Benefits of Demand Challenge
Demand challenge and good demand management is an essential part of procurement. Demand challenge can be defined as evaluating a specification to ensure a product or service isn’t over spec’d. For example, can a specification be downgraded and still serve its purpose without a risk to supply? Is it a necessity or just on the wish list and has the procurement department explored every avenue for fulfilling this requirement?
In this blog post, we will explore the benefits of demand challenge and the best way to implement demand management effectively across your organisation.
Reaping the cost benefits
The most obvious benefit of thorough and effective demand challenge is cost reduction. Often a specification can be significantly downgraded from its original incarnation without having a major impact on its end purpose. Business case analysis has shown a savings opportunity of up to 20% by implementing more informed decision making about specifications and requirements. To make such savings, it’s important that procurement professionals can distinguish between ‘wants’ and ‘needs’. It’s also crucial that a one-off need on an isolated occasion, such as overnight delivery for example, doesn’t then become a habit which is carried out because that’s the way it’s always been done. A procurement consultancy can provide an impartial view on demand management and help to devise an effective mechanism for differentiating between ‘needs and ‘wants’.
Delivering environmental benefits
As well as trying to achieve baseline savings, growing numbers of organisations have a renewed focus on sustainability. It goes without saying that implementing demand challenge could have major environmental benefits by reducing wastage and therefore greatly improving sustainable performance.
Reviewing replacement spend and extensions
Even where initial demand challenge is good, it is often weak when it comes to replacing products or reviewing contract extensions. It’s important to ensure that initial agreements don’t always automatically roll over into ongoing commitments. Regular reviews of repetitive spending can deliver huge benefits in terms of reducing spend and building good demand challenge habits.
Improve product value and categorization
An effective demand challenge strategy will consider the perspectives of all stakeholders to build a full picture of the hidden value of certain products and services. For example, the marketing department may see value in particularly unusual products that enhance brand recognition thereby delivering value beyond initial cost. The operations department may prefer a standardization of shapes of products to maximise efficiency. To truly benefit from demand challenge, it’s important to unify these perspectives to create a set of fit for purpose business needs to inform the category strategy. A procurement consultancy can help to do this by developing a strategy that collates stakeholder perspectives, desired outcomes and demand drivers.
Adapting policies and processes and integrating technology
An effective demand challenge strategy will require a change in policies and procedures especially when it comes to drawing up specifications. To maximise demand driven efficiencies, it’s also important to integrate technology – to monitor the overall value of a product or service and to flag up when spend needs to be reviewed. It’s also crucial to communicate new policies widely to all stakeholders and to manage the cultural shift that needs to come along with the change. A procurement consultancy can assist with change management to make transition run smoothly across all departments of your organisation.
Optimise5 is an international procurement consultancy, offering a range of services including the implementation of demand management to help you make substantial, sustainable savings and improve your bottom line. When your company is offered a risk-free approach to improvement, what have you got to lose? Find out more here – www.optimise5.com