Cost Efficiency in Procurement

Time, so they say, is money.

Imagine you’re a freelancer who needs to book a business trip to another city. You want to get the best possible deal on flights and accommodation, so you stop working and make time to dive into the research. 

Unfortunately, this takes a lot longer than anticipated. You read several travel blogs, compare deals on multiple travel websites, click through countless photos of hotel rooms, and find yourself falling down the rabbit-hole of customer reviews. At last, you find a great-value deal that ticks all the boxes in terms of outcomes – in other words, it’s cost effective.

Cost efficiency in procurement

But was the process of finding the deal cost efficient? You’ve spent four hours on this task – that’s half a day away from generating an income. With a sinking feeling, you realize that the money saved by finding the great-value deal is outweighed by the time, effort, and income lost in those four hours.

In other words, you’ve been inefficient. You’ve wasted time, which means you’ve wasted money. It would have been more efficient to have simply gone with the first good-value deal instead of trying to hunt down the best-possible offer. Or, it may have been more efficient to skip the whole process and pay someone a small commission to arrange the booking, so you could keep working.

A practical example for driving cost efficiency

Unfortunately, this kind of thing happens all the time in procurement. Imagine, for example, that a procurement manager on a salary of $108,500 (2024 ISM Salary Survey) dedicates 40 hours of work to slashing $2,000 per year from office cleaning services. At the end of the process, she proudly announces to the CPO that she has saved the organization $2k through cost optimization. With a frown, the CPO points out that by spending the equivalent of a full week on this task, the manager cost the organization $2,086.54 – a net loss of $86.54 for the first year of the contract.

What could the procurement team have done better to improve the cost efficiency of this exercise?

1. Assign the right level of employee to the task

The most obvious cost inefficiency in the example above came from assigning a manager-level employee to conduct a low-level cost saving exercise. It should have been someone on a lower salary:

• ISM tells us that an Emerging Practitioner earns $87,668 per year, which means a weekly salary of $1,685.92. In their case, a saving of $2,000 would mean the business is ahead on the deal by just over $314 in the first year.

Arguably, it was inefficient for procurement to be involved at all for such a small saving. This is one of the reasons spend thresholds exist – depending on the size of the organization, the CPO may decide that it simply isn’t worth procurement’s time (in terms of salary) to get involved in something that would only generate $2,000 in savings.

Remember the golden rule: Every procurement practitioner should save the organization more than they cost to employ.

Someone who saves way more than their salary is, by definition, highly cost efficient. 

2. Identify and correct process inefficiencies

Forty hours, you might think, is simply too long to spend on a saving of $2,000, which is why the next step is to find ways to move faster.

Start by looking at the different stages in your procurement cycle:

Then ask yourself the following questions:

• Where are the roadblocks? What part of the process took up most of the 40 hours spent on the task?
• What (or who) is slowing you down? For example, did you waste time repeatedly requesting some information from a stakeholder or supplier?
• Are there any manual processes that can be automated? How can technology help – for example, is there a platform that can instantly provide a list of suppliers that match your criteria?
• Is there a way to collect and store spend data in a central repository so you don’t have to waste time hunting through silos for the information you need?  
• Can you save time by outsourcing or skipping any steps of the process, and how will this impact the cost efficiency equation?

3. Partner with a group purchasing organization

Group purchasing organizations (GPOs) can be super handy when it comes to streamlining and simplifying the procurement cycle. At Una, we pride ourselves on our speedy timeline to getting our members connected to some pretty impressive savings – at no cost to members.

Here are just some of the ways we can help make things more efficient for our members:

• Supplier selection: Our members can bypass the lengthy supplier vetting and selection process, as we've already done the legwork to identify reliable, high-quality suppliers.
• Skip the RFP: In certain categories, our members don't have to waste time and resources on requesting proposals, as we've already negotiated favorable contracts.
• Leveraging established relationships: We've built strong, long-standing relationships with our supplier partners, allowing our members to benefit from these connections.
• Faster timeline to savings: Our streamlined procurement process means our members can start realizing massive cost savings as high as 22% in a matter of weeks, rather than months.
• Alignment with stakeholder goals: We hook our members up with supplier contracts that are ready to go and align with what your stakeholders are after.

Finally, we do it all fast, helping you achieve true cost efficiency by saving money, time, and effort.

Una's process for connection is simple and straightforward. Learn more about how we quickly onboard new members in our Guide to Una Membership resource.