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Demand pooling: definition and important aspects for buyers
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What is demand pooling?
The bundling of requirements is a central strategy in procurement in which procurement requirements are systematically combined - whether across different departments, locations or defined periods of time. Consolidating requirements into a larger total quantity enables procurement to improve its negotiating position with suppliers and leads to optimized logistics and process costs in addition to volume discounts. Through the strategic use of temporary and organizational bundling, companies can strengthen their purchasing power in a targeted manner and achieve measurable cost savings across the entire procurement process.
Contents
Strategic demand pooling in procurement goes far beyond simply combining requirements: it is a holistic management approach that takes into account both the temporal and organizational dimensions of procurement. While organizational bundling brings together requirements from different departments and locations, temporal bundling enables forward-looking planning of recurring or similar requirements over defined periods of time. This dual approach not only creates economies of scale through larger order volumes, but also optimizes the entire supply chain - from reduced process costs through fewer ordering processes to improved supplier relationships through long-term partnerships.
The implementation of systematic demand pooling requires close coordination between all company divisions involved as well as an in-depth understanding of the company's own procurement structures and market conditions. Modern e-procurement systems, such as SRM and analytics systems for purchasing, support this process by improving transparency and planning, so that buyers can recognize bundling potential at an early stage and use it strategically. The added value lies not only in direct cost savings through volume discounts, but also in the standardization of products and services, optimized warehousing costs and an overall more professional and efficient purchasing organization.
Example of demand bundling: annual savings by bundling monthly orders
A medium-sized manufacturer of drive systems was able to achieve significant advantages in the procurement of copper windings by bundling its requirements over time. Instead of placing monthly orders for 2.5 tons of copper wire each month as before, the purchasing department analysed the requirements over a longer period of time and introduced quarterly bundling.
The decision to bundle the time was based on several factors:
- Stable and easily predictable demand volumes thanks to long-term customer orders
- Minor price fluctuations on the copper market within the selected period
- Sufficient storage capacity for the larger order quantities
- High process costs per order (approx. €400 for tendering, negotiation and quality assurance)
The advantages of quarterly bundling became clear:
- Reduction of the purchase price by 8% through volume discounts (7.5 tons instead of 2.5 tons)
- Reduction of transport costs by 35% through optimized container utilization
- Process costs reduced by 66% due to reduction from 12 to 4 order processes per year
- Improved planning reliability for the supplier led to prioritized deliveries and 99.8% delivery reliability
The total savings amounted to around €95,000 per year, with a simultaneous increase in storage costs of just €12,000. The additional capital commitment was more than compensated for by the savings achieved.
Example of demand bundling: Savings by bundling orders across projects
The medium-sized valve manufacturer had parallel customer projects for the development and production of control valves for the process industry. Through a systematic analysis of the project requirements, the purchasing department recognized that similar sensor components were needed for flow measurement in three different development projects.
Cross-project bundling was implemented for the following reasons:
- Technical specifications of the sensors were 85% identical
- The total quantity across all projects amounted to 1,200 units (project A: 400, project B: 500, project C: 300)
- The project durations overlapped in an 8-month time window
- All projects were still in the design phase so that standardization was possible
The bundling strategy achieved several advantages:
- Reduction of the unit price by 23% (from €175 to €135 per sensor) due to the higher total volume
- Development costs reduced by €45,000 due to standardization of the sensor interface
- Qualification costs for the supplier were only due once, saving: €12,000
- Reduction of variants in spare parts management by 66
- Reduction of development time by an average of 6 weeks per project thanks to already qualified components
The total savings across all projects amounted to €93,000, with the greatest leverage lying in standardization and reduced development costs. In addition, the closer cooperation with the sensor supplier led to preferential treatment in future projects and more stable delivery times.this form of bundling shows that even in project purchasing, which is traditionally often seen as an individual case, considerable synergies can be achieved through comprehensive procurement strategies. In particular, the use of analytics systems for purchasing has helped to discover this potential.
Decisive factors for order bundling
Economic factors:
- Amount of achievable volume discounts in relation to the value of goods
- Additional costs due to increased warehousing and capital commitment
- Process costs per order (personnel, IT, quality assurance)
- Transport costs and possible optimization of transport capacity utilization
Demand-related factors:
- Predictability and plannability of requirements
- Standardization potential of requirements
- Urgency and time flexibility of requirements
- Storage capacities and conditions
- Durability and ageing of materials
Supplier-related factors:
- Supplier portfolio and their capacities
- Minimum order quantities and batch sizes
- Delivery times and their stability
- Willingness to enter into framework agreements
Organizational factors:
- Existence of suitable IT systems for recording requirements
- Coordination effort between departments involved
- Flexibility for short-term changes in demand
Bundling requirements: from individual procurement to strategic consolidation
The bundling of requirements, as explained above in theory, is a key to increasing purchasing efficiency and reducing costs in practice. By grouping similar or identical requirements within a company, considerably better conditions can be negotiated with suppliers. In an increasingly globalized and competitive economy, traditional individual procurement is no longer sufficient to remain competitive. A transformation towards strategically aligned demand pooling is therefore necessary in order to exploit economies of scale and optimize the supply chain.
Traditional approach: individual procurement
In individual procurement, departments or locations often act in isolation, covering their specific requirements independently of each other. Each department orders individually from suppliers without taking the company's overall demand into account. This approach leads to smaller order quantities, which results in higher prices per unit and less advantageous delivery conditions. It also results in redundant processes and increased administrative effort due to multiple orders and supplier negotiations. The lack of coordination also makes it difficult to standardize materials and services, which further reduces efficiency and increases the potential for errors.
New: Strategic demand pooling
The modern approach to demand pooling relies on a company-wide consolidation of procurement requirements using strategic sourcing. Here, requirements are recorded centrally and bundled efficiently using digital technologies and data analysis. Innovative e-procurement systems make it possible to collect real-time data on requirements and create transparency across the entire procurement volume. This strategic approach enables companies to significantly increase their negotiating power with supplier management and achieve price reductions of up to 20%. Other benefits include reduced process costs through automated order processing, improved supplier relationships through long-term partnerships and increased flexibility to react quickly to market changes. In addition, strategic demand pooling promotes sustainability initiatives by identifying and integrating more environmentally friendly procurement alternatives.
Conclusion on demand pooling
Demand pooling is a powerful strategic tool in modern purchasing that can open up significant savings potential both across organizational boundaries and over time. The success of a bundling strategy depends on a careful analysis of various factors, from economic key figures to technical feasibility and organizational framework conditions. Although systematic implementation initially requires increased coordination effort, it leads to direct cost savings as well as professionalization of the purchasing organization and improved supplier relationships. Especially in the context of increasing digitalization and the use of modern e-procurement systems, the importance of demand pooling as a tool for increasing competitiveness will continue to grow.
