By Simon Thompson, VP, Northern Europe at JAGGAER
A recent study by BSR confirms that cost saving will remain a top priority for Chief Procurement Officers in 2025, and across major economies enterprises have already started creating improvement plans to achieve this.
Within this scenario of growing emphasis on long-term value creation, CPOs are increasingly turning to supplier collaboration as a cornerstone of cost reduction. The emphasis has in fact shifted toward strategic partnerships, with a key focus on reducing costs through the activity of fostering long-term supplier collaboration.
By leveraging supplier collaboration strategies, procurement leaders can unlock significant cost savings, from bundling spend to identifying mutual efficiencies and ensuring sustainability and achieving greater customer satisfaction.
Historically, procurement teams have focused on short-term savings, getting the lowest price possible from suppliers. However, this approach can be counterproductive in the long run as it may result in quality issues that quickly spiral into costly product recalls, lost customers, or damage to the company’s reputation. By contrast, collaborative procurement strategies focus on creating mutually beneficial partnerships by building trust and transparency and working with suppliers to achieve cost savings that maintain or improve quality through joint R&D initiatives for example. Cost saving in supply chain management goes beyond merely cutting raw material purchase prices; it encompasses all stages of the supply chain, from product sourcing to logistics, to inventory management and payment terms.
Through open dialogue and transparency, suppliers and buyers can work together to identify efficiencies that benefit both parties. For example, by sharing demand forecasts, suppliers can optimise production schedules, reducing their operational costs. These savings can then be passed on to the buyer in the form of lower prices or better payment terms. Streamlining production processes, adopting lean manufacturing principles, and reducing waste can also lead to significant cost savings for both the buyer and the supplier.
Additionally, working closely with suppliers on product design and development can yield cost benefits. By collaborating early in the design phase, in fact, procurement teams can help suppliers identify cost-effective materials or production methods that align with the company’s quality and price requirements.
To achieve their cost-savings objectives, procurement leaders should thus consider focusing on strategic collaboration initiatives to identify and eliminate waste, reduce variability, improve operational efficiencies, and streamline processes. In particular, there are 5 actionable tips CPOs can implement to boost supplier collaboration:
- Driving a transition to Just-In-Time (JIT) processes
Collaborating with suppliers to implement JIT inventory systems reduces excess inventory and associated storage costs, while ensuring timely delivery of goods. Furthermore, fostering shared visibility between companies and their suppliers via real-time platforms enhances demand management, allowing both parties to synchronise inventory needs, avoid overproduction, and manage resources more efficiently. To succeed, procurement needs accurate forecasts of the probability of on-time delivery.
- Establishing shared visibility
Open communication and data-sharing enable both suppliers and buyers to pinpoint operational efficiencies that benefit both sides. Utilising shared platforms that provide real-time visibility into demand and supply conditions enables both buyer and supplier to adjust production schedules and manage inventory efficiently, reducing unnecessary costs.
- Committing to on-time payments
Timely payments also play a crucial role in cost management; by consistently paying suppliers on time, companies can build trust, which may lead to better payment terms or pricing concessions.
- Developing annual supplier scorecards
Evaluating suppliers annually through scorecards offers another pathway to efficiency, potentially revealing performance areas in need of improvement, shedding light on potential cost-saving opportunities and enhancing the quality of collaboration over time. These also provide a transparent starting point for conversations and renegotiations with suppliers.
- Investing in digital technologies
Digital technology investments are a key enabler of cost savings, helping companies streamlining procurement processes. Procurement technology platforms that centralise communication, automate transactions, and provide advanced analytics make it easier to spot inefficiencies and improve procurement outcomes. Through intelligent technologies it is possible to significantly improve decision-making processes, reduce risk and access more, varied data sources without over-burdening both internal teams and suppliers with hours of manual data entry and frequent updates.
As procurement’s role evolves from a cost-control centre to one for value creation, supplier collaboration has emerged as a critical strategy for achieving sustainable cost savings in combination with other improvements. By working together to optimise processes, both buyers and suppliers stand to benefit. The key lies in fostering trust, ensuring transparency, and taking a holistic approach that optimises the relationship between cost savings and quality, supplier diversity, long-term supplier viability, risk and other dimensions. This is only possible with a solid foundation of reliable data from across the source-to-pay spectrum, together with advanced spend analytics. With the help of these tools and technologies, procurement leaders can design and pursue strategies that will unlock substantial value for their organisations while maintaining strong, collaborative supplier relationships.
