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In our last post, we discussed the role of visibility and how it can help organizations identify and prioritize procurement transformation efforts. Next, in order to drive real and sustained value, you need to use that gained insight to take action. Some of these actions, which we’ll discuss in this post, are concepts like demand management, strategic sourcing, and the selective use of managed spend providers, which can really help government organizations stretch dollars in tight times, without compromising performance.
So what exactly is “demand management” or “strategic sourcing” and how can these things help the government?
Demand management is exactly how it sounds. It works by influencing spending before it occurs in order to reduce (or eliminate) costs. Organizations can control demand by optimizing inventory, as well as eliminating, right sizing, or standardizing requirements. This helps them avoid buying unnecessary products and is the least painful way to satisfy budget cuts.
For example, the Los Angeles Metropolitan Transit Authority (LA MTA) used a demand management analysis of their inventory of rail cars, buses, and other line items. By leveraging optimization software they reduced the inventory by 28% over a 12 month period, while retaining their service level agreements.
Strategic sourcing, on the other hand, looks at the supply side. It tries to standardize and apply consistent sourcing processes designed to maximize supplier leverage. Strategic sourcing is a great way to increase value, as it helps organizations align their requirements with suppliers that can meet or exceed their needs at the lowest total cost.
Managed Spend Providers
Organizations can also use managed spend providers. These are third party procurement services firms who specialize in the management of specific categories of spending. Implementing internal demand management and strategic sourcing methods are great first steps to make sure that you leverage your spending and resources fully. However, you can greatly expand the reach of your organization using managed spend providers with category-specific knowledge and resource economies of scale to deliver rapid and sustained value.
In addition, as many government organizations are faced with budget cuts and the loss of experienced personnel in some areas, organizations can use specialized, external resources on “non-strategic” needs, while ensuring their in-house, expert personnel are focused on “strategic” areas of work.
Can an organization make these procurement changes last?
In a word, yes. In the next post we’ll address how to sustain the improvements.
Before we go…
Has your organization used any of these leverage principles? Have they worked successfully? Let us hear from you.
Christopher Bock is an Associate Partner and Service Area Leader on the Public Sector Team at IBM Global Business Services. A graduate of the Department of the Navy’s Acquisition Intern Program in Contracting, Mr. Bock is a seasoned procurement professional with nearly twenty years of experience in the field.
Mr. Bock is acknowledged as a thought leader in the procurement field, and has been recognized repeatedly for excellence in project delivery. He currently leads IBM’s Public Sector Procurement Consulting Services team, solving client challenges across the industry. Mr. Bock earned his undergraduate degree in business from James Madison University in 1992, and a Master of Business Administration degree from The George Washington University in 1996.
Chris Bock (firstname.lastname@example.org)
Scott Padelsky is a Senior Managing Consultant on the Public Sector Procurement Team at IBM Global Business Services. As an IBMer, Mr. Padelsky is an accomplished consultant in the areas of procurement strategy, strategic sourcing, and eProcurement. Mr. Padelsky has over 15 years experience working for two companies recognized for thought leadership in supply chain and procurement, IBM and Intel Corporation. Mr. Padelsky earned an undergraduate degree in Finance from Arizona State University in 1999 and a Masters in Business Administration from the University of California, Irvine, in 2005.