How to Reduce Procurement Costs: 8 Key Areas You Should Tackle First

8 Procurement Costs You Need To Know and How to Cut Them

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1. Purchasing Prices

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Let's keep things simple to start with. 

When procurement costs are discussed, the first thing that comes to mind is how much you will pay for the supplies you are sourcing. 

It's the straightforward amount at the bottom or beginning of an invoice. 

Pretty simple 

And perhaps that's what makes it so important.

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Purchase prices are fine…until the market gets crazy, financial policies change, there's a shortage in raw materials, or well, a natural disaster hits. 

Fatalistic as it might sound, all those things have a high chance of happening in our current reality.

Even without the pressure of external factors, you could end up paying more money than what you planned because you keep buying from random suppliers without clear purchasing policies.

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Also, procurement teams sometimes go with the first quote they get because... well, deadlines. When things are urgent, price doesn't hold the same relevance as usual. 

How to reduce purchase prices 

Leverage volume: Maybe it's not an option when you are just starting, but the moment you can, consider consolidating purchases across teams or departments to get bulk discounts. You'll find suppliers are more flexible when you represent a bigger slice of their revenue.

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Lock in contracts: Things can change overnight, but that doesn't mean you can't negotiate long-term agreements with pricing tiers or caps. For suppliers, it's about gaining predictability; for your company, it's about protecting stability.

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Benchmark regularly: Don’t assume last year’s price is still competitive. Especially now

Check market rates every year or two, and use that data in your negotiations.

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Ask for dynamic discounts: If you have built good relationships with your suppliers, it might be time to have a chat about early payment discounts or tiered pricing if you hit certain spend levels. 

You just have to ask.

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Work with procurement platforms: Tools like e-sourcing platforms can automate quoting and make supplier comparison a lot easier and less prone to costly mistakes.

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2. Supplier Consolidation Costs

We often say that supplier diversity is critical to protect supply chains against disruptions. 

Nothing wrong with that

But there's a fine line between having all the supplies your business needs and having just…too many pointless options.

If you are dealing with more suppliers than you actually require, you could be risking the stability of your budget.

It might start innocently, the marketing department needs an urgent subscription to complete a project, so there's no real sourcing process, and a random supplier is quickly picked. Before you know it, 10 suppliers are scattered across the whole company offering the same thing at different prices.

How to reduce supplier costs 

• Check for overlaps: Take a moment to carry out a deep spend analysis to discover how many suppliers are providing you with the same categories. Bring them together and detect the ones with poor quality or inconsistent pricing.
• Negotiate bundles: Do you have some absolutely reliable suppliers? Try to see if it's possible to work only with them to cover multiple product lines or services.
• Use GPOs: New to the industry? Don't have sufficient purchasing power to lure the big fish? Join a group purchasing organisation so you can gain collective buying power.
• Automate supplier performance tracking: With dashboards or procurement software, it’s easier to see who's delivering on time, meeting quality standards, and keeping costs low. That helps you decide who stays and who goes.

3. Contract and Price Benchmarking

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Yes, we get it

Dealing with contracts is a tedious process. 

So it's kind of normal to find companies that sign deals with their suppliers only to completely forget about them a couple of months later.

The problem with that? 

Things change 

Market rates can go up or down at any point. 

And if you don't know it, you can't be aware whether you're paying a fair price or stuck on an outdated deal, which, of course, can have serious consequences for your budget.

With procurement having the reputation of being difficult to handle, it's almost comprehensible to forget about old contracts, making negotiation a bit harder to achieve.

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How to save money with benchmarking 

• Review your contracts:  Not precisely fun work, but a necessary one for sure. Set a reminder to review pricing, performance, and renewal terms before auto-renewals kick in. You might find hidden clauses that allow renegotiation or re-bidding.
• Rely on data:  Keep an eye on the market and your competitors, and you can also check supplier catalogs to see whether you're above or below the standard price.
• Agility in contracts: What goes in a contract is what rules, right? Going forward, include price review mechanisms and benchmarking clauses in your contracts.

Even when your suppliers seem to be aligned with your budget and no problem arises, make a habit of constantly checking your rates against the market.

4. Maverick Spend Rogue Purchasing

There are processes in place, budgets to follow, and in theory, everything should work just fine.

Theory and reality sometimes clash. 

When someone in your company makes unauthorised purchases, maverick spending happens along with all the problems that come with it.

And no, most of the time, it doesn't come from a place of negativity. Actually, maverick spending might be a sign that your purchasing process and procurement operations aren't as simple to follow as you believe.

Maybe the approval takes forever. 

Maybe they don't even know there's a protocol to follow…

So, yes, ignorance and complex procedures are usually the main culprits.

