How can procurement leaders leverage demand levers to save costs?
Today, a global pandemic has thrust business leaders into an unprecedented situation where the shroud of uncertainty looms large and global economic downturn is making it hard for organizations to pivot to a sustainable business model.Therefore, the need to optimize costs by pulling the right levers becomes important. For procurement leaders, the real challenge is to conserve capital and devise new cost models for sustainability and future-proofing their business against future uncertainties. Let's have a look at some of the demand levers which procurement leaders can leverage to pare down costs.
Demand management is a process of monitoring and managing costs by minimizing the usage of demand and service, along with devising new ways to change spend patterns across the organization. An effective demand management process involves changes in the budgeting process, service levels and governance.
Procurement Policy: Policymaking is an integral part of demand management. A robust procurement policy, therefore, is needed to get the messaging right, and all stakeholder should agree to overall procurement objectives and ways to achieve them. Policymaking is an integral part of demand management. A robust procurement policy, therefore, is needed to get the messaging right, and all stakeholder should agree to overall procurement objectives and ways to achieve them. Modern procurement policy should cover the whole procurement process, including e-sourcing infrastructure and contract terms.
Service Models: There is a need to revisit service models to de-prioritize spend on non-critical processes and activities. All stakeholders should adhere to the principle of limit spend wherever necessary to optimize and save costs. Therefore, a service model rethink is essential.
Zero Based Budgeting: Procurement leaders, in collaboration with finance function, should work towards embracing zero-based budgeting and critically evaluate every spend and create a consensus towards minimal spending philosophy.
Like demand management, specification management is related to influencing the purchase philosophy of stakeholders. Standardization and consolidation of products and services should be looked at carefully to arrive at an effective specification management strategy.
Cost modelling is all about understanding the cost breakdown of products and services so that you can appreciate its impact on the delivery of goods and services to end consumer.
It is essential to undertake a rigorous supplier analysis activity coupled with process-specific activities such as process mapping and value engineering to complement the overall objective of cost optimization for the sustainability of the business.