Demand Management in Technology Procurement
In the times of Industry 4.0, IT procurement no longer sources commodities but participates in the delivery of value-generating digital services; therefore, ITIL Service Lifecycle equally applies to both Technology and Procurement department operations.
Demand Management is the critical element of ITIL service strategy. It helps to understand customer demand for services so that appropriate capacity can be provisioned to meet it. Demand Management objectives are to understand, anticipate, and influence customer demand.
At the same time, the strategic sourcing process also incorporates Demand Management. In the stage of requirement definition, Procurement will complement the Technology team with its expertise, the market knowledge, contract and supplier information, experience from other sourcing projects, and a cost-conscious mindset. The outcome is the separation of value demand that exactly meets the internal requestor needs from four wasteful demand types:
- Failure demand caused by an earlier failure to deliver the required service or by poor service design in general. Example: the master IT project is delayed, and so related third-party staff augmentation contracts (eg project management, integration, change management resources) keep on being extended indefinitely.
- Excess demand caused by inappropriate or missing controls. Example: it is common practice to spend the remainder of an annual budget before the year-end for next year's requirements, nice-to-have things or simply anything, so as not to leave unused funds.
- Preventable demand could be influenced or prevented from occurring. Example: color printouts driving the pay-per-page or cartridge cost, which could be partially avoided by default black-and-white print settings.
- Avoidable demand caused by wrong behaviors or false expectations. Example: managers are requesting full entitlement to IT equipment just because their grade allows them to.
Applying ITIL Demand Management objectives, Procurement firstly needs to understand the demand, segregate the value from waste and classify wasteful types. Secondly, we need to anticipate the wasteful demand. Failure type usually results from unsatisfied requirements, so, any substantial delay of a critical project would create massive failure demand. Excess type is procurement bread and butter, as we are in charge of governance tollgates that should not allow it to go through. Preventable demand is not easy to anticipate, as it requires deep analysis and identification of specific patterns. Lastly, the avoidable type is the hardest one requiring the true team effort involving HR, Finance and even executive stakeholders, as it is usually permitted by company regulations and cannot be simply stopped by Procurement or Technology alone.
Influencing wasteful demand creates true value, hence should be exercised continuously. Failure demand should be influenced by the mitigation of the consequences of failing projects (eg, not accepting temporary “overhaul” solution lasting until the production platform finally kicks in, taking a complex view on a delayed project and not allowing incremental extensions of interrelated contracts until the complex mitigation strategy is in place). Excess type can be managed through the identification of governance loopholes. Preventable demand requires the development of smart processes or solutions that would route it into the right buying channels or simply stop from occurring (eg, implementing P-cards prevents unauthorized petty cash expenses.) The collaborative change management, eg HR modifying policies and Technology and Procurement looking after its proper implementation can limit avoidable demand (eg, extending roaming quotas on C-level execs through the change of an appropriate HR policy).
Procurement needs to look beyond its realm for applicable processes, techniques or solutions of fellow stakeholders that would complement the traditional toolkit. ITIL Service Lifecycle is just one of the possible processes that could enrich the Technology Procurement with the new reading of its traditional activities.