Many Procurement Executives put a lot of time and effort into price negotiation and daily rates for Consulting Services. They leave the negotiation table with a 5% discount, with the feeling of having accomplished their duty.
Don’t be fooled. Consulting Firms know the game. They build the 5% discount in their pricing. And if you are asking for a more significant discount, they can simply descope or staff down their project. You are then taking the risk to make your project go down on their priority list.
Remember Joey, the junior consultant that was staffed at 2/3 of his time on your project? Could he be working at 2/3 of his time for another client? NO! Your Preferred Consulting Firm would never do that to you. When is the last time you saw Joey, by the way? There is no way you can follow the staffing, so let’s focus on the value.
If you want to make significant savings, you need to take control of the tap; not reduce the size of the bucket. But still, 47% of Companies don’t use demand management or a make-or-buy strategy for Consulting Services.
The primary benefit of using demand management for consulting is it helps businesses take control of consulting expenditure by mandating prioritization. As a result, you have to choose between must-haves (strategic) and nice-to-have (nonstrategic) projects.
By stipulating budget thresholds, demand management helps to streamline the procurement process, and, in turn, helps the company to attain a higher level of consulting procurement maturity. You can picture the entire demand management method as similar to the tightening of taps to prevent the bucket from overflowing.
This article discusses the benefits of demand management for consulting in detail, the prerequisites for its implementation, and the steps to implement it.
What is demand management for consulting?
Demand management is a supply chain management system that balances and strategically aligns demand with operating capability across the supply chain through the rapid and successful integration of the market needs in the direction of the suppliers. In short, it makes sure you are spending on the right priorities. The challenge of it often lies with its successful implementation for companies that are not well-prepared and fail to deliver the expected results.
The strategic use of consulting can expedite the implementation of your plan. However, aside from initiatives involving reorganization, consulting is still budgeted for OPEX. And since there will continue to be pressure on operating expenditures, this means you will have to make the best of your consulting budget.
In a limited budget scenario, your teams must be able to distinguish between “must have” and “good to have” items. Demand management enables your teams to make that distinction. As a result, you can save your money for the things that matter most.
Why should you care about applying Demand Management System to consulting category?
In any consulting engagement, demand management is critical to success. By understanding and managing the demand for your services, you can ensure that you are able to meet client expectations and deliver value. Here are some of the key benefits of demand management in consulting:
– Improve forecasting accuracy:
By understanding demand patterns, you can more accurately forecast future demand and plan your engagement accordingly. This helps to avoid surprises and potential issues down the road.
– Optimize utilization:
By managing demand, you can optimize utilization of your team’s time and resources. This helps to ensure that your team is being used as effectively as possible and allows you to control costs.
– Enhance relationships:
Managing demand also helps to enhance relationships with clients. By understanding their needs and expectations, you can build trust and improve communication. This can lead to repeat business and referrals.
Demand management is an essential part of any successful consulting engagement. By understanding and managing demand, you can deliver value, control costs, and build strong relationships with clients.
What are the prerequisites of Demand Management System for consulting?
If you’re looking to launch demand management strategies for your consulting project, take note of the following, first:
#1. You need a transparent transformational roadmap
You must communicate a clear strategy inside your company if you want to invest your money in the proper initiatives. You will create a transformation roadmap that outlines how you will achieve your goals in order to put this plan into action.
#2. Don’t forget to prioritize your projects
In the next step, you have to break down the work that needs to be done, identify the primary work streams, and list the skills and goals connected to each of the streams. These work streams can be run as independent projects with or without assistance from outside sources. When you have a list of initiatives to start in order to carry out your strategy, you are aware that you cannot complete them all at once.
Create an analysis grid to classify your projects according to importance. Impact vs. budget is frequently a good place to start, but there’s nothing stopping you from using more original criteria. Be careful to not dismiss other initiatives that are in fact enablers or pre-requisite for higher-priority projects.
