As budgets tighten and companies streamline their spending, many businesses are looking for ways to save significantly on procurement costs. 

What these companies may overlook, however, is that better procurement outcomes result from the combined impact of many small, systematic changes made over time. These changes directly impact the cost-effectiveness of indirect spend, which is often one of the most significant cost centers on the books. 

We’ve compiled the top 20 ways to streamline your P2P cycle and save money on procurement. In this article, you’ll learn:

• Different forms of savings according to goals, volume, and industry
• The top ways to increase procurement cost savings all year long
• Cost savings and cost avoidance as procurement savings practices
• How technology makes procurement savings faster and easier 

Download the free ebook: The Procurement Strategy Playbook

What are procurement savings?

Procurement savings refer to measurable cost reductions your business can achieve with strategic sourcing, process improvements, vendor negotiations, and compliance enforcement. These savings can manifest in direct and indirect ways, such as paying less for goods and services or avoiding future expenses with better planning. Cost savings are often a key performance indicator (KPI), so understanding how to maximize them is critical as procurement and finance teams work to reach their individual and business goals.

Types of procurement savings

Procurement savings can take multiple forms depending on a company’s goals, purchasing volume, and industry. The most common types of savings include:

• Hard savings are tangible, direct decreases in unit prices or fees. 
• Soft savings include reductions in time, labor, or effort that indirectly lower costs. 
• Spend under management savings are achieved by controlling spend through approved procurement processes and contracted vendors.
• Working capital optimization savings involve improving cash flow through strategic payment terms and bulk discounts.
• Total Cost of Ownership (TCO) savings account for savings across the product’s entire lifecycle, including use, maintenance, and disposal. 

Procurement cost savings ideas

Here are the 20 best strategies procurement leaders and managers use to positively impact spending: 

1. Create policy education for stakeholders: Well-documented spend policies establish expectations for buyers and decision-makers. Such policies provide education and resources to help everyone spend efficiently and practice proactive procurement.

2. Practice strategic sourcing: Transactional procurement often costs more than a strategic sourcing approach. This increased expense is reflected in cost per unit, vendor responsiveness, turnaround time, and other soft metrics. Establishing strong supplier relationships has quantitative and qualitative benefits for organizations.

3. Consolidate vendor lists: Vendor overlap decreases leverage by spreading spend too thin. Vendor list consolidation establishes stronger relationships and reduces vendor management's labor and associated costs.

4. Curb maverick spending: Spending outside the documented procurement process drives up costs and creates information silos. Instead, enforce procurement policies and find methods to reduce corporate card expenditures and spot buys.

5. Establish spend approval rules: Once your procurement policy is in place, establish approval workflows and guidelines to ensure every purchase request receives adequate review. These guidelines may be based on order size, product category, location, role, or department. For larger contracts, include legal and security reviews in your workflow.

6. Decrease third-party risk: Companies spend millions of dollars annually mitigating the impact of information breaches and procurement fraud. Establish risk management practices within procurement to protect against these costly incidents.

7. Leverage your logo: Use the power of your logo to secure better pricing and terms during negotiation. For instance, many vendors will consider a discount or more flexible terms in return for a testimonial or case study from a top-tier business partner.

8. Audit procurement costs: Many unnecessary costs fly under the radar due to a lack of regular reporting and spend analysis. Commit to a regular analysis cadence to find savings opportunities and make contract adjustments. Small improvements over time offer thousands or hundreds of thousands of dollars in cost reduction.

9. Use category management: As part of cost management, understand which spend categories represent your largest capital investment. Establish category management practices that address these big-ticket areas to find savings opportunities.

10. Leverage volume discounts: Consolidating vendor relationships allows you to consolidate purchasing for your most frequently used supplies and services. Leverage volume discounts as a cost-saving measure for products and consumables across the organization. For organizations that don’t need the volume necessary to leverage this strategy, look into enabling better pricing by purchasing through a Group Purchasing Organization (GPO) or a platform like Order.co.

Ebook

The Procurement Strategy Playbook for Modern Businesses

Learn the key pillars of a strong strategy, valuable procurement metrics to track, and initiatives you can start implementing today.

Download the free ebook

11. Audit expense reports: Expense reporting is another area where unauthorized spending occurs. Periodically auditing reports help identify spending outside of prescribed limits. It also identifies recurring purchases on employee credit cards that spend analysis efforts can’t capture.

12. Manage inventory levels: Over-ordering and poor inventory management present liability issues and inefficiency in cash flow. Perform inventory audits and manage levels to prevent overages and shortfalls, especially since making up for shortages might mean incurring extra fees on rush deliveries.

13. Streamline logistics: Trucking and logistics costs add up quickly when delivery services are too centralized. Wherever possible, streamline logistics across locations to save on expensive trucking and warehousing fees.

