The procurement cost reduction strategy
that frees your budget

Budgets busting. Costs spiraling. The best businesses are in control. What’s their secret? You can bet it’s an effective procurement cost-reduction strategy.  

‘But we always make sure we choose the best price when we purchase new SaaS,’ you may be thinking. 

That’s a great starting point. But if you fail to consider your potential soft savings through cost avoidance, you’ll miss out on significant opportunities. Opportunities like freeing the budget from unused apps, for example.

Organizations without a procurement cost-reduction plan risk not only overspending but also falling behind their competitors. As others make space for innovation, your outdated, lengthy procurement procedure restricts your growth. 

Here’s the good news: procurement cost reduction is achievable for SMBs. 

A solid strategy of short and long-term techniques can optimize cost management throughout your procurement process. When you focus on a holistic strategy and bin the singular-minded savings mentality, you’ll regain the budget and challenge competitors. 

First, let’s get crystal clear on procurement cost reduction and why it matters to your business. 

How can procurement help with cost reduction? 

Procurement cost reduction is all about balance. As a business, you must employ a strategic approach to minimize spend while also guaranteeing high-quality tools to reach your business objectives. 

The problem is that there are a number of less obvious areas of budget wastage. Together, they quietly attack finances. These indirect procurement areas include admin and processing fees, late payment fines, rush delivery fees and poor negotiation outcomes, for instance.

However, from a more positive angle, multiple problem areas mean multiple exciting avenues within the procurement lifecycle to discover hidden value. 

And it is exciting to find more budget. Recovered spend can go straight back into innovation and growth, keeping you competitive in the industry.

The Hackett Group states that cost reduction is still a top priority for businesses and goes on to stress that both cost saving and cost avoidance are of high priority. But which are the most important areas to achieve comprehensive cost-reduction? 

Best practice involves using short-term techniques to quickly fix oversights before implementing long-term methods that deliver reliable cost-reduction into the future. 

Here are your top short-term wins for procurement cost reduction.

Short-term procurement cost-reduction techniques

If you’re coming to procurement cost-reduction cold or lukewarm—this is the place to start. Begin with some simple short-term techniques that give you instant business wins and lay the groundwork to dig a little deeper later on.

Eliminate Shadow IT 

Do you know what’s lurking in your SaaS stack, quietly draining your budget? With an average of 41% of employees acquiring unapproved technology, you may have more unsanctioned apps than you realize. 

Beyond just the initial unapproved subscription cost, Shadow IT threatens a repeated nightmare. When renewal dates arrive, and plans are set to auto-renew, the payment cycle starts again without negotiation. Your payment has likely increased and will continue to do so at each renewal. 

You can’t destroy an invisible foe. Procurement management software is your number one ally in this battle. Use it to conduct a full-scale audit of your SaaS, quickly identify Shadow IT and end costly contracts. Even better, set up permissions and approval workflows to make sure the issue doesn’t rear its head again in the future. 

Revisit contract pricing terms

Imagine the scenario: A project management tool has been a steady companion at your company for almost five years. Autorenewal of the app has been a massive time-saver. But why are project management budgets overshooting every quarter? 

Any contract left unreviewed for a long time will have uncompetitive pricing and yield low ROI. It is vital to challenge such contracts. Discuss changes with your supplier and renegotiate pricing terms—maybe you can receive a volume discount or offer for your loyalty, for example.

To support you, procurement software provides full visibility of SaaS contract timelines. Preventing a recurrence is easy with timely renewal alerts. The best procurement tools for SMBs also provide pricing insights to help you choose the most cost-efficient SaaS for your business. 

Right-size resources

Just like pricing terms, SaaS features need a close inspection, too. 

Maybe your whole enterprise has access to Microsoft 365 E5 when only 70% of the company needs those specifications. Or perhaps the subscription tier that you initially picked for Hootsuite now has multiple redundant features. But you’re still paying for them. 

Usage data analysis through your procurement tool highlights which apps are bloated with unused features. Utilize your metrics as leverage in discussions with your supplier. The cost you free up can be invested into more relevant features that promote company development. 

Cull uncompetitive suppliers

After reviewing your contract pricing and resource sizing, you’ll have a good idea of which vendors financially benefit your company and which just drain your budget. Some key supplier red flags are:

• No offer or discount was accepted during the negotiation.
• Increased pricing with each renewal.
• Little flexibility to match subscription size to your needs.
• No understanding of your vision for innovation.
• Poor support and wasted administrative employee time.

If a vendor cannot provide value for service, it’s time to seek a different SaaS solution. 

Procurement software will keep an inventory of previous vendors and your purchasing history, which will make your research quicker in the future.

Reduce emergency spend 

Picture this: it’s a week until your big launch. You run through the day in your head, and suddenly your stomach drops. The plan was to capture organic responses to the new product with short videos and audio, but the software hasn’t been approved yet. 

Hurriedly, you rush through the purchase. Crisis averted – or is it?

The truth is, you didn’t have time to view the service level agreements or negotiate cost-efficient and high-value terms, so costs were a lot higher than anticipated. 

