In a recent contribution to the European Leaders in Procurement (ELP) Magazine Gartner Vice President and Research Fellow Andy Kyte advised supply managers to prioritize and enhance forecasting and planning activities as an antidote to imminent global inflation and supply shortages. Says Andy: “2007 should be the year for planning ahead.”

That’s sage advice. Consumption- or demand management is a best-practice among leading supply management organizations. (After all, the best way to control your supply costs, is to not make unnecessary or underleveraged purchases in the first place.) In fact, in a recent Top Supply Strategies Webinar A.T. Kearney Vice President Tom Slaight shared consumption management techniques to drive savings and value creation in categories that are strategic or experiencing supply constraints.

I also endorse Gartner’s recommendation for supply management executives both to engage frontline users and improve demand forecasting techniques and to enhance analysis of supply-side markets to more accurately predict supply pricing and availability. (The latter area of supply market analysis is another technique advised and supported by A.T. Kearney.)

Writes Andy: “When a procurement professional has a reasonable forecast of future demand and a good understanding of predicted supply-side dynamics, they are in a position to develop a sourcing strategy for that market — a market engagement model.”

Organizations looking to stabilize supply availability and costs should certainly heed Andy’s advice for better forecasting and consumption management. However, Gartner’s take on what to do with this new-found intelligence is not the best approach in every situation.

In supply markets with high pricing or availability volatility, Andy says, “The goal should be to decrease the total number of sourcing events and contracts, but to increase the value and longevity of each market engagement model.”

I’m all for increasing value, but reducing the number of sourcing projects you run for a particular category is not always the way to attain best value. In fact, in volatile markets, it may be better to run more frequent and smaller sourcing projects to take advantage of fluctuating capacity and costs, as well as technological advances.

There are ample examples of supply management organizations that have leverage the process efficiencies and market transparency enabled by online sourcing (e-sourcing) automation to both capitalize on market dynamics and maintain — and even improve — supplier relationships:

• Consider the global financial company that runs frequent competitive bidding events for commercial printing with a select group of approved suppliers in order to capitalize on available press capacity or changes in paper or ink costs, or advances in printing techniques. Says the company’s Vice President of Strategic Sourcing, “Printers like this because they can maximize utilization rates.”
• Or what about the global airline that runs a competitive bidding project for hotel rooms every day! The airline reports considerable savings by capitalizing on fluctuating room availability in key cities — even as industry benchmarks portend an 8% increase in hotel rates this year. Considering that the it buys half a million room nights each year, the airline would have likely wound up paying more if it had negotiated a long-term agreement based on a blended room rate. These blended rates would have been based on the hotel’s projected seasonal occupancy patterns rather than actual availability. Again, the hotels also benefit because they can bid competitively to fill rooms based on more accurate short-term forecast or actual availability, rather than long-term guessing.

The bottom-line: there is more than one path to supply execllence. Forecasting and demand management are indeed an advanced approach. But alone, they can only get you so far. Slaying what Andy calls “the inflationary Dragon” requires you to understand and properly leverage today’s more efficient and collaborative supplier engagement and negotiation tools. For more information on these and other inflation-busting techninques, catch the free replay of the Advanced Sourcing Strategies webinar here.