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While Procurement is still sometimes treated as the poor relation of the organization, three major trends are bringing it back to the center of corporate strategy:
How can Procurement establish itself as a genuine driver of cost optimization and innovation — a true business partner that simultaneously safeguards corporate sovereignty and long-term sustainability?
Here we share our perspective on Procurement as a performance driver, along with our experiences and achieved results:
Procurement: A Strategic Function Driving Business Performance
In many industries, Procurement represents one of the largest categories of spending, often exceeding salaries and overhead costs. This significant proportion gives Procurement a decisive influence over financial performance.
The impact of reducing procurement costs is immediate on profitability. Recently, an industrial company reviewed its procurement scope, which represented 60% of its overall cost structure. By generating a 5% optimization within that spending base (with significant differences depending on categories), operating profit increased by 30%.
This procurement lever is therefore particularly powerful, allowing organizations to reinvest gains into business development. Furthermore, it is highly measurable, making it easier to assess the value created through stronger procurement capabilities.
Six Key Transformations to Reposition Procurement Upstream in the Value Chain
Tomorrow’s Procurement function will be Sourcing Push — or it will cease to exist.
Too often, Procurement remains positioned too far downstream in the value chain and decision-making process. However, Procurement creates maximum value when supported by a strategic and forward-looking perspective, capable of generating performance improvements of 15–20% across procurement categories.
This requires six major transformations:
Organizations must go beyond simply understanding markets and actively develop sourcing ecosystems across the entire value chain. This strengthens the antifragility of current models, enables scenario-based forecasting for strategic procurement, supports investment in promising suppliers and partners, improves risk exposure assessment, and strengthens control over emerging supply routes.
Procurement teams should leverage their market and ecosystem expertise to influence supplier and partner selection decisions proactively. This accelerates innovation, eco-design initiatives, and substitution of toxic or critical materials.
Circular approaches reduce externalities and minimize the impact of geopolitical disruptions on global supply chains. This allows organizations to prioritize renewable materials, local sourcing, and supply channels less vulnerable to external disruptions such as tariffs, shipping constraints, or fuel price volatility. Additionally, this contributes positively to environmental sustainability by reducing transportation requirements.
Procurement must integrate both endogenous factors (price, performance, etc.) and exogenous factors, supported by objective data and causal analysis. Organizations can now relatively easily develop simulation models to assess impacts and consequences for the business. This enables better scenario planning and more informed decisions beyond purely short-term price considerations.
Companies must dare to strengthen suppliers in order to become stronger themselves. Rather than treating all suppliers equally, relationships should reflect each supplier’s strategic contribution. Suppliers need visibility to invest and innovate, and partnerships become part of the solution.
Procurement should evolve beyond its traditional role as a cost-cutting function and increasingly contribute to business growth and value creation. This typically requires upgrading procurement team profiles and skills while simultaneously making the function more attractive to candidates.
But What Should Be Done in the Short Term?
Map supply chains accurately
Just as organizations invest in understanding customers and customer behavior, they should invest in understanding their supplier network. Companies should map complete supply chains, including suppliers of suppliers, and build a comprehensive 360° risk perspective covering strategic, geopolitical, financial, regulatory, and sustainability-related risks. The exercise may seem extensive, but it is essential for prioritizing critical suppliers and strategic segments.
Activate Procurement Optimization Levers
The first step toward procurement optimization is analyzing and segmenting expenditures. This includes mapping spending, categorizing procurement families (raw materials, services, equipment, etc.), identifying savings opportunities and risks, detecting maverick spending outside established contracts, and focusing resources on categories with high return on investment. This clarity helps prioritize high-impact actions and avoid dispersing limited resources.
Organizations should evaluate the entire value chain critically to assess cost structures and understand the actual impact of proposed changes. Approaches such as Design-to-Value and Redesign-to-Cost help organizations align with actual needs, standardize solutions, and create synergies. These approaches are all the more powerful in organizations where procurement maturity is still developing or where structures are decentralized. Everything must be measured, challenged, qualified, and objectified.
Organizations should incorporate all related costs, including delivery, installation, maintenance, training, and recycling. This enables selection of the most cost-effective solutions across the entire product or service lifecycle.
An overly broad supplier base often leads to fragmented purchasing volumes, increased complexity, and reduced negotiation leverage. By rationalizing supplier portfolios, companies can concentrate purchasing volumes, secure supply, and establish strategic partnerships.
Conversely, supplier bases that remain unchanged for too long should be refreshed. Introducing new suppliers into sourcing processes often stimulates innovation and disrupts stagnant market dynamics. When properly supported, new entrants will be eager to prove their expertise and innovation — helping to shift entrenched dynamics.
Negotiation should extend beyond economic and contractual terms and take into account stakeholders’ broader interests, underlying motivations and constraints, market dynamics, regulatory developments, technological trends, and environmental considerations. Framework agreements can secure long-term supply conditions while integrating performance objectives. A good negotiation is, first and foremost, one that leads to a balanced and transparent partnership.
Digitalization has profoundly transformed Procurement: e-procurement tools, sourcing platforms, AI-powered spend analysis. These solutions improve traceability, automate low-value activities, and support faster and more effective decision-making. It is now time to equip procurement teams so they can focus on higher-value activities. In an era of remote work, we’d wager that tomorrow’s procurement professional will spend more time with suppliers and at industry events than sitting in front of spreadsheets and responding to emails.
Conclusion
Far from being limited to cost reduction, repositioning Procurement represents a powerful opportunity to improve profitability, competitiveness, and business resilience. Beyond helping organizations navigate crises, Procurement enables long-term strategic thinking that addresses increasing risks around the availability of critical materials and components. More importantly, it supports broader objectives including innovation, social responsibility, sustainability, and stronger margins.
In an uncertain and highly competitive world, organizations that make Procurement a driver of value creation — rather than simply a cost center — will secure a sustainable competitive advantage.