firm looks to claw back lost ground. Tim Richardson, BA's head of procurement, chairs a group known as the external spend control group (ESCG), which meets on a weekly basis to sign off requisitions of more than £1,000 in value. So far, only £2.5 million worth of requisitions have been turned down. However, far more significantly, order commitment values have been brought down by as much as £30 million a month – a figure that suggests those requisitioners are beginning to ask the questions that the ESCG themselves ask further down the line.

It is also indicative of the influence that procurement is having on the process and although Richardson admits that it is not a strategy that has gained wholesale support within the company itself, he hopes that it's one that has contributed to the view that procurement is not a "policeman", rather a business partner and value-added adviser. But it's not just the mindset of key internal stakeholders that procurement has to work to change. In the majority of instances, the change needs to happen far closer to home and in the earliest possible stage of the sourcing process.

Next steps

For CPOs and procurement functions minded to either dip their toes in the demand management waters or take a headlong plunge, there was an array of advice from the more than 20 senior practitioners and consultants interviewed – advice that led the PIU to develop eight main points for CPOs to consider. Here we list two of these for your consideration: 

• Play the sustainability card. Although cost reduction is the number one driver for demand management, quite often there are clear environmental benefits too. People are often more interested in that than they are in cost reduction.
• Make sure it's a joint initiative. Faced with a mountain of data to analyse and policies to draw up there is a danger of demand management being perceived as an isolated scheme cooked up between finance and procurement. 

In many ways, the issues that demand management poses procurement reflects the broader battle that it has been fighting over the past ten years – the fight to be involved at the beginning rather than the end of a process. Some buyers will, of course, maintain that their role is simply to buy and not to challenge those creating the demand. They, however, are now very much in the minority. Moreover, if those attitudes haven't been completely altered by the global recession, then the "new normal" will almost certainly hasten the process.

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