Procurement GPS

The PIU is about to launch a paper on the use of demand management during an economic downturn. The process of writing generated a number of interesting questions over its meaning and practical uses.

Within the PIU offices, we been having discussions on the meaning of ‘demand management’. Many were arguing that it essentially meant ‘spending less’. To me, this seemed a cynical twisting of the phrase, although may accurately describe the reality of the situation.

For many CPOs, demand management is a leading priority. Even though recent PIU research has revealed that there is only a limited concern with procurement leaders at the moment.

However, as a precautionary measure, purchasing functions may be gearing up new demand management programmes in anticipation for another round of belt tightening within the corporate world.

Yet, there may be opportunities to increase expenditure. In many areas we have seen collapse in prices for commodities recently. Early in the year, we even witnessed dramatic crashes in the price of gold and silver. The cost of shipping has remained consistently low since late 2008. In certain respects, demand, properly management can take advantage of these dips.

Many of my colleagues term such an approach as ‘demand optimisation’, where flows of information regarding internal requirements and market conditions collide to find an ‘optimal’ level of demand. I would argue that this is the proper model for demand management. This may require an increase in the purchasing activity as opposed to a drop.

In this context, the proper response to a double-dip recession may not only be a campaign of cost-cutting, but strategic increasing in purchases as commodities prices fall to meet the falling demand elsewhere. This places the company in the strong position to draw down its enhanced inventories, once a recovery leads to the resumption of inflation.

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