How do organisations go about creating savings post COVID?
Buy less and buy cheaper
Procurement professionals have four spend levers in their toolbox. From previous research into procurement savings we know that Buy Less (reducing demand) is most effective in reducing cost, closely followed by Buy Cheaper (buying fit for purpose rather than gold-plated goods and services). More traditional approaches, like using spending power to drive down prices (Pay Less), generally don’t work as well as they used to. Buying Smarter is often about improving the way the business operates, which hasn’t received much attention since the start of the pandemic.
During the immediate crisis response in 2020, Australian organisations turned to the ‘old school’ procurement toolbox of seeking competitive quotes and negotiating with existing providers. Add to this the demand reduction that occurred from less occupied space and less travel, procurement teams didn’t have to be too creative to deliver substantial savings.
In 2021, procurement teams relied less on the traditional ‘Pay Less’ methods – now only accounting for 25% of all savings tactics compared to 45% last year. The focus was even more so on demand reduction and turning that reduced demand into bottom line results – up from 44% of all tactics to 67%.
What we haven’t seen yet is a rise in the ‘Buy Cheaper’ tactics. This spend lever is often a longer-term strategy and requires close stakeholder involvement. We predict that this lever will be key to combating rising demand pressures once the ‘new normal’ is reached and supply may not be readily available.
Procurement teams will need to be more creative in 2022 and also think of alternative ways to deliver efficiencies in how the good or service is consumed. Only 1% use this ‘Buy Smarter’ lever at the moment. Not enough for rapid recovery.
Download our ebook from below to see category specific savings initiatives: how are others going about creating savings in property, facilities management, professional services and travel management? And how much money have they saved doing so? Download the ebook now to find out.