Economic volatility and persistent inflation continue to impact organizations of every size, leading to slowing growth, shelved transformation plans, and job cuts. A survey of 900 business leaders found nearly 40% expect layoffs this year, citing concerns about recession and the impact of AI.

We’ve seen headline-making layoffs at tech companies including Google, IBM, and Microsoft, big banks (Goldman Sachs, BlackRock, Citi), Hollywood (Paramount, Pixar). Household names including Tesla and Nike have also announced layoffs and cost-cutting measures.  

While a tough economic climate is never pleasant, this can be procurement’s time to step up and show the business what we can do. In this article, we explore ways to achieve cost reduction in procurement and ensure business continuity in times of economic uncertainty.

We’ll cover the following:

  • Ways some businesses may have tried to save money that didn't necessarily work
  • How to address budget concerns and avoid downsizing with the power of group purchasing
  • How group purchasing organizations can help by becoming an extension of your procurement team.

Seeking a new cost reduction strategy

Reducing headcount through selective hiring freezes, layoffs, or attrition is an effective (albeit painful) cost reduction strategy, but there are other options. Optimizing procurement practices, such as renegotiating supplier contracts, consolidating purchases, and identifying lower-cost alternatives, can generate savings.

When it comes to facility-related costs, companies have a few levers they can pull. Downsizing office space, relocating to cheaper areas, or renegotiating those lease agreements can make a real dent. And don't forget about implementing energy-efficient upgrades - that can lead to some serious savings on utility bills.

On the operations side, eliminating redundant processes, automating tasks, and generally running a tighter ship can translate to lower labor, materials, and overhead costs.

Outsourcing non-core functions to specialized third-party providers is another strategy organizations may consider to reduce costs. Careful inventory management, including optimizing stock levels and implementing just-in-time techniques, can help minimize carrying and obsolescence costs. Reviewing and renegotiating existing contracts, such as software licenses and service agreements, may also uncover opportunities for savings.

Investing in cost-saving technologies, consolidating and centralizing business units, and actively engaging employees to identify and implement cost reduction initiatives are additional approaches organizations can leverage. You can also employ a combination of these strategies that are tailored to your specific needs. 

Cost reduction strategies that may not work

Not every cost-reduction strategy is effective. Three examples include:

Shifting sourcing countries
While many supply managers have moved production out of China to other low-cost countries such as Vietnam, this cost reduction strategy has expensive challenges like having to upskill a new workforce and longer lead times. Other professionals are bypassing lengthy supply chain delays by reshoring their sourcing to the U.S. but face higher costs in doing so.

Cutting training costs
While it’s tempting to cut costs by slashing the training budget, this is a short-sighted approach because many of the skills being trained for will be crucial in the race to digitize and leverage AI capabilities. 

Freezing digital transformation
Digital transformation and implementation is a major expense, but this is no time to abandon the digitalization of your business. Retailers (for example) with strong eCommerce systems are outperforming brick-and-mortar stores. Similarly, manufacturers with automated production lines and modern technology can continue to operate no matter what labor force challenges the company faces.

A proven strategy that saves money, time and effort

A group purchasing organization (GPO) leverages the collective buying power of its members to obtain volume discounts from suppliers and retailers. The GPO uses its large database of members to negotiate volume-based discounts with suppliers, then shares the contracts back to its members to provide savings (sometimes up to 80%) on products and services that they wouldn't be able to negotiate on their own.

But, how will this insulate a company from rising costs and disjointed supply chains? The average savings generated through GPO membership puts an extra 18-22% straight back into the budget, immediately creating a cushion to combat higher operating expenses.

“Saving” doesn’t just refer to money, either. Joining a GPO also unlocks savings in terms of time (outsourcing the lengthy RFP process), and saves weeks of search time otherwise spent gathering all the data needed to make an educated decision on the best suppliers. GPOs provide access to a diverse supplier portfolio with multiple vendors in each category, and free up a procurement team allowing them to focus on the important job of keeping the company afloat in a time of crisis.

Una can help achieve cost reduction in procurement

In an uncertain economy, it’s understandable that companies are unwilling to spend more money to join new programs. The great news is that membership with Una is free!

At Una, we’re paid by the suppliers themselves and we use that fee to fund our program, ensuring membership is always free for our members.

More importantly, we strive to be an advisor to your business, helping you find customized solutions for your procurement needs. We offer our members a cost comparison analysis tool and supply chain management support as well.

Una membership is not about replacing a procurement function. Instead, we can be an extension of your procurement team, quickly connecting you to savings for your indirect spend categories and improving your bottom line so other measures can hopefully be avoided.

You shouldn’t have to navigate economic uncertainties alone. Una’s sourcing advisors can help quickly connect you to savings, now and always. Contact us to learn more.