How Procurement Can Implement Continuous Cost Optimization

With margins under constant pressure amid high inflation and economic turbulence, simply running periodic cost saving projects isn’t enough for enterprises. Disconnected initiatives carried out annually or every few years leave significant white space for budget creep in between. And a reactive, campaign-based approach cannot sustain efficiency at scale across global supply chains.

Instead, enterprises must make value delivery habitual by leveraging their data and real-time market indices to enable continuous cost optimization. Continuous does not mean frenetic, but rather a repeatable framework that is seamlessly woven into existing workflows and processes.

The right cost management software can help enterprises take a strategic approach to optimizing costs by leveraging market intelligence, cost breakdown models and accurate forecasting, enabling them to realize significant, durable savings.

What are the requisite steps to continuous cost optimization?

Let’s look at four of them:

1. Enable Visibility Into Spend Data

The first imperative is comprehensive visibility into spend. Without understanding current baselines, identifying improvement potential is impossible. Cost management software can connect and cleanse data from ERPs, payment systems and other downstream sources to illuminate spend across direct and indirect categories.

Intelligent, AI-powered software can classify this information dimensionally by business attributes, such as category, internal stakeholder or geography. The right software will help your enterprise maintain a frequently refreshed data foundation that integrates external signals on pricing, demand, supply risks and other variables that influence costs. Getting real-time visibility into spend powers the next optimization steps.

2. Analyze Cost Breakdowns and Should-Cost Modeling

Understanding what is spent reveals only half the picture. AI-powered spend analytics must determine what should be spent to indicate savings gaps plus upside. Should-cost modeling and cost breakdowns enable you to benchmark expenditures against indices on current and projected market pricing given external factors.

Your cost analysis software should help you maintain predictive models to enable accurate forecasting. As market dynamics fluctuate continuously, should-cost models will as well, indicating when fresh savings opportunities arise. Embed modeling into category management processes and direct the outputs to feed continuous improvement cycles.

3. Execute on Initiatives

Uncovering savings potential means little without reliable execution to unlock value. Opportunity analysis and project pipelines must seamlessly spark sourcing initiatives or joint business planning with key suppliers to capture headroom. Ensure contracts include flexibility to revisit terms aligned to should-cost thresholds.

Stand up running costs events, bringing cross-functional teams together to identify new ideas as market conditions evolve. Modern cost management software allows remote collaboration across stakeholder groups, as well as real-time visibility into savings projects and market intelligence and trend analyses.

4. Monitor Realization of Savings

The final link lies in monitoring to guarantee that identified savings materialize at projected run rates with adherence via validated reporting. Watch for savings leakage over time, which should trigger reviews to sustain the originally forecast bottom line impact.

Integration into procurement processes and workflows is a game changer for actualizing persistent advancement versus sporadic cost projects. Modern digital platforms now make continuous cost optimization sustainable at large-scale - delivering a cumulative competitive advantage over time.

Ready to embark on your journey to continuous cost optimization? Learn more about how to get started with GEP COSTDRIVERS, your gateway to the right data that will unlock procurement’s potential. Click here to schedule a demo.