#3. Take advantage of your internal resources when it is relevant
Here is when having an understanding of the talents needed for each project becomes important. You might not have access to or be able to deploy all of the internal resources for your initiatives.
Determine what can and should be done internally on each project and what should be outsourced.
Don’t forget to provide a rough budget evaluation to make sure your decisions are financially sound.
#4. Keep an eye on the budget
The fact of the matter is that you won’t be able to complete every project this year. You must decide how much you will spend on consulting for the time period based on where you are in your transformation (often between 0.5% and 3% of the revenues) in order to maintain control over your spending (or the tap).
Generally speaking, start with the initiatives that will produce savings right away to support the extra ones. Finding projects that will have the greatest impact and accelerate their benefits over a certain time horizon is another straightforward idea.
It would also be helpful to outline the percentage of the budget that will go toward strategic initiatives and the remainder that will be left up to the managers’ discretion.
#5. Start with the Highest Priorities:
The fundamental tenets of demand management call for selecting the projects that will be outsourced throughout the next years. High-priority/high-impact initiatives should be tackled first.
Take a closer look at the projects that are left in your portfolio once you have used up two-thirds of your intended budget.
Do you have any initiatives with a lower priority or impact but a quick payback? Or are there projects that support higher-priority projects? They might be your next area of focus.
You can wind up having initiatives that are still quite strategic after allocating your funds.
You can change your spending plan for the current year to incorporate them into your portfolio, among other choices.
You might re-evaluate the strategic worth of other important projects. Additionally, an analysis of the above-mentioned criteria will help you decide which project has to be launched immediately and which can be postponed.
The key steps to implementing DMS complete with the questions to ask.
For obvious reasons, implementing Demand Management requires some degree of centralization, approval for the budget, and a go-ahead from the upper authority to proceed. In many companies, the strategy or transformation team is accountable for managing the demand, as this arrangement is believed to ensure a good alignment between Consulting Investments and Strategy. However, it is always better to keep this role either at the corporate or business unit level. You can also consider both with a more complex system of decision-making and thresholds based on your company culture.
Here are some key elements to launch a Demand Management successfully:
– Formalize and share the process
Formalise the target process and create alignment. Methodologies and prioritization criteria have to be clear and fair to allow a proper consolidation and treatment. Once the key stakehoders are aligned communicate widely to your teams.
Ideally run some dry runs on historical data or with your largests units and fine tune the methodologies. Then consolidate projects assesments and resources requiremenst and set a deadline for demand management to start.
– Choose your battles
Top projects are launched immediately. Other attractive, but more “nice to have” projects, are placed in a pool and prioritized based on budget feasibility. Small projects (under the threshold) are left to the discretion of the management (resource permitting).
Any demand above a certain threshold must be addressed to either the strategic or the indirect procurement team. Strict governance is mandatory on all projects, with the possibility to kill projects not yielding satisfactory results.
– Analyze your results
At the end of each project, you should lead a post-mortem analysis to assess the performance of the Consulting Firm. You will also check if the priority criteria were justified enabling a virtuous cycle.
Depending on the results, the strategic team will adjust the decision-making process, the panel of Consulting Firms and the procurement team will adapt the panel of Consulting Firms available for further work.
– Position your projects sharply over the course of the year
Another key element, very often underestimated, is the sequencing of the projects and their positioning during the course of the year.
Achieving a good balance between transformational projects and projects generating short-term results can help you to do more with less. In other words, some cost savings projects can unlock enough resources to kick-start a digital transformation.
Last, it is sometimes tricky for Companies to finance major Consulting Projects over the course of a fiscal year. If the costs are on year 1 and the results on year 2, the bottom line is impacted. A simple way to circumvent this unfortunate situation is to start projects after the summer break.
With a 60 days payment term, if you accrue for costs you will spread them over two years amd if you don’t, there is a good chance you will start paying in January and the cost vs benefits will end up positive.
Demand management is a well-known tool for procurement teams. But the implementation for intangible categories such as consulting is not always easy. But implementing these above simple steps will get you closer to building a best-in-class consulting sourcing capability.