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How to control maverick spending 

• Set up processes that people use: If your purchasing platform is slow, confusing, or buried in six layers of approvals, no one’s going to use it. Streamline the process and focus on usability.
• Make your suppliers visible: If you already have a list of pre-approved suppliers, make sure your staff knows where it is. A quick reference guide, supplier directory, or in-tool suggestions can help here.
• Monitor: Use spend analysis tools or your finance system to detect purchases outside of approved vendors or categories. Pattern recognition goes a long way.
• Talk with your people: Sometimes the simplest approach is the most effective. Show your team how maverick spending hurts budget and supplier relationships. 

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5. Inventory & Storage Costs

We get it 

Under certain circumstances, stocking up is good, perhaps even helpful. 

Only if it works for your current context, that's it. 

Stocking up just in case sounds like a safe bet, until your shelves are full of parts no one’s used in months, and your budget’s tied up in stuff gathering dust. Inventory and storage costs are the quiet kind: you won't see them on a supplier invoice, but they certainly add up in warehouse fees, expired goods, insurance, and opportunity cost.

If you don't rely on current data regarding your inventory, or if your procurement activities don't work based on real-time updates on what's happening in your warehouse, it's natural that you won't know how much stock you really need. 

How to save money on your inventory 

• Track real-time inventory: Use inventory management software (even simple ones) to keep tabs on what’s in stock, what’s moving, and what’s just sitting there.
• Segment your inventory: Apply ABC analysis to focus on high-value, high-movement items (A), and keep tighter controls on the rest (B & C items).
• Implement reorder points: You'll want to set minimum and maximum thresholds based on actual usage.
• Automation: Because yes, receiving alerts when stock is low instead of panic-ordering is the new normal. 
• Use just-in-time (JIT) strategies when possible: Especially for items with predictable demand or reliable suppliers, you don’t need to hold months’ worth of stock.

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6. Transaction & Administrative Expenses

Ever thought about the cost of your paperwork?

You should 

Every PO, invoice, approval loop, and follow-up email costs time, and yes, money. 

Now imagine that you have to face it on a daily basis, multiple times a day. 

You probably will end up close to burnout and with no energy to deal with what really matters.

There's nothing wrong with using some paper if you find that you need it or that it's simpler. Especially if you are a new company, but once you start growing and facing more challenges, manual-based work is not a good idea.

How to cut down costs in your transactions 

• Make your workflows smarter: Purchase requisitions, approvals, and invoice matching can all be automated with digital procurement tools. Like ControlHub's procurement software…for example.
• E-invoice: Invoice management doesn't have to be intolerably slow with the right system by your side. Digital documentation keeps things fast and trackable.
• Use P2P systems: These integrate purchasing, receiving, and invoicing in one place. No more switching between platforms.
• Centralize your communication: Communication is at the center of every single process. Make it simpler and friendlier. Nowadays, most platforms come with Slack integrated.

7. Supplier Performance and Risk Management

Ah suppliers

They're absolutely fundamental for your business. But suppliers can make mistakes. An order can be confused. Quality levels can go down without warning, and so your operations can start to face issues. 

You don’t always notice it right away, but over time, underperforming suppliers cost you money, time, and credibility. Maybe there was a basic vetting process when the supplier was onboarded... and then silence. Or maybe there’s no central view of KPIs like on-time delivery, defect rates, or service response times.

How to improve supplier performance and save money

• Give your suppliers score points: For real. It's the fastest and most objective way to discover how well or not your suppliers are doing regarding your expectations.
• Check for potential risk sources:  Go over your supplier's financial health, compliance status, and geopolitical exposure. If something’s about to happen, you want early warning signs. 
• Collaboration is key: If a good supplier starts slipping, start with a conversation. Often, they’re dealing with their own internal chaos and will work with you if you flag it early.

8. Logistics & Delivery Costs

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Imagine this scenario…

You found the right product at the right price and decided to purchase it immediately. 

The problem?

It’s being shipped express, in multiple small packages, from three different warehouses, across the country. Suddenly, that “great deal” comes with a scary logistics bill. If you’re not actively managing shipping and delivery strategy, it’s also easy to overspend without realizing it.

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Logistics aren't usually the first thing that comes to mind when purchasing something. So they're treated as the behind-the-scenes act that nobody looks at.

Wrong 

That disconnect creates fragmentation: small, frequent orders, unoptimized routes, and last-minute shipping fees.

How to cut down costs on your logistics

• Consolidate shipments: Batch orders so you're not paying multiple delivery fees for the same supplier or product category. Weekly or bi-weekly consolidated orders are often cheaper than daily piecemeal ones.
  
  
• Negotiate delivery terms: Ask suppliers about freight agreements, free delivery thresholds, or cost-sharing options. Many are willing to cut or waive fees if you commit to volume or frequency.
  
  
• Source closer to home: Local or regional suppliers can reduce lead times, shipping costs, and customs risk. Even if their unit price is slightly higher, the total landed cost may be lower.
  
  
• Avoid rush orders: Build in buffer time so you’re not defaulting to expedited shipping just to meet internal delays.

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