You can reduce overinflated emergency costs with proper procurement planning. Management software helps you control purchase timelines, and approval alerts on your dashboard keep you on track. Tools like Spendbase, for example, make workflows even smoother with Slack integration, so employees can easily complete their tasks and avoid delays.

Quick fixes feel great. But short-term goals alone won’t maximize your cost-reduction. Like any business strategy, long-term techniques are your key to steady and dependable financial benefits. 

Long-term procurement cost-reduction techniques

A successful cost-reduction strategy is underpinned by a well-managed procurement process. A process where many long-term techniques are working consistently in that background to keep costs under control. But how do you achieve this reliability? 

Procurement software gives you that peace of mind. While the software optimizes best practices, you are in a position to respond to a constantly changing market and flex your needs as your company grows. And all while gaining savings of up to 60% on your cloud bills. 

Here are the top five long-term cost-reduction activities that procurement software makes easy.

Centralize information

It’s all very well eliminating Shadow IT, but it could return with just a few maverick spends. 

Some employees prioritize their preferences over company-wide value, and manual processes mean these purchases slip through the net. The result? SaaS duplication and waste infiltrate your business finances all over again. 

To gain control and stop the cycle, your SaaS information should be centralized on a single platform that gives you access to insights at your fingertips. Software systems provide instant procurement visibility of purchase orders, supplier details, invoices and payments. 

You’ll gain early sightings of any potential unauthorized spending before it’s too late and real-time updates on the centralized platform help you respond swiftly to any changes to payments or invoice errors. 

There’s no need to open multiple spreadsheets, compare items and give yourself a headache. Your software platform clearly displays spending against usage of your apps so you can see where savings can be made.

Utilize data insights

Reliable cost reduction isn’t possible without data insights. And there are many procurement KPIs you can use to get a picture of your SaaS value. For example, total usage patterns show if savings can be made on licenses. Or, you could investigate which features within apps are redundant to rightsize your subscription packages. Procurement software gives you the granular insight needed to make informed, profitable decisions. 

A key KPI to target for cost reduction is the total cost of ownership. This is important because it considers all costs in a software’s lifecycle, including indirect costs such as support costs, risk management and disaster recovery. Use this metric to avoid getting stuck in a cycle of initial cost-saving with high unexpected costs further down the line. 

Easy and reliable access to rigorous data insights will make budget forecasting more specific. You’ll benefit from less overspending and more purposeful investment in growth areas. 

As well as internal rewards, your data insights can be leveraged for external negotiations with vendors. You can use procurement software features such as price benchmarking to quantify your proposals to vendors. When you are clear on your details and acceptable terms, your arm won’t be twisted to waste your budget on unnecessary features or storage.

Use automation

Here’s an uncomfortable picture. A frustrated employee who sent an approval request for a SaaS solution weeks ago. It’s still not been approved, and they know there are several more hoops to jump through before it gets a purchase order. They will have to tell stakeholders that the project will be late (risking the company’s reputation) or make a rogue purchase.

Procurement should be smooth, not frustrating. The software can automate lengthy manual tasks and make approval processes quicker with streamlined workflows. If that employee had benefited from dynamic approvers and real-time notifications, they’d be on track with no need for stress or maverick spending. 

That’s not all automation can help with. As well as approval notifications, your dashboard will flag when renewals are approaching so that you never miss an opportunity to negotiate the best prices for your SaaS.

The top procurement management tools for SMBs offer customized workflows that set approvals on your terms, meaning maximum cost-efficiency for your personalized needs. 

Manage vendors strategically

Every procurement cycle begins with a need and a search for a solution. Vendors provide those solutions, but not all vendors are designed equally. 

You’ve taken the time to cull your uncompetitive suppliers. Now, maintain that long-term by only establishing new mutually beneficial partnerships. 

Research is critical to determine if a vendor is the right fit for your company, and you should consider pricing, risk, customer support and reputation to avoid any unwanted future costs. 

Procurement software can recall details on trusted vendors to make your research quicker and give you more options to make the perfect choice. 

However, long-term cost reduction in this area goes beyond just sourcing vendors. Nurturing a healthy ongoing relationship is the key to long-term benefits. Your procurement software can support your vendor relationship with insights such as:

• Where purchases can be consolidated with fewer suppliers.
• Business growth opportunities that can be shared with suppliers, encouraging competitive rates.
• Bundled service options.
• Where long-term contracts can be used to secure favorable pricing.
• Evaluation of vendor service and ROI.

Outsource negotiations

Is it fair that your business can’t even set eyes upon some elusive vendor deals or discounts? Procurement solutions, such as Spendbase, don’t think so. The best procurement management tools say, ‘Leave it to us.’

These platforms have the economy of scale and volume to win you significant savings on SaaS, and with access to over 200 trusted vendors, you won’t have to settle for second best. 

They also benefit from industry insights and up-to-date pricing intelligence, which means you get access to discounts of up to 80% on your favorite apps. 

It’s a high ROI technique for reliable procurement cost-reduction. Trust vendor negotiations to the experts and enjoy higher productivity and more budget for business development.