Build the right tools!
You need to provide your teams with the right guidelines. They need to be able to determine, for each project, if the project is strategic, and if it should be externalized.
To do so, you should build an analysis grid including some of the following questions:
What is the strategic value of this project (shall we do it ?)
- Is the project strategic? Is it an enabler for another strategic project?
- What is the expected impact of the project? How much are we willing to pay for this project?
- What is the best timing for this project?
- Will you need these skills for other projects in the next three years?
What is the externalization value (how to do it ?)
- Are the skills involved in the project core for your Company?
- Do we improve the business case if we accelerate the project?
- Do we have the skills and resources available internally?
- Do we have the necessary skills and resources to supervise the project?
- Are there companies that can provide that service?
- Is there sensitive IP or information involved in the project?
If you ask yourself the above questions, you should be able to position your projects on a simple decision matrix. However, it requires a little more than that to make it work efficiently in a large organization.
Success metrics for the effective implementation of demand management
Your Demand Management System plan must include the right metrics to track its effectiveness as well as issues. Here is how the Demand Management System success metrics for consulting look like.
#1. Clear Strategy
The driver for the demand for Consulting should be projects closely aligned with the strategic direction of the Company. Executives have to translate the strategy into the Demand Management principles and decision-making process. A clear strategy will simplify this work and facilitate the buy-in of the top management.
#2. Adjusted Decision-Making Process
All projects cannot be treated the same way. The Company has to define a segmentation of the potential needs in Consulting and the associated Decision-Making Process. It will include a threshold for projects to be handled directly, as well as the person including in the decision for each segment.
#3. Defined Budget Constraints
The budget constraints are a critical element of Demand Management. At the Company’s highest level, you need to agree on how much money you want to invest in Consulting and your expectations.
#4. Involvement of the Top Management
The Implementation of Demand Management is very likely to change the ways of buying Consulting Services. Many executives will be reluctant to lose the flexibility from “before.” Beyond the project, the Top Management has to openly support and push for the DMS to ensure that the principles and processes will be respected across the board.
#5. Well-Defined Practices
The key element is to find the balanced mesh between the core principles of Demand Management, the specificities of the Consulting Category, and the Company Culture. If the system is too rigid, Executives will work around it. If it is too flexible, the Company will not get the full benefits of the system.
#6. Clear Communication to the Suppliers
Last but not least, you have to communicate with your suppliers. Explain why and how you will implement Demand Management and how it will impact them. They need to understand the new rules to play along them.
Demand management and digitalization of procurement
Demand Management is a key tool for companies. In previous paragraphs, we discussed the challenges involved in its implementation. It requires to define clear decision-making processes, to manage approval workflows, and to encourage collaboration between the different departments among others. Needless to say, it’s not a mean feat. Digitalization of procurement can ease the implementation and utilization of demand management by fostering transparency, visibility and especially inter-departmental collaboration.
However, it’s important to be clear on what digital transformation entails. We tend to use the terms digitization, digitalization, and digital transformation interchangeably, when they have different meanings, in particular for Procurement.
Digitization is the conversion of your information from an analog format into a digital format. The information is digitized through scanner, recording or even character recognition.
Now, digitalization is the use of active digital processes. According to Gartner, “Digitalization is the process of employing digital technologies and information to transform business operations.” Automation has a big part in digitalization, where some elements of the processes are now done automatically. The processes are digitalized.
Digital Transformation is not a process or a project. It is the overall strategy of a company that is embracing digital and leading as a consequence digitization and digitalization projects. The company or function is engaged in a digital transformation.
Digitalization of procurement, which involves conducting the procurement functions online, using software and other digital tools, will bring all information in one place, giving visibility and control over all related processes. As such, it can bring multiple benefits for businesses in terms of both cost saving and efficiency.
For organization with a less matured procurement set-up, the primary benefit of digitalization will be significant saving in hard dollars. Why? Such firms may have a lot of uncontrolled spend, unmanaged suppliers, and a degree of complexity that have never really been addressed due to the reasons involving the company’s history such as a series of mergers and acquisitions where things have not been coordinated.
