Last Updated: February 10, 2025
Cost reduction remains non-negotiable in procurement. Arguably, this priority drives every decision a strategic procurement professional makes, from adopting artificial intelligence for greater efficiency to managing risks that can inflate expenses. Even improving supplier relationships is often rooted in the goal of extracting more value and lowering long-term costs.
As the pressure to deliver results mounts, you need innovative strategies that not only tackle immediate savings but also support sustainable growth.
An Effective Cost Savings Strategy
One effective cost savings strategy is partnering with a group purchasing organization (GPO). By harnessing collective buying power, GPOs like Una provide access to significant discounts and streamlined sourcing processes, allowing procurement leaders to reinvest savings into key business initiatives. In this landscape, GPOs become essential allies in the relentless pursuit of cost efficiency.
But as you consider cost-saving strategies, what should you attempt first? Our advice is to begin with the low-hanging fruit for quick wins, while simultaneously working on longer-term cost saving strategies that will offer more substantial future returns.
If this sounds like too much to manage, joining a GPO opens the door to near-instant cost savings that may be otherwise out of reach, enabling you to concentrate on the bigger picture.
Quick Wins in Procurement
Have you ever noticed that functional maturity in procurement is like progressing to higher levels in a video game?
At the beginning, the levels are relatively easy and you can quickly accumulate points and rewards with minimal effort. However, as you advance, the challenges increase. You face tougher enemies, more complex puzzles, and require better skills and strategies to succeed.
Similarly, in procurement, as you move beyond quick wins, you encounter more intricate issues like developing supplier relationships, or implementing process automation.
Just as gamers must invest time and effort to overcome these challenges for greater rewards, procurement leaders must be willing to engage deeply with these complex strategies to unlock substantial, long-term savings and value for their organizations. The reward may be harder to achieve, but the payoff is often much greater.
Let’s start with the quick wins, often referred to as “low hanging fruit”. This often translates to cost-cutting measures that can be implemented with little effort.
Common strategies include:
- Review purchasing requirements
- Establishing a “no PO, no pay” policy
- Getting maverick spend under control (not always an easy task)
- Creating procurement policies and toolkits
- Spend analysis
- Review supplier master agreements
- Consolidate suppliers
- Consolidate deliveries
- Create a purchasing catalog to remove duplication
- Training and education of everyone making purchases
- Review product specifications for savings opportunities.
But finding additional savings becomes more challenging as procurement functions mature. Over-relying on short-term fixes can damage supplier relationships and hinder long-term value creation.
Long-Term Cost Savings Strategies
Cost reduction becomes harder to find as a procurement function matures. Don’t make the mistake of squeezing your suppliers for short-term cost savings as this will damage relationships and the opportunity for long-term value creation will be lost.
Instead, set your sights on the things that may seem harder to reach.
These cost savings strategies take longer (years, in some cases), but will ultimately pay off with ongoing value:
- Digitization of procurement
- Supplier Relationship Management (SRM)
- Improved visibility and transparency
- Shifting to a centralized, decentralized, or hybrid model, based on organizational requirements
- Establish a Just-in-Time supply chain
- Improve benefits realization
- Cost avoidance through better risk management
- Procurement 4.0: AI, Machine Learning (ML), NLP (Natural Language Processing), and RPA (Robotic Process Automation).
The Power of Group Purchasing Organizations (GPOs)
Partnering with a GPO like Una provides access to significant savings. GPOs aggregate the purchasing power of multiple businesses, enabling members to negotiate deep discounts—often averaging 18-22% in various indirect spend categories. This means you save in terms of:
- Cost: Members save on essential goods and services.
- Time: Pre-negotiated contracts eliminate lengthy RFP processes.
- Effort: Streamlined sourcing reduces workload.
Real Savings Through Group Purchasing
GPO-generated savings are not hypothetical savings that may or may not appear in the P&L. While many procurement savings depend on factors outside of your control (such as compliance), the upfront savings generated through higher volume purchasing and pre-negotiated GPO discounts are a very definite and immediate perk.
At its simplest, the business case is as follows:
If the business approves the GPO partnership, we will save [$x in costs] by [date] that can be invested in [business priority].
But what should your business do with the money? Here are some areas where savings can make a significant impact:
1. Investing in Cashflow
Access to cash saved can enhance liquidity, helping organizations to meet expenses, settle debts, and build reserves for future challenges.
2. Investing in People
Savings can be allocated to hiring additional staff, such as sales, customer support, and IT professionals, to drive growth and achieve organizational goals.
3. Investing in Technology
Organizations can use savings to invest in AI, upgrade systems, migrate to the cloud, and enhance their technology infrastructure, ensuring they remain competitive in the AI century.
4. Investing in Sustainability
Sustainability initiatives can yield long-term ROI. Funds can be directed towards greener operations and sustainable supply chains, aligning with corporate social responsibility goals.
Conclusion
Joining a GPO is a powerful way to enhance procurement strategies and unlock savings. By not only focusing on immediate cost reductions but also reinvesting those savings into critical areas, organizations can foster growth, innovation, and sustainability.
For further assistance implementing a cost savings strategy that works or to explore membership options, contact us at Una today!
