Procurement Today: Creating financial value during challenging economic conditions

Difficult economic and trading conditions will continue to place increasing pressure on businesses in 2025, including inflationary pressure, disruption to supply chains caused by external events, and changes in government policies such as trading policies and tariffs. In the UK, businesses will experience significant increases in their wage bill while their suppliers will want to hold or increase prices in response to an inflationary economic environment.

The most sophisticated organisations take a balanced approach to creating value in procurement. This means considering financial value, quality, risk and innovation, alongside supply chain resilience, sustainability and supply chain diversity. However, the reality is that in difficult economic conditions, financial outcomes are the first priority. This article focuses on maximising financial value in procurement.

Data as an enabler of financial value creation in procurement

Only the most advanced organisations have a strong grasp of their indirect spend data across all levels of detail and by category, supplier and department. Many businesses are hampered by disparate data sources, legacy IT systems, poor record keeping, incorrect use of buying channels or non-compliant spend. These factors all reduce spend data quality and reduce visibility of overall spend.

Incomplete data requires significant data cleansing and classification before any meaningful data analytics can be carried out. This investment of time means the data analysis usually only occurs prior to a tender exercise or during a procurement category planning cycle.

Real-time data analysis can provide significantly improved day to day management information for procurement. It also provides a true understanding of goods and services spend and the emerging spend trends in your organisation. This is turns enables procurement functions to act to manage increasing costs or strike new deals and realise new sourcing opportunities.

Procurement metrics for improvement

When driving value in the supply chain there are various metrics that should be considered including Spend Under Management, Budget vs Actuals, spend compliance and the number of retrospective purchase orders. Taken together, an improvement to all these metrics will drive financial value as well as keep spend under control. The right approach here can deliver saving of between 5% - 10% of the supplier cost against the spend baseline.

A strategic approach

The need for savings is often driven by reductions in departmental budgets or by the objectives of Procurement Managers/Buyers. who seek to drive savings at the time of a tender or contract renewal. The savings achieved across contracts and tenders will have a cumulative impact on the indirect cost base of your organisation. However, there is a risk of “race to the bottom” behaviours on supplier prices and subsequent reductions in service quality and weaker supplier relationships.

We believe that a strategic approach to value creation, including strategic cost reviews, can deliver better outcomes in the medium to long-term. Organisations should combine short term savings with initiatives that deliver sustained results rather than grab ‘headlines’ through a rapid cost reduction programme.

There is often financial value that can be unlocked through a Finance-Department, led initiative. This can provide independent challenge to scope and requirements, scrutiny on new areas and identification of new value opportunities throughout the business.

Sustainable outcomes

We believe that most organisations can unlock value from their supply base without the need to materially compromise on quality, delivery or supplier relationships.

Outcomes can include realising savings over the life of contracts, achieving in-year financial savings, improving working capital and mitigating against inflation and price increases.

This does not have to be a “slash and burn” exercise. Instead, a successful programme can lead to innovative products and solutions, the reduction in unnecessary spend, operational efficiencies and improved supplier relationships.

How we can help you

Our Commercial Advisory Team is experienced in delivering financial value and delivering strategic cost reviews for many large enterprises.

Our Procurement Strategic Opportunity Review for CFOs and CPOs aims to unlock opportunities across your supply base and indirect spend. It is rooted in deep data analysis. We use software to provide you with deeper analysis of your third party spend and to make data-driven recommendations. We find that many organisations gain real insight from a review process – gaining a deeper and richer understanding of where they are spending money.

We provide an independent, robustly commercial approach. We produce bold recommendations on where you can unlock value, identifying commercial levers, which are informed by our experience on what has been successful elsewhere. We will put together short-, medium- and long-term recommendations alongside an assessment of their risks and impacts and the activities and phases that are needed to achieve the outcomes identified.

Talk to us now about your priorities in procurement and how we can support you to drive greater value from your third party relationships.