Moreover, digital transformation in procurement leads to improved supplier relationships. With the use of digital tools, businesses can manage their supplier relationships more effectively and efficiently. This results in improved communication and collaboration, as well as better terms and conditions for both parties.
In short, with the digitalization of procurement there will be improved efficiency and greater transparency and most importantly, greater collaboration at all levels without disturbing the balance of power. On the other hand, demand management calls for a high degree of involvement of the top management, collaboration with the strategy and finance teams, and a visibility into supplier and other past transaction data. By bringing data at a centralized space and making collaboration easier, digitalized procurement facilitates the demand management process, which is at the core is a analytics-driven prioritization process.
How Can Demand Management Help Companies to Enhance Their Consulting Procurement Capabilities?
According to a study by Oliver Wyman, the maturity and performance of procurement organizations can be mapped on a maturity scale with five levels from buying cheaper thanks to systematic negotiations to buying better. When the procurement processes for sourcing and contracting become more robust, companies are expected to gain a better control over their spend. The use of demand management can help companies to reach each level of the maturity scale.
Climbing up the procurement maturity scale implies improvements on your procurement capabilities. But you cannot improve what you cannot measure. Firstly, demand Management gives you access to all the projects launched in the company. This, in turn, helps you to make diagnosis, and build a baseline for procurement decision-making.
Secondly, by having digital technologies, and other RFP management, automation, sourcing alternatives, workflows and other tools in place, demand management can help organizations to make their procurement process more sophisticated and streamlined and, as a result, move up on the consulting procurement maturity grid, eventually becoming the best-in-class organization. To go up the maturity scale, organizations start by mitigating risks, and then, based on more and better data, focus on improved supplier’s performance, and ultimately foster innovation, thanks to increased collaboration and partnerships.
Thirdly, procurement maturity is determined how well you manage your consulting spend. In the consulting space, procurement is often not involved in the purchasing process. As a result, Consulting spend is often scattered and sometimes not even identifiable in the ERP. So, it is very hard to monitor the spend. Even when companies keep track of the strategic spend, they often forget the tail that is taken care of directly by the business lines. To optimize consulting spend, organizations can utilize 6 levers: 1/ Spend on the right projects 2/ Select the right delivery model 3/ Control your costs 4/ Ensure impact 5/ Manage your suppliers 6/ Increase the maturity. The first lever, ‘spending on the right project’, is purely demand management and the first step to level up your procurement maturity.
Thus, by using demand management, you can make better procurement decisions that save you both time and money. That does not only enable the procurement to add value to your organizations but also recognized as a partner and not a bottleneck.
5 Takeaways for Busy Executive
- Demand management is a basic but indispensable tool for all organizations. When applied to any indirect procurement such as consulting, demand management can help an organization to better manage their spending for that category.
- Demand management requires organizations to set thresholds for purchasing consulting services. It also requires them to prioritizing projects based on their strategic importance. DMS also makes it mandatory for organizations to thoroughly evaluate make-or-buy option before purchasing consulting from a supplier. Beyond a certain threshold, key decision-makers of the company are also involved in the purchasing decision-making process.
- All these practices enable organizations to utilize their consulting budget more judiciously and have a tighter control on their consulting spend, thereby reducing pressure on OPEX. Moreover, by making organizations strictly prioritize strategic projects, DMS also helps companies to better execute their strategies. Moreover, having a demand management process in place will help the organization to achieve a high level of procurement maturity.
- However, by stipulating thresholds and the involvement of top management, demand management may make the process more rigid, which may not be liked by executives, accustomed to a more flexible system. That is why, push for DMS has to come from the top management so that the processes relating to DMS are respected throughout the organization.
DMS comes with its share of challenges, so companies should have the right preparation before they launch the DMS implementation process. And that involves communicating with suppliers as well, explaining the likely impacts they may have to face due to this implementation.