In this article, Chris Hodgson explores the potential for demand-side value levers.
Most procurement teams are working depleted territory. After years of supplier negotiations, competitive tenders and volume aggregation, the traditional supply-side levers are delivering diminishing returns. Yet in nearly every organisation I work with, there’s a large value pool sitting untapped. Not because it's technically difficult to access, but because it lives outside procurement's traditional mandate and comfort zone.
The value is on the demand side. It exists in the specifications that get written, the volumes that get requested, the designs that get approved and the operating models that get implemented. All typically finalised before procurement sees a requirement.
McKinsey & Company (2022) research on procurement value creation found that traditional commercial levers like competitive sourcing and supplier negotiations capture less than half of full potential savings, with the majority coming from non-commercial levers including design, specification and demand management. Yet most procurement teams engage only after these choices have hardened into non-negotiable constraints.
When I refer to the ‘full stack’ of value levers, I'm referring to both supply-side levers, where procurement teams traditionally operate and excel, and demand-side levers, where a large opportunity exists.
Most procurement functions have mature capabilities here:
• Competitive sourcing and negotiation leverage market forces through rigorous RFP processes and supplier alternatives to optimise pricing.
• Supplier consolidation and volume optimisation reduce supplier counts to improve governance and negotiating leverage, while aggregating (or disaggregating) demand across business units to shift market position.
• Supplier relationship management builds collaborative partnerships with strategic suppliers, focusing on joint value creation through continuous improvement, early supplier involvement and shared innovation.
These levers work and they've delivered real results. But for mature procurement functions, the returns are declining.
This is where most teams struggle. Not because they lack capability, but because the organisational dynamics are fundamentally different:
• Demand and consumption management actively reduces, eliminates or optimises unnecessary demand before it enters the procurement pipeline. This means challenging budget owners on volume assumptions, standardising variants and implementing governance that questions whether purchases are genuinely needed.
• Specification and design levers shift from prescriptive, feature-laden requirements to outcome-based specifications or design-to-value approaches that leave room for innovation and cost optimisation without compromising functional performance.
• Methodology levers examine how goods or services are delivered or implemented. The operating model, delivery approach or service configuration, rather than just what is purchased and from whom.
• Total cost levers expand the lens beyond purchase price to logistics, inventory carrying costs, maintenance, quality failures, energy consumption and end-of-life impacts that often dwarf the original acquisition cost.
• Risk and resilience levers address supply continuity, geopolitical exposure and compliance requirements in ways that sometimes trade off lowest price for total value protection.
There's a critical gap between demand-side theory and practice. These levers don't fail primarily due to methodology problems. They fail because of organisational dynamics that most procurement teams find challenging to navigate:
• Budget owners protect discretionary spend. In many organisations, unspent budget gets clawed back. This creates misaligned incentives where business units maximise consumption to protect future allocations. When procurement challenges demand, it's not seen as value optimisation, it's seen as a threat to departmental resources and autonomy.
• Technical stakeholders view specification challenges as professional criticism. When procurement questions whether gold-plated specifications are necessary, engineers and technical experts often hear: ‘You don't know what you're doing’. This triggers defensive responses that shut down collaboration before it begins.
• Risk-averse cultures default to precedent. ‘This is how we've always done it’ isn't just inertia, it's often rational risk management. If a new approach fails, the person who championed change owns the failure. If the old approach fails, it's just bad luck. Procurement needs to acknowledge and actively manage this asymmetric risk perception.
• Procurement's historical positioning works against us. In organisations where procurement has primarily operated reactively, suddenly challenging business requirements triggers the question: ‘Who gave procurement authority to question our needs?’ This isn't resolved through better methodology, it requires repositioning procurement's role through executive sponsorship and demonstrated value.
The implication? Demand-side success requires different capabilities than supply-side execution. It demands stakeholder mapping, influence without authority, political navigation and the ability to frame challenges as collaborative problem solving rather than gate keeping.
From resistance to results: a practical example from a manufacturing client
This example illustrates both the opportunity and the organisational complexity involved. The company was shipping cylinders in loose-loaded containers to maximise the number of units per container and minimise freight costs per unit. A perfectly logical strategy until you mapped the end-to-end supply chain.
A supply chain analysis revealed that the containers arrived at the destination requiring specialised destuffing and an additional transport leg which added 21% to the landed cost. The manual handling activities also increased safety incident rates and the occurrence of product damage and write offs.
The solution wasn’t re-negotiating destuffing and freight rates (which were increasing). It required redesigning the container loading methodology. We implemented a custom designed space efficient pallet system that reduced capacity per container by 22%, which sounds counter-intuitive.
However, this allowed us to eliminate the 21% of cost associated with the destuffing operation and transport leg. Additionally, we reduced container stuffing/filling costs (loose load versus pallet) at the manufacturer, significantly reduced product damage and write offs, lowered container cost through pre-agreed volumes discounts and cut handling related safety incidents by 73%. This reduced the total cost by 8%.
Here's what made this work organisationally. The logistics manager initially resisted because their KPIs rewarded freight cost per unit, not total cost. The warehouse manager supported it because it solved their bottleneck problem. We had to bring both stakeholders together with finance to redesign the incentive structure before the methodology change could proceed. The optimisation was straightforward; the organisational alignment was the actual work.
This is typical of demand-side interventions. The methodology is often simpler than supply-side sourcing. The organisational dynamics are always more complex.
The gas cylinder example illustrates a broader pattern. Demand-side value creation requires different capabilities than traditional sourcing excellence: stakeholder influence, political navigation, cross-functional collaboration and the confidence to challenge assumptions while building coalitions.
The methodology for demand-side optimisation is often simpler than complex multi-round sourcing events. The organisational dynamics are almost always more complex. This creates both a challenge and an opportunity. Teams that develop these capabilities can access value pools that remain untapped by competitors still focused primarily on supplier negotiations.
In Part 2 of this series, we'll explore the practical frameworks procurement teams can use to identify when and how to deploy demand-side levers, the technology that amplifies these approaches and the organisational entry points that make upstream intervention welcome rather than intrusive. We'll also examine how leading organisations are building the capabilities required to make demand-side value creation systematic rather than opportunistic.
The question isn't whether demand-side value exists – the research and case studies make that clear. The question is whether your procurement function is positioned to capture it.
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This article provides the practical frameworks, organisational entry points and capability requirements for making demand-side intervention systematic rather than occasional.
