In previous articles in this series, we’ve talked about ways buyers can control costs, whether by achieving great competitive pricing or better managing lifecycle costs. But, the truth of the matter is, the best way to keep costs down is of course not to spend money in the first place. So in this piece, we’re going to look at perhaps the most powerful lever a buyer can use: managing demand.
The Best Way to Save is to Only Spend When Necessary
Managing demand may sound complicated, but really it’s something we do every day in our own lives. We don’t buy what we don’t need or can’t afford, and we either deliberately or instinctively swap out substitutes based on trade-offs between price and features. Or, we may simply decide to make something in-house (often referred to as “making dinner” instead of “eating out”).
Managing demand in a business context requires even more collaboration with internal stakeholders (and suppliers) than the previous two levers I mentioned. Working across the organization is key to managing demand effectively.
Very simply, demand management in the business world comes down to three key things to evaluate in collaboration with internal customers and/or suppliers – the 3 key ways to not spend when unnecessary:
- Standardizing or “streamlining” specifications
- Completely eliminating unnecessary purchases
- Evaluating “make versus buy” to fulfill the internal business need
Standardizing or Streamlining Specifications
This may be the heaviest lift when discussing managing demand, but it’s also the most powerful. To pull this off, you must engage early on with internal customers, preferably during the requirements development stage of a procurement, to understand your customers’ true needs. Using that information, you can then work with those same stakeholders to run a collaborative analysis that compares trade-offs between specifications/features and price, all with a shared understanding of what’s truly needed and how alternatives can achieve desired outcomes.
To that end, it’s important to consider the different user segments for any large buy. For instance, if you’re buying computers, does everyone need a high-end machine with maxed-out processor speeds, or can we segment the user community based on their true business need?
It’s also helpful to collaborate with suppliers when developing requirements, as they can often suggest alternative products or solutions that meet your need. You’ll often find suppliers very motivated to be a part of this process.
Eliminating Unnecessary Purchases
This may seem too intuitive to mention, but the truth is that an oft-overlooked aspect of demand management is to simply eliminate or reduce the quantity of a purchase? Why might this be the case? Say you need to replace the out-of-date copiers in your organization; there are 10 of them. Do we need a one-for-one replacement for all 10? It depends. Can newer copiers support greater capacity on a per-unit basis (and meet the organization’s total needs)? In fact, what are the organization’s total needs and how have they changed recently and since the last purchase of copiers?
Once again, these questions underscore the importance of understanding demand drivers and working collaboratively with internal stakeholders. Additionally, perhaps suppliers can help point us toward more efficient (and likely more effective) solutions to meet our needs. But we need to purposefully engage suppliers with innovation in mind.
Evaluating Make vs. Buy
At times it may seem like it’s not worth bothering with the make-versus-buy question. Clearly we cannot make our own computers and copiers in-house, and there will always be expertise that we need to find elsewhere. But in the context of the public sector, let’s think about services. While we do purchase many services externally—and in most cases, rightfully so—purchasing services externally from contractors is generally more expensive. Right? Maybe, maybe not. The answer is it depends. There are circumstances where buying services is appropriate (and possibly less costly overall) as compared to performing the activity in house. The specific circumstance should be evaluated to determine the true cost of buying a service versus performing the activity in house.
So how can we think about the dilemma of performing those services or buying them? Here are a few considerations:
- Specialized expertise is required that may not be available internally.
- At times, third-party validation is required to confirm internal analyses to help inform management decision-making.
- The task being performed occurs seasonally with significant fluctuations in work through the year and therefore does not warrant dedicated internal resources, which would end up being more expensive.
- Of course, all of these factors also have to meet the condition that the work being performed by contractors is NOT “inherently governmental”
This discussion yet again reinforces the need to collaborate with internal stakeholders to better understand many of these factors presented in order to help inform the decision and evaluate what the cost and mission impact might be under alternative scenarios.
What You Can Do Today
Regardless of what your organization is buying, you can start today by reining in demand management:
- Apply the three key techniques mentioned here to holistically address demand management
- Seek out early engagement opportunities with your internal stakeholders if you have not done so yet (or expand your “early engagement footprint” to further increase demand management impact)
- Engage with suppliers as part of harnessing their expertise in bringing innovative solutions to the table, and make it a key aspect of supplier selection to win your business.
Demand management is conceptually straight forward (as hopefully you have seen in this article), but implementing it requires even greater amounts of collaboration. The rewards to your organization will be significant!