PART 2: Demand Management as a source of value improvement

In part two of the article on Demand Management, Peter Hunt will discuss the catalysts and some of the key tools to support Demand Management.


This will depend on the stage of the process as well as the organizations’ business environment / priorities.

During the analysis and planning phase of the process, options analysis and challenge is
intended as a step for a cross-functional category team to generate and evaluate options for sourcing, contracting and the future supplier relationship(s).  In relation to ‘sourcing’ options, as well as e.g. the number of suppliers, stage in the supply chain, insourcing, outsourcing etc., it’s important to consider and challenge also the business needs (specification or scope of work and the associated value levers), against the desired outcomes.

A cross-functional category team needs to provide the creative tension that will result from differing functional perspectives and the category lead would typically be responsible for creating the environment to enable this.  Useful tools and techniques include structured or unstructured brainstorming, process mapping, target costing or setting an aspirational or provocative goal to concentrate the teams’ focus on to a common end.

A challenge that can occur at this stage of the process is that a category team may not have been mobilized early enough to effectively inform the specification or scope.  Despite this, there is a significant risk in skipping or post-rationalizing this step and if the category and / or spend is significant enough the category lead needs the business authority to mandate it, even if it means revisiting previous decisions.

The ‘ongoing category management’ phase of the process provides a relevant and more natural environment for demand management.

Stakeholder(s) / business partner(s) are likely to be more actively involved in this phase of the process as relationship managers or performance managers and as such they are more naturally placed to challenge and refresh business needs / outcomes and the associated value levers and to contrast this with the total costs of acquisition and ownership.  At first hand they can place a sense of worth on a product feature, service level, performance or quality standard and make an informed judgement about its associated value for money.

It’s not uncommon for them to have a leadership role but certainly stakeholders / business partners will be a critical component in the process.  Consider for example local authorities with budget cuts being imposed while demand for services remains constant or increasing.

Responsibility for repositioning service provider scope of work (i.e. challenging demand) with reduced contract values has largely fallen on Heads of Service (budget holders) rather than a procurement team.

Indeed, public sector bodies have excelled and accelerated in the area of demand management both in terms of service provision by suppliers and by internal staff, simply because they have needed to balance income and outgoings.  Some examples are included in Figure 3.

The key catalyst in the public sector in recent years is that the Heads of Service have RAA (Responsibility, Authority and Accountability) to manage within budget, i.e. managing a reduced and reducing budget is a fundamental aspect of their job.

This has parallels in the private sector too where there is a sectoral and / or cultural expectation of continuous improvement, e.g. in the information technology and automotive sectors.  In both there exists infrastructure which is in place with dedicated and specialist
resource targeted to deliver continuous improvement, comprising internal staff and supplier (often technical) expertise.  Again, these teams have RAA.

In addition to skilled resource and business support and the tools identified in the early category management phase, there are a number of additional tools which have proven to be useful catalysts in demand management to either avoid, prevent, reduce or change demand in the ongoing management phase:

  • Root cause analysis (RCA) – also known as ‘5 why’s analysis’ or ‘Fishbone analysis’.

Having identified and defined a problem or undesired event or simply a high cost to the business, root cause analysis is used to determine the most probable underlying causes with the aim of formulating and agreeing corrective actions to mitigate or eliminate those causes.

  • Value analysis – also known as ‘value engineering’.

Analysis to identify and select the best value alternatives for designs, materials, processes and systems.  Key question: Can the cost of this item or step or feature be reduced or eliminated, without diminishing the effectiveness, quality, customer satisfaction etc. (i.e. the desired outcome)?  The objectives are:

  1. To distinguish between the incurred costs (actual use of resources) and the inherent costs (locked in costs) in a particular design or solution (and which determine the incurred costs), and
  2. To minimize the locked-in costs.

In summary, while strict formality is not a pre-requisite, there is certainty that the effectiveness of demand management to deliver improvement outcomes will be proportional to the quality and quantity of resource and business support invested – by both the company and its supply chain.  Therefore addressing ongoing improvement in the contracting and selection process with suppliers will provide a necessary foundation.

In an effort then to create momentum and share insights, celebrating and promoting successes is essential.  The scope to deliver value improvement through demand management, especially in the ongoing / supplier relationship management phase of the category management process is significant and often is more effective than simply
re-competing or resourcing.