How to create value through demand management?

Key Takeaways

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 a best-in-class consulting sourcing capability.

Transcript

Hello and welcome to episode 55 of our podcast: Smart Consulting Sourcing, THE podcast about Consulting Procurement.

My name is Hélène, and I’ll be your host today.

Each week I’ll give you the keys to better use, manage and source consulting services.

This week, I’ll tell you how to create value through demand management

Last week, I answered the question: “Working with large consultancies: stop or encore ”

We saw that choosing the right consulting firm is complex. There are many parameters to consider. And building a solid list of preferred providers, identifying who would be best, depending on your context, is a real jigsaw puzzle. But that is also what makes consulting sourcing so exciting and so impactful when done correctly. And the good news is that it is possible with the right approach and the adequate level of consulting knowledge to do it right.

But today I wanted to talk about demand management.

Demand management is a critical tool for procurement professionals and companies in general. Its implementation for the consulting category is a no-brainer if you want to keep your spend under control and aligned with your strategy.

But what are the key steps that can ensure successful Demand Management execution?

Let’s get started.

What is demand management?

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.

Its challenge often lies with its successful implementation for companies that are not well-prepared and fail to deliver the expected results.

How to get started?

The driver for the demand of 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.

But you cannot review and treat all projects the same way. Ideally, the Company defines a segmentation of the potential needs in Consulting and the associated Decision-Making Process. And for each segment, you will define a threshold for projects to be handled directly and a person involved in the decision.

Your next step is about budget and ROI. Budget constraints are a critical element of Demand Management. Don’t forget consulting is allocated in OPEX and directly impacts the bottom line. And the best way to look at it is from a value-creation standpoint. So you need to agree, at the highest level of the Company, on how much money you want to invest in Consulting and how much value you expect in return.

As you can see, demand management requires some degree of centralization of the consulting budgets or at least the decision to proceed.

Define who does what

The important questions to answer here are: What needs to be done? And who is best suited for the role overseeing the process?

To ensure good synergy between Consulting Investments and Strategy, many companies have given the accountability to manage the demand to their strategy or transformation teams.

This role can be located at the Corporate or Business Unit level. Or both depending on thresholds and company culture.

The Implementation of Demand Management is very likely to change the ways of buying Consulting Services. Most executives will be reluctant to lose 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.

Aligning the key stakeholders is a mandatory step. Your methodologies and prioritization criteria have to be clear and fair, to allow proper consolidation and treatment.

Once the key stakeholders are aligned, you can communicate with your teams. Ideally, you can try some dry runs on historical data or your largest units and fine-tune the methodologies. Then consolidate projects assessments and resources requirements, and set a deadline for demand management to start.

Prioritize your projects

As with many other things, it’s a smart approach to prioritize your projects and start with the most important ones immediately. Then, other attractive or “nice to do” 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 has to be addressed by 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. Therefore, it’s compulsory to analyze the 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 and the procurement team will adapt the panel of Consulting Firms available for further work.

Positioning your projects sharply during the year is a key element often underestimated. Instead, ensure you have a good balance between transformational projects and projects generating short-term results that can help you do more with less. In other words, some cost savings projects can unlock enough resources to kick-start a digital transformation.

Take advantage of phasing

It is sometimes tricky for Companies to finance major Consulting Projects over a fiscal year. If the costs are in year 1 and the results in year 2, the bottom line is impacted. A better way to do that is by spreading the costs.

For example – to circumvent this unfortunate situation, you can start projects after the summer break. With a 60 days payment term, if you accrue for costs, you will spread them over two years, and if you don’t, there is a good chance you will start paying in January, and the cost vs benefits will end up positive. So even if you don’t get the impact on the earnings, you will get the cash.

The secret for success is to find the balanced mesh between the core principles of Demand Management, the specificities of the Consulting Category, and your Company Culture. If the system is too rigid, Executives will work around it. On the other hand, if it is too flexible, the Company will not get the system’s full benefits.

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 with them.

In conclusion

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 a best-in-class consulting sourcing capability.

That’s it for today. Next time, I’ll discuss how to chose between generalist and specialist consultants.

In the meantime, if you have any questions, or want to learn more about what we do at consulting quest, just send me an email at helene.laffitte@consultingquest.com

You can also have a look at our website smartconsultingsourcing.com to know more about our book and download free templates & guides to improve your consulting sourcing.

Bye and see you next week! Au revoir!

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