Procurement Intelligence Unit

The post credit-crunch era has already earned itself the moniker the 'new normal' as companies prepare to loosen the purse strings after two years of almost unprecedented cut-backs. There is, however, another that could be used almost as frequently – demand management. Defined as "an approach aimed at influencing the type and quantity of bought-in goods and services consumed by an organisation, primarily in a bid to reduce costs and/or improve environmental performance," there is ample evidence to suggest that more companies are placing an increased emphasis on demand management in an effort to ensure the lessons learned in the recent past are not consigned to history as the upturn begins. 

A recent study by the Procurement Intelligence Unit (PIU) into demand management trends provides conclusive evidence that it's an area that is receiving increasing attention in the current climate – a trend that appears almost certain to continue.

• While 24% of more than 100 senior procurement executives are using demand management extensively, 44% are only doing so moderately and 10% are not using it at all.
• 54% are using it to a greater extent than they were before the global economic downturn while 42% said they are using it about the same.
• 27% said that their use of demand management would increase significantly in 2010 and 50% expect their use to rise moderately.

Surge in demand

Those figures paint a telling picture of the strategic importance that demand management is assuming. So what are the driving forces behind its growth?

Cost is, of course, the major factor – an overwhelming 97% of executives placed savings at the heart of their demand management process – but the benefits of a robust demand management strategy go far beyond the financial. Take sustainability as an example – with procurement, and business in general, increasingly being asked to do more with less, there's little doubt that the shrewd sharing of resources is going to be even more important in the future than it is today. And with governments across the world widely expected to introduce a raft of measures and legislation targeting excessive consumption over the next decade, demand management will soon be seen as a strategic imperative.

Need not want

According to one senior procurement figure, demand management dictates that procurement organisations need to fully understand the needs of their stakeholders – only then can they differentiate needs from wants. It's this differentiation which should, essentially, form the basis of any demand management strategy.

When it comes to some categories of spend, most notably travel and recruitment, the elasticity of demand dictates that procurement's role could become less critical. A board-level decree that business-class travel will stop until further notice, for example, will change the cost of travel at a stroke. Likewise a similar insistence from the top, that face-to-face meetings, as opposed to video conferencing, have to be justified will have the same effect.

Where the spend isn't so elastic, though, procurement will be given the chance to prove its worth. It's then that communication and influencing skills will come to the fore.

While procurement will clearly have its work cut out to bring its influence to bear, it's essential that it states its demand management case as coherently and persuasively as possible. At the same time it must also make it clear that the end result will be of benefit to both the user and the company – not simply a procurement-driven project.

As one senior figure put it, "there has got to be some bridge building so that procurement has some credibility before they suggest that changes should be made."

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Coming shortly, our next blog post will outline the rest of this article, looking at the importance of talent and change levers, amongst other significant demand management considerations. 

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If you would like a free copy of the report's Executive Summary, please click here.

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