“purchase” is supply-oriented , with insufficient demand management; “procurement” is demand-oriented , managing demand, influencing demand, and streamlining supply by streamlining demand.

The supply orientation of the so-called “purchase” means that they think their task is to deal with suppliers; how and when the internal demand is generated has nothing to do with them. Go to a company and ask their purchase, how do you make your demand forecast? You will find that many purchase departments have no idea about this. This is especially true in those large-scale companies with a large division of labor. This is “purchase.” They think their work starts from the implementation of demand, and for internal customers, they are the role of executors. The implementation of demand means that the drawings are designed, the specifications are formulated, or the plans are made, and the orders are generated. At this time, the task of “purchase” is to find a suitable supplier who can process according to the drawings and specifications, or deliver according to the time on the purchase request. But the problem is that when the demand is implemented, the time left for execution is often not enough, and purchase has to spend a lot of energy to urge the goods, which not only wastes energy, but also interferes with the operation of the entire supply chain, which is costly.

The demand orientation of “procurement” is to intervene before the demand is generated, to positively influence the demand, to obtain demand information as early as possible, and to give suppliers more time to prepare. The sign of demand orientation and supply orientation is whether you spend your time on suppliers or internal customers. In simple terms, it is about who you are dealing with all day.

Let me give you example.

When I arrived in New York, my first job was to manage suppliers. At that time, the company was transitioning from “purchase” to ” procurement”. The original group of buyers were busy dealing with orders all day and could not handle “procurement”. The company poached people from companies like HP and Dell, or recruited MBAs from business schools. These people probably had 5 to 10 years of work experience and were familiar with cross-functional collaboration. My immediate boss was a senior director. He often told us that the company spent a lot of money to recruit you to manage demand. We asked, whose demand should be managed? The answer was, the demand of engineers. It’s no wonder, this is a technology company with hundreds of PhD engineers. Among these PhDs, there are many people with high IQ but low EQ, and they often report to the vice president of procurement for trivial matters with an email, and then everyone from directors to managers to buyers has to jump up and down to put out the fire and stop the loss.

We asked, how do we manage it? The director replied, it’s simple: every morning when you get to the office, the first thing you should do is to go to the engineers to see what new designs they are working on and whether the existing suppliers can meet the needs. If the answer is no, you have to start looking for suppliers now, instead of waiting until the drawings are approved and it’s too late to make samples the next day. You have to know that most things in the company can be handled by processes, but processes are bound to lag behind. For the 80% to 90% of things, a little lag is OK; but for the 5% to 10% that really kills us, we have to give full play to our subjective initiative to make up for the shortcomings of the process. Knocking on the door of internal customers is to give full play to people’s subjective initiative.

Interestingly, a company’s “purchase” often coexists with “small design”, “small sales” and “small planning”. When it comes to cross-functional collaboration, everyone sticks to their own little corner and refuses to take a step forward. As a procurement department, if you can take a step forward and actively communicate with internal customers, it is a way to increase value. Professionals are rational. When internal customers feel that we are truly doing good for them, they will respond to our questions and share information.

You know, managing customer demand is not about saying no to customers , nor is it about creating obstacles for them. The best demand management is achieved by giving customers better solutions . And better solutions are based on a true understanding of customer needs, which is inseparable from the simple but powerful question: Sir, what do you want this triangular bottle cap for? Or, what problem do you want to solve?

Believe it or not, most people in this world cannot distinguish between “demand” and “solution”, but habitually take “solution” as “demand”.

This also applies to internal customers. The fundamental reason why internal customers ask our internal suppliers to do something is that we are experts in that – we spend their money and use our professional capabilities to help them solve problems. It is not surprising that they cannot distinguish between “demand” and “solution”. For example, as mentioned earlier, the production department wants to purchase backup suppliers. This is not a demand, but a solution. Their demand is actually to ensure supply. In their view, “ensuring supply” as a real demand has a causal relationship with their imagined solution “supplier backup”. In fact, this is the view of laymen. But this is not their fault, because they are in production, not procurement, and do not understand the real supply guarantee. It needs to be solved by re-selection and management, not simple backup.

Therefore, we must carefully analyze the needs of customers, whether they are internal or external customers, and distinguish between needs and solutions, rather than simply executing. Always remember that customers are rich and stupid, and we should be careful when they ask for something. This is not to offend customers; it is just to respect the fact that sometimes customers are like children, and what they want is not what they really need.

Let’s talk about positively influencing demand. This is to provide the market and supplier information that procurement is familiar with to design, to help them better define demand.

In the field of indirect procurement, there are even more examples. For example, if you want to go on a business trip, the logistics department will often ask whether you can use a conference call instead, whether it is a direct flight (more expensive) or a connecting flight (cheaper), and whether you must go and return during peak hours (peak hours are more expensive). For example, if you want to buy 100-pound A4 paper, the experienced girl in the administration department will often ask you what you are going to use it for, and whether you can use 80-pound paper, which has a similar effect but is more cost-effective. These are all actively and positively influencing demand, that is, on the basis of meeting the needs of internal customers, they can also reduce costs.

In the big framework of balancing demand and supply, there is no clear boundary between demand and supply management, but there is a lot of overlap. The earlier supply management intervenes in demand management, the easier the subsequent supply chain execution will be; the later it intervenes, the more difficult the subsequent execution will be. At this time, demand management has to deeply intervene in supply management, such as urging for delivery.

Over the years, I have discovered an interesting phenomenon: the more first-rate management a company has, the more and earlier procurement intervenes in demand management, and the less internal customers intervene in supply management. In this way, internal customers can concentrate on solving front-end problems, that is, better managing customers. The more extensive management a company has, the more prevalent “purchase” is, and the less and later procurement intervenes in demand management, while internal customers (sales and design) intervene more in back-end supply. As a result, internal customers do not have enough energy to manage front-end customers, demand definitions are unclear, and urgent demands increase, which creates more problems for the supply side, and internal customers have to spend more energy managing supply, which becomes a vicious circle.