14. Conduct price benchmarking: Understanding how current vendor pricing compares to industry or internal benchmarks allows procurement to negotiate more effectively. This ensures your contract performance metrics remain strong over time.

15. Consider multi-year agreements: Executing a multi-year contract with a trusted vendor often ensures lower prices for the contract's duration. Additionally, you could lock in interest rates and improve terms that increase cost savings and the deal's overall value.

16. Reduce manual accounting work: Manually managing the procurement and accounting process is expensive and inefficient. Errors in accounts payable processes result in extra fees, double payments, and the loss of early payment discounts. Reduce manual data entry and processing to drop your per-invoice accounting cost and save valuable overhead.

17. Negotiate discounts: Build strong vendor relationships — they allow you to negotiate for better contract terms beyond the bottom line. These may include better payment terms (which improves cash position) or early pay discounts for being a responsible customer. Vendors are often willing to work with clients to secure mutually beneficial terms. 

18. Establish procurement KPIs: To improve cost savings, you need a way to quantify results. Establishing desired procurement goals and building success metrics to monitor progress increases savings. Choose metrics like contract performance, supply chain efficiency, and the total cost of ownership. 

19. Establish role-based spending limits: Outlining spend policies by department, role, organizational level, and team or location fine-tunes budgeting across the organization. Build dynamic controls to ensure everyone knows appropriate spending limits and where to go for exceptions. 

20. Use spend management software: Spend analysis software brings every type of expense into focus, allowing finance and accounting teams to plan and execute budgets and forecasting efficiently. Spend management platforms offer granular data about company spending, revealing opportunities to realize cost savings and cut unnecessary spending.

How to develop a cost savings strategy

Creating an effective, lasting procurement cost savings strategy requires alignment across departments, data-driven decision-making, and consistent execution from all employees involved in the purchasing process. It may seem daunting to revise or even overhaul your existing procurement workflows. However, the long-term benefits in terms of financial health and operational efficiency far outweigh any initial growing pains – and you don’t have to build a new strategy from scratch.

Here’s a step-by-step guide to help you get started: 

1. Assess current spend and processes: Start with a comprehensive spend analysis across products, vendors, and locations. Look for high-cost product categories, unmanaged tail spend, and duplicate or maverick spending. 
2. Set savings goals tied to business objectives: Whether you’re targeting a specific percentage reduction or a dollar amount, align your strategy with the company’s greater financial or operational goals.  
3. Prioritize high-impact initiatives: Focus on identifying savings opportunities with the greatest potential ROI, such as vendor consolidation, automated invoice processing, or sourcing cost-effective product alternatives.
4. Build internal alignment and accountability: Ensure procurement, finance, and operations understand and support your strategy. Define responsibilities to track progress and keep teams focused on their designated tasks. 
5. Monitor, optimize, and repeat: Establish regular check-ins to audit spend, review KPIs, and refine your cost savings strategy based on real-time data. 

Following these steps can help your business eliminate wasteful spending and uncover hidden savings in everyday purchases. Beyond the immediate financial benefits you’ll achieve, building a cost savings strategy can help you improve vendor relationships, drive purchasing compliance, and increase visibility into organizational spend. When applied consistently, even small improvements can lead to substantial impacts to your bottom line over time. Whether you’re looking to free up working capital, streamline operations, or scale procurement across multiple locations, a well-executed strategy will help lay a foundation for long-term success and sustainable business growth.

Ebook

The Procurement Strategy Playbook for Modern Businesses

Learn the key pillars of a strong strategy, valuable procurement metrics to track, and initiatives you can start implementing today.

Download

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Cost savings versus cost avoidance

When it comes to keeping money in the bank, there are two types of savings companies practice — cost savings and cost avoidance. Cost savings is the one more frequently touted by leaders, but cost avoidance is just as important.

Cost savings means reducing costs associated with a project, department, or location. You achieve cost savings by eliminating unnecessary waste and streamlining processes. Cost savings could also include switching from expensive products or services to cheaper alternatives. Companies use cost savings to reduce expenses, increase efficiency, and maintain their competitive advantage.

Cost avoidance is about stopping spending before it occurs. Cost avoidance strategies include negotiating better deals with suppliers (for instance, avoiding scheduled cost increases or locking in interest rates), performing maintenance to avoid future replacement costs, outsourcing tasks or processes, and finding new ways to streamline operations. 

How Order.co helps procurement professionals increase procurement savings

Using spend management software tools to organize and automate the procurement process offers easy access to preferred vendor lists. Here are some of Order.co’s top features: 

• Curated ordering from a preferred list of vendors to ensure lower third-party risk and consistent vendor performance
• Spend analytics features to examine spend and make data-informed decisions about future budgets and spending
• Automation workflow for approvals to ensure every purchase meets organizational standards and receives proper review

To learn more about Order.co and its power to streamline your process and your costs, request a demo today.