Why Procurement Is the Key to Improved Profitability

Jo Seed
Chief Operating Officer at LogicSource, Inc.

Today’s stark reality is a business environment constrained by rising costs and inflation rates. It’s a world many modern leaders have no precedent for navigating. But, when times get tough, the greats always fall back on fundamentals.

If disruption is the norm, getting back to basics and doing them really well can be innovative. That’s why cost control and optimized spend management strategies have ascended from nice-to-have managerial tools to critical lifelines that boost profitability and long-term financial viability.

So, even when the status quo feels like quicksand, where can we find solid ground? What do we know?

  • Macro-economic factors are driving an unpredictable marketplace
  • Accordingly, reliable revenue streams will be increasingly at risk
  • Leaders are struggling to be decisive, too often choosing inaction over unknown outcomes
  • An optimized procurement approach can help mitigate this uncertainty

When you can’t count on more—or the same—money coming in, you need to more efficiently manage the money you have. If your company is like most, there are probably hundreds of daily purchasing decisions made across the organization that are (most often) entirely unmanaged.

Do you know if you’re getting the best rates on marketing materials? What about corporate services? IT and facilities? These are indirect expenditures, and in contrast to an organization’s direct purchases, indirect spending is often overlooked, under-resourced and typically lacks the sourcing discipline for best-in-class buying.

This isn’t just about getting a slightly better deal on office supplies. What we talk about when we talk about indirect procurement is a set of complex categories that typically represent 20%+ of an organization’s annual revenue. Depending upon the size of your company, that’s potentially hundreds of millions, if not billions of dollars being spent on basic cost-of-doing business essentials.

With so many out-of-your-control variables threatening your business these days can you really afford to not spend these dollars as efficiently as possible?

A procurement team empowered to effectively manage this base of spend can generate between 7% and 12% in cost reductions and drive profit improvement that impacts the organization’s bottom line without impacting quality, turnaround times, or cost to consumers.

We’ve seen it firsthand. We’ve helped make it a reality for countless companies like yours because it’s an unavoidable fact that very few organizations have the right level of expertise to leverage indirect procurement as a strategic engine for profit improvement.

When every dollar is increasingly scrutinized, it can be tough for C-suites and boards to justify investment in the resources, technology, and external market intelligence that indirect procurement teams need to facilitate best-in-class performance. Without an existing body of work to instill confidence, it’s hard to fault leaders who view indirect procurement as a sunk cost, move on, and work to make other—more proven—financial inroads.

The Case for Indirect Procurement and Its True Potential

Even though the potential benefits are profound, Procurement leaders need help making their case for building a high-performing Procurement function. The best way to do that is to show how cost savings driven by focused indirect spend management can be deployed to fund broader organizational initiatives.

Money saved on indirect expenditures can be used to expand the sales team, launch operational efficiency initiatives, help the organization get leaner and faster in execution—whatever your C-suite wants to achieve, indirect spend optimization can fund those priorities.

Still, without precedence within your organization, it’s a tough sell. This is where LogicSource comes in. Our customized solutions and execution-based model deliver resources, data, and technology for our clients that would be cost-prohibitive to deploy on their own.

Managing over $100 billion of indirect spend data to generate benchmarks, sourcing strategies and category insights, we are in the market daily, executing thousands of sourcing events annually on behalf of our client partners. We also invest upfront in every engagement through our self-funded Mutual Value Assessment (MVA) to identify potential value opportunities at no cost or obligation to the client.

Now you can present the big picture: exactly what needs done to build a high-performance procurement function, how you’re going to do it, and how it can serve the organization’s broader objectives. Suddenly, the urgency isn’t to move on from the Procurement optimization conversation, but to seize the opportunity as quickly and completely as possible.

There are not many more productive things a business should do than empower an optimized indirect procurement function to drive deep savings to the bottom line. The issue has always been whether they can do it.

We’re happy to say that distinction doesn’t have to exist. You should do it, and with our help you can do it without the risk of a years-long project, recruitment challenges, and potential over-investment. So, the only question left is, What are you going to do?

LogicSource helps companies buy better. Learn more about what we do and how we invest in our clients.

About the Author

Jo Seed

Chief Operating Officer at LogicSource, Inc.

Jo has over 20 years of experience in strategy and operations consulting, business transformation, technology solutions, and change management. At LogicSource, he oversees the vision, strategy, and operational execution for all shared services, technology, and client-site teams to ensure cross-functional service delivery for current and prospective clients.