Today’s Cost Avoidance Is
Tomorrow’s EBITDA

Michael Braunschweiger

Managing Partner, Chief Client Value Officer

 

This article was originally published in
Supply Chain Brain.

You buy things for your household, in bulk on Amazon, in an effort to save money. You’re careful to find the best available deals. But while your attention is on the price of consumer goods, you don’t notice that your pool maintenance costs have increased by 15%, or that your yard guy is now charging $50 more a week. In the end, the savings from curating some household expenses are virtually wiped out by others you’ve ignored. You’re not focusing on the total picture.  

Savings are a crucial element of boosting business sustainability and profitability. But just focusing on hard savings creates a silo vision — it’s myopic, and will ultimately prove problematic for your company.

In today’s world economy, heavily impacted by tariffs and inflationary cost pressures, companies must focus on complete cost avoidance as an essential savings strategy.

Cost avoidance is cost savings because it prevents future expenditures and increases that could otherwise occur. It’s crucial to a company’s financial success. In short, today’s cost avoidance is tomorrow’s EBITDA.

Companies might be experts at direct spend — procuring materials and goods that go directly into a product or service. But indirect spend tells a different story. Despite often accounting for more than 20% of an organization’s revenue, it’s typically managed by a small team responsible for hundreds or even thousands of categories spanning IT, marketing, logistics, HR, and facilities. That complexity, combined with limited visibility, leads to inefficiencies and missed opportunities for cost avoidance. 

 

A stacked area chart illustrating $100MM savings over 36 months. The total savings, which increase exponentially, are composed of the lower Cost Avoidance (Indirect) area (light blue) and the upper Cost Savings area (green) A stacked area chart showing $100MM savings over 36 months. The total savings curve is composed of three areas: Cost Avoidance (Unmanaged) (light blue) at the bottom, Cost Savings (green) in the middle, and a small, red-striped area at the top right

The benefits of cost avoidance include:

  • Ensuring that realized hard savings will not be lost, and will continue to have a sustainable EBITDA impact;
  • Addressing tariff and inflationary impacts proactively, by either minimizing or eliminating their effect;
  • Preventing future costs from arising in the first place;
  • Helping businesses manage risk, mitigate long-term impacts, and ensure sustainable growth;
  • Supporting higher profitability and strengthening the company’s financial position; and
  • Making company dollars go further.

Meaningful savings initiatives start with real data, not assumptions. Before launching into action, you need a clear picture of your current state through category-specific market intelligence, detailed spend analysis across indirect categories, and benchmark data from comparable organizations.

Market intelligence should address the ever-changing tariff situation and inflation forecast by geography and market segments. These detailed insights support long-term strategies for both hard savings and cost avoidance.

Visibility into the budgeting process and full alignment with the financial planning and analysis (FP&A) team can help you determine how much of the anticipated savings will directly impact the bottom line. For example, if your FP&A team budgeted a 5% increase in ocean freight to offset announced industry increases, this increased spend will be your baseline to measure savings against forward spend. If you can negotiate only a 2% increase, then the 3% delta against your budgeted baseline becomes a hard savings.

Accurate tracking and reporting between cost savings and cost avoidance, in addition to full alignment with the FP&A team, is instrumental to measuring and reporting these estimates correctly.

Diagram illustrating savings measurement, including Hard Savings, Savings to Hit Budget, and Cost Avoidance, with icons and a circular value execution process

During these inflationary times, a cost avoidance target for a procurement organization should be between 20% to 25% above the hard savings target. Savvy business executives work with strategic partners who can deliver this improvement right away. 

Following are four proactive steps to take today:

  • Consider whether your organization has the time, resources, staffing, reach and influence across all suppliers to manage your indirect spend successfully.
  • Ask if your team has the knowledge and experience to overcome the initial roadblocks that can disrupt your overall cost-improvement strategy.
  • Assess whether your organization has sufficient insights and market intelligence to address ever-shifting tariff and inflationary pressures. Industry expertise, continued insights into changing market conditions, and regular market intelligence updates are needed to stay ahead of the curve.
  • Embrace a long-term view of procurement transformation. Organizations can certainly capture rapid savings opportunities, but the most significant and enduring value emerges from carefully orchestrated and strategic programs that unfold over time.

Despite tariffs and inflation, market pressures to reduce costs remain relentless. Successful companies recognize that the traditional playbook for achieving savings no longer works. Organizations that acknowledge this shift and adapt their approach accordingly will discover new opportunities that their competitors miss — not just in 2025, but well into the future.

 

 

About the Author

Michael Braunschweiger

Managing Partner, Chief Client Value Officer

Michael leads all aspects of value creation and delivery across the client lifecycle. From identifying savings opportunities during the Mutual Value Assessment to driving ongoing results and growth across the client portfolio, Michael ensures value creation is embedded as a strategic asset across the organization. He also plays a key role in contract renewals and expansion efforts.

With over 25 years of experience driving value and change across companies like The Reader’s Digest Association, Novitex Enterprise Solutions, and Joshua Morris Publishing, Michael is a recognized expert in business process optimization and savings strategy. A founding member of the LogicSource team, he brings deep expertise in leading global teams, guiding change management initiatives, and building collaborative partnerships. He earned his degree with honors from the Institute of Dental Technology in Zurich, Switzerland.