In the second installment of this series which we have based on the 2024 PwC Digital Procurement Survey, the focus shifts to cost control—deemed the most critical priority by 65% of procurement executives. With procurement departments being pivotal in managing external expenses and suppliers, cost management remains top of the agenda. Traditionally, procurement teams are tasked with meeting annual cost savings targets, cascading these objectives down to category teams. However, recent economic landscapes, marked by inflation, rising interest rates, and supply base instability, have complicated cost reduction efforts. Emerging challenges like the new U.S. trade tariffs across the globe exacerbate these pressures.
In this volatile environment, the emphasis is shifting from mere cost reduction to maintaining and optimising current cost structures. This approach necessitates a profound understanding of procurement blind spots and areas ripe for optimisation. The PwC Survey highlights data analytics as a significant investment priority (33% cited it as a top priority), yet many organisations struggle to fully exploit their data, affecting spend visibility, savings reporting, risk and opportunity management as well as KPI oversight.
This is where methodologies such as SAP’s “Triple Crown” of Strategic Procurement approach—encompassing insights, planning, and execution—proposes a framework for managers focused on cost control:
- Start with Insights: With the advent of Data Cloud technology which utilises a vast Procurement data lake, businesses can adopt Spend Control Tower dashboards to identify procurement blind spots involving compliance, sustainability, supplier fragmentation, tail spend, payment terms, and sourcing risks. Insight examples include high levels of off-contract spending, fragmented supply bases, emissions and diversity risks and inconsistent payment terms.
- Plan Strategic Actions: Procurement teams can then leverage these insights and delve deeper into category spend and supplier analysis using tools such as SAP Ariba Category Management, augmented by AI-driven data intelligence insights. Set goals, select value levers, and employ this data (through integration of curated data and Gen-AI recommendations) to vet strategic options. Then Document action plans and establish KPIs targeting cost optimisation—e.g., consolidating demand, leveraging RFQs and e-auctions to challenge suppliers, renegotiating contracts, and potentially terminating underperforming supplier relationships.
- Execute with Precision: Finally, teams can initiate strategic sourcing events directly from category plans, updating sourcing tools with objectives and baseline data. Execute sourcing projects in alignment with category strategies using traditional RFX and auction capability as well as extending further into categories requiring complex sourcing execution and sourcing optimisation engines. Post-event, automatically incorporate negotiated savings into category plans, tracking progress and goal fulfillment within Category Management tools.
In summary, today’s economic challenges necessitate a nuanced approach to cost control, emphasising a desperate need for data-driven insights and strategic execution through greater automation. A focus on maintaining cost levels and optimising existing structures provides a resilient path forward, with new approaches such as SAP’s Triple Crown methodology offering a closed loop to achieve these objectives across all spend.
