Why procurement is the fastest lever on the result
Procurement can support the top line through innovation or faster time-to-market, but its decisive effect is on the bottom line, and the leverage is larger than most teams assume. A saving in procurement flows directly into EBIT, whereas the same effect achieved through sales has to be earned on the thin contribution margin of the additional business.
The comparison is stark. At a 5% contribution margin on the incremental business, a saving of EUR 100,000 equals the EBIT effect of EUR 2m in additional revenue. The lower the margin, the larger that revenue multiple. Apply an EBIT valuation multiple on top, and each euro saved compounds again into enterprise value.
The hard part is rarely finding the savings. Benchmarking and analytics show where money is left on the table, but insight alone does not make suppliers lower their prices. What moves price is competition, and competition has to be engineered.
Real levers, not requests for discounts
The decisive distinction in cost reduction is between an argument and a lever. An argument appeals to reason; a lever changes the supplier's business case. "Your margin is too high" is an appeal, and appeals move nothing, because they do not touch the other side's incentive to concede.
The test is simple: does the measure change the supplier's incentive situation? If not, it is not a lever, however well documented it is. The genuine levers are competition, bundling, specification changes and a credible make-or-buy option. Cost data becomes a lever only when it forms the basis for one of these actions.
Competition is the strongest instrument, and the one most often merely simulated. Obtaining three quotes is not competition; creating credible alternatives is. Even a weak bidder helps: as long as a rival stays in the race, the incumbent cannot be certain of winning and must weigh a concession to protect its probability of the award.
Sustainable savings versus one-off wins
Not every saving is worth the same. A one-off discount extracted under time pressure tends to erode: the next negotiation starts from a number that was never structurally justified, and reciprocity pressure crowds out sober analysis. Sustainable procurement cost optimisation is built into the process, not conceded in a single conversation.
The most common source of structural overpayment is the indexation error. A price is carried forward each year in line with inflation or raw materials and treated as fair because it was "adjusted to the market." But an inflated base price is not corrected by indexation, only perpetuated. The right question is not which index applies, but whether the base price itself is still correct.
Durable savings also depend on commitment: the defined mechanism must be binding, with no special round for the incumbent who applies pressure. The moment suppliers learn that the real negotiation begins after the formal end, the pressure that produced the saving evaporates.
Should-costing as the foundation
Behind every durable saving sits a view of what a product should actually cost. Should-costing derives these "should-be costs" from real production costs, such as material prices, manufacturing processes and common market parameters, rather than from a supplier's desired price. Where excessive margins, inefficiencies or unjustified mark-ups are hidden, they become visible and arguable.
This matters most where price comparisons fail: with complex or custom-made parts, and in monopolies or tight oligopolies where genuine comparative offers are missing. Should-costing then supplies the objective basis to argue why a price is excessive and where savings potential lies, whether through specification changes, alternative materials or economies of scale.
Its full force appears in combination with a well-designed award process: the mechanism structures the competition, should-costing gives it substantive orientation, so that bidding is not blind but anchored in realistic prices. Building that combination reliably is exactly where specialised procurement consulting comes in.