The landscape of Procurement’s key performance indicators (KPIs) is dramatically shifting. Insights from CASME Executive Forums held in London, Zurich, and New Jersey in late 2024 confirmed what many senior procurement executives already sensed: cost optimisation and inflation management have once again reclaimed their top position on CPO priority lists.

However, the days of simple tender processes and supplier switching as primary cost-reduction tactics are decreasing. In many critical indirect categories, changing suppliers entails high transition costs and operational complexities that render traditional approaches increasingly ineffective.

Navigating this challenging reality requires procurement teams to move beyond conventional cost-cutting methods towards sophisticated strategies. These require deeper business stakeholder engagement to unlock value in new and innovative ways. The recently published ‘Procurement's Value Beyond Cost Savings’ SnapShot Report, highlights strategies reported by CASME members that extend well beyond the standard request for proposal (RFP) process.

The strategic procurement leader of 2025 must therefore master a complex array of advanced cost management techniques that extend far beyond the negotiation table.

THE DEMAND MANAGEMENT REVOLUTION: RETHINKING WHAT WE BUY

The most powerful cost reduction does not come from pressurising suppliers but from fundamentally reimaging what organisations purchase in the first place. CASME's research confirms this shift. Procurement teams may be able to significantly improve costs by using their knowledge of market offerings, re-engineering, and automation possibilities to adjust specifications.

Imagine cutting software costs by 20%, not through aggressive negotiation, but by collaborating with IT to eliminate rarely-used premium features. Or reducing facilities management expenses by redefining service frequency requirements rather than changing providers. These specification optimisations require deep engagement with stakeholders from Operations, IT and Facilities Management, to name a few, to challenge longstanding assumptions about business needs.

SUPPLIER PARTNERSHIPS: THE COLLABORATIVE ADVANTAGE

Traditional procurement approaches treat suppliers at arm’s length, primarily aiming for discounts as a major cost reduction lever. Forward-thinking organisations are upending this model with collaborative gainshare approaches—an area that CASME identifies as a high-value activity. These models transform suppliers from vendors into genuine partners in cost reduction.

According to BCG's ‘Suppliers as Partners’ framework1, organisations that transform select transactional supplier relationships into strategic partnerships can achieve significant cost reductions through joint innovation and process improvements: ‘Cost savings range up to 20 percent for service process improvements, although savings of up to 50 percent are possible’.  Everest Group's research2 identifies multiple supplier-incentive mechanisms beyond traditional gainsharing, including value-add commitments, innovation investments, competitive intelligence sharing, and Total Cost of Ownership (TCO) management.  

Collaborative models require Procurement to work closely with internal stakeholders from all functions touched by the services provided. This typically includes stakeholders from across IT, Finance, and Legal departments to develop governance structures that align supplier performance with business objectives, while ensuring appropriate risk management and compliance.

FINANCIAL ENGINEERING: THE WORKING CAPITAL OPPORTUNITY

CASME’s ‘Procurement's Value Beyond Cost Savings’ SnapShot report explicitly recognises ‘the optimisation of working capital, payment terms, and cash flow’ as key value drivers beyond traditional cost savings. These sophisticated financial strategies transform Procurement from a pure cost centre into a cash flow engine.

Leading procurement teams are partnering with Treasury and Finance departments to implement dynamic discounting programmes and strategically restructure payment terms. When executed effectively these initiatives unlock cash flow benefits while maintaining healthy supplier relationships. However, they demand seamless collaboration with IT, Finance, Accounting, and Treasury stakeholders to identify liquidity optimisation opportunities, ensure smooth implementation and risk management.

TAX-OPTIMISED PROCUREMENT: THE HIDDEN COST-SAVINGS LEVER

While conventional procurement methods tend to focus on ‘headline’ prices, tax-aware strategies examine total landed costs including customs duties, and broader tax implications. This approach can uncover 5-10% savings without changing suppliers or specifications.

According to leading tax advisory businesses such as EY3, customs duty savings can be achieved through strategic customs planning. Many organisations unknowingly increase their produce costs by paying unnecessary duties early in the supply chain. Techniques such as ‘price unbundling’ allow companies to exclude non-taxable elements (for example, buying commissions and advertising expenses) from customs valuations. Companies can also leverage the ‘first sale for export’ principle available in both the EU and US to base customs values on an earlier, lower sales price under specific conditions. 

As customs duties—unlike VAT—represent a direct, unrecoverable cost, optimising procurement from a tax perspective using these customs planning methods can deliver immediate bottom-line savings. These strategies demand close coordination with Tax, Legal and Finance stakeholders to navigate complex compliance requirements while capturing legitimate tax efficiencies.

ADVANCED ANALYTICS: ILLUMINATING THE TAIL SPEND DARKNESS

The notorious ‘tail spend’—thousands of low-value, fragmented purchases often representing 10-20% of an organisation’s indirect expenditure—has long been Procurement's blind spot. Advanced analytics tools are now illuminating this previously opaque area, revealing substantial cost-saving opportunities.

Progressive organisations are continuing the ‘fight for visibility’ by reviewing and implementing purchasing cards (P-cards), corporate cards and other mechanisms to more effectively track tail spend, and are combining this AI-powered spend categorisation systems that identify maverick buying patterns and consolidation opportunities. 

Successful implementation requires strong collaboration with IT, Data Analytics, and business unit stakeholders to implement technology solutions that enhance both compliance and cost reduction.

THE PATH FORWARD: COLLABORATIVE SUCCESS

The evolution from transactional procurement to strategic cost management demands unprecedented upskilling and cross-functional collaboration. Success requires not only implementing these advanced techniques, but also establishing robust reporting mechanisms. As the CASME SnapShot concludes, Procurement’s impact must be communicated not only to Finance and Procurement colleagues, but to relevant internal stakeholders and senior leadership. Procurement teams who master these sophisticated approaches, while effectively communicating their value, will transform from cost centres into strategic value creators that deliver a measurable competitive advantage.

Sources: 

1  BCG, ‘Suppliers as Partners: A Catalyst for Savings’, 2010

2  Everest Group, ‘Becoming a Customer of Choice: How to Boost Your Supplier Relationships’, 2022

3  Ernst & Young (EY), ‘Managing Indirect Taxes in the Supply Chain’, 2012

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