Demand Management

Demand Management

Modern organizations are lean, effective and have the permanent target to find new cost-cutting opportunities.
One approach is demand management. Companies can cut the costs in certain categories in a short time between 10 % and 20 %.
Demand management – strategic spend or consumption management – involves all activities associated with managing the volume of a company's external purchases. Unlike traditional sourcing efforts, it targets the quality of products purchased from suppliers – not just only the price paid.
The cost management of a company has to attack the cost driver: consumption. Demand management handles quantity, enabling companies to reduce and even eliminate entire areas of spend.
Most executives are surprised by the magnitude of savings their companies can achieve by challenging existing practices.
Demand management also provides a platform for companies to change their  behaviour.
To restructure the way products and services are purchased it is necessary to make cost control every employee's responsibility – a culture of cost control becomes an integrated part in the organization.
By educating its workforce and implementing proper controls, demand for nonessential items nearly vanish.
Depending on the company's activity, targets – technology, telecommunication, consulting, travel and fringe benefits – represent a remarkable portion of expenses.

A.T. Kearney developed a methodology for a successful demand management:
The first step should be to asses the organization.
It is necessary to analyze the expenses across categories – spending groups, suppliers and business groups – to understand how the company spends money and to set priorities. After that, it is possible to identify improvement opportunities.
Consider, how a spend profile might be used in a category such as PCs. Using demand management the company is not only determining the total amount spent with their major PC providers but leveraging additional data sources such as the PC suppliers' internal records to bring a complete picture into view.
The improvement opportunities can be identified by reduction or elimination of demand.
A way is to review current practices.
To gather critical information on current practices key employees from all areas of the business responsible for processes, budget and policy should be interviewed. With current practices documented, a comparison of practices across the firm often reveals significant differences in how business groups perform the same functions. As for the opportunities, the executives can determine what impact a demand management program might have on the organization as a whole. Demand management programs are usually performed in waves, beginning with categories that will provide the largest impact for the time invested.
In different categories like mobile devices (including laptops, variations of cell phones and other wireless tools) or the use of company owned cars – and all categories of cars – strong rules must be introduced.
When choosing categories and rules for a demand management initiative be prepared for problems. Some of the problems are based also on personal prestige.
Deliberate, what drives demand: If computers are usually replaced every three years, the replacement cycle is a demand driver. If every new employee is issued with a new computer the hiring of a new employee is the demand driver.
The next step in the demand management approach is to determine the best way to influence usage, spending and thereby reduce demand. This is typically accomplished using two tools: demand reduction levers and benchmarks.
A wide range of demand reduction levers are available, from increasing cost awareness among employees, imposing tighter process and tracking (new supplies), encouraging substitution (alternative products, services, ways), reducing frequency, simplifying specifications (restrict the demand dimension), reducing quantity, eliminating demand.
Internal benchmarking can support the cost saving ambitions.
The demand management team proposes its recommendations based on a sound fact base and solid analysis. These recommendations should take into account the possible effect on customers.
The implementation of demand reduction recommendations needs strong rules, partnership, performance measures, a solid infrastructure and an open, transparent reporting system.
For the success of a demand management strategy all employees and also the executives must be involved without any exemption. For the decided measures a time limit is existing and nobody has a possibility to change the system. Cost cutting is difficult for all employees but it is easier to handle when everyone is affected.
The change must be communicated and explained, so everybody can understand "why" a demand management system will be an improvement.
The value of the program could be reinforced by a continuous reporting of success. Also, when a group reaches a savings target, report the success throughout the firm. It is time for many companies to look at hidden opportunities for cost savings by demand management.