Step-By-Step Procurement Cost Reduction Strategies

Procurement cost reduction might seem like an endless cycle of RFPs, supplier audits, and contract renegotiations. It demands meticulous data analysis, tough conversations with long-time vendors, and a constant pressure to deliver more value with fewer resources. So why bother?

The direct impact on your department's budget and ability to fund critical projects is why—especially as organizations face unprecedented supply chain disruptions and inflationary pressures.

So the next time you're tempted to gloss over that "procurement update" email, remember that every sourcing decision impacts your team's ability to deliver. By taking ownership of spending in your area and partnering with procurement to drive improvements, you become an agent of change, helping to secure your company's financial future—one smart purchase at a time.

By the end of this article, you’ll know that from engineers, to IT teams optimizing software licenses—procurement cost reduction is a team sport.

We'll cover:

• What is SaaS Procurement Cost Reduction?
• Best Practices For Procurement Cost Reduction
• How to Manage and Monitor Software Licenses
• Spendflo Helps Save On Your Procurement Cost With Guaranteed ROI and Save up to 30% Annually.

What is SaaS Procurement Cost Reduction?

SaaS procurement cost reduction is a strategic approach to minimize spending on cloud-based software subscriptions while ensuring the right tools are available to support business objectives. Unlike traditional software procurement that involves large upfront investments and lengthy deployment cycles, SaaS procurement offers flexibility and scalability, but can also lead to cost overruns if you let it slip.

As we said, procurement cost reduction is a team sport. Meaning, it offers a platform for IT, finance, and procurement teams to collaborate and share insights on how to maximize value from SaaS investments. 

This could be your IT team conducting a thorough audit of existing SaaS subscriptions to identify redundancies or underutilized licenses, your finance department negotiating volume discounts or multi-year contracts with key vendors, or your procurement team establishing a centralized approval process to prevent unauthorized purchases.

Best Practices For Procurement Cost Reduction

1. Conduct a rapid spend analysis to uncover quick win opportunities

Conducting a rapid spend analysis is like taking an X-ray of your procurement spend. It reveals hidden patterns, inefficiencies, and areas for immediate improvement. 

As a consequence, you can identify low-hanging fruit for cost savings without getting bogged down in a lengthy analysis.

The key is to focus on a few critical data points that can yield outsized results:

• Identify your top 20% of suppliers by spend and analyze their pricing trends

• Flag any off-contract or maverick spend that's occurring outside of negotiated agreements

• Pinpoint spending on non-essential goods or services that can be quickly eliminated

• Highlight categories with fragmented spend across multiple suppliers for rapid consolidation

• Benchmark your pricing in real-time against market indexes to capitalize on deflation opportunities

At Spendflo, we've developed AI-powered spend analysis dashboards precisely for this type of rapid opportunity assessment. Within 24 hours, our dashboards can crunch through a year's worth of procurement data and surface the highest-impact cost reduction levers.

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How is it done? 

‍Spendflo will first map your current portfolio to understand which SaaS applications are being used and who is using which application. This data will be analyzed to track the monthly and yearly spend for all your applications. Spendflo has a free consultation and an easy-to-fill survey that can help you get on track at the earliest.

Get a free consultation with Spendflo’s Procurement experts Now!

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2. Strategic sourcing for key categories

Strategic sourcing requires thinking multiple moves ahead and aligning your procurement cost reduction strategy with your broader business objectives. Unlike tactical sourcing, which focuses on short-term cost savings, strategic sourcing aims to create long-term value through supplier partnerships and innovation.

• Segment your spend categories based on criticality, complexity, and supply market dynamics

• Conduct a thorough market analysis to understand supplier capabilities, cost structures, and industry trends

• Develop a clear set of sourcing objectives and evaluation criteria for each category

• Implement supplier performance management to track progress and drive continuous improvement

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3. Understand the Total Cost of Ownership (TCO)

TCO is like looking beneath the surface of an iceberg. While the visible portion above the waterline represents the purchase price, there's a much larger portion hidden below the surface that represents all the additional costs (TCO) of owning and operating the product or service over its lifetime.You’ll need to have a holistic view of all the following costs:

• Acquisition costs, including purchase price, implementation, and set up

• Training and support costs for users and administrators

• Opportunity costs of downtime or lost productivity

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4. Eliminate Shadow IT and Maverick Spend

‍Just when you think you've got Shadow IT under control, another instance pops up in a different department or location. Left unchecked, these rogue purchases can add up to a significant portion of your overall procurement spend and undermine your negotiated supplier agreements.Here’s how you can prevent it:

• Educate employees on the risks and costs of Shadow IT and Maverick Spend

• Implement clear policies and approval workflows for all purchases

• Use spend analysis tools like Spendflo to identify off-contract spending patterns

• Work with IT to implement controls and monitoring for SaaS and cloud services

• Negotiate master agreements with preferred suppliers to cover all business units

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5. Renegotiate contracts for better terms and pricing

While renegotiating, you need to know when to hold 'em, know when to fold 'em, and know when to walk away. With the right data and strategy, you can often extract significant concessions from your suppliers without damaging the relationship.

• Analyze your spend data to identify high-impact contracts and suppliers

• Benchmark your current pricing and terms against market rates and best practices

• Develop a clear set of asks and concessions that you're willing to make

• Use competitive bidding and should-cost modeling to create leverage

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6. Automate your tail spend with AI-powered procurement bots

AI takes care of the long tail of small, infrequent purchases that eat up a disproportionate amount of time and effort and can streamline the entire procurement cost reduction process from requisition to receipt.

• Train procurement bots on your purchasing policies, approval workflows, and preferred suppliers

• Integrate procurement bots with your messaging and ERP systems for a seamless user experience

• Allow employees to submit purchase requests using natural language (e.g. "I need to upgrade this CRM software’s plan")

The Spendflo app for Slack, powered by Flo AI, helps you buy, upgrade, approve, renew, and save, right from Slack.

• Let procurement bots automatically parse the request, search supplier catalogs, and present options

• Route approvals to managers based on pre-defined spend thresholds and categories

• Place the order with the selected supplier and keep the requester updated on delivery status

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‍How to Manage and Monitor Software Licenses

‍Here's a 4-step process for how to manage and monitor SaaS procurement licenses:

‍Step 1: Plan your SaaS procurement process

‍Launching and sustaining an effective SaaS procurement process involves less organization than an external procurement process. For one, everyone is working toward the same goal of optimizing the company's SaaS stack, so it's easier to get participation. Second, since you have insight into each department's needs and budget, you can strategically prioritize and schedule your procurement activities. Third, you can use company meetings or IT reviews as an opportunity to gather SaaS requests and feedback.

Here are four best practices we recommend:

• Schedule key activities. Whether it's just you or a procurement team, schedule regular meetings for reviewing requests, evaluating tools, and making decisions. This way, even when work piles up, your procurement process stays on course.

• Prioritize tasks with longer lead times. Security and legal reviews often take the longest, so initiate those first for new tools under consideration. In general, start with the tasks that tend to have the longest turnaround.

• Batch tasks for efficiency. Rather than managing procurement in a piecemeal fashion, group similar activities together, such as reviewing SaaS requests, conducting vendor evaluations, and executing contracts. That way, you minimize context switching and can process procurement tasks more efficiently. 

• Streamline the approval workflow. Establish a clear approval protocol with defined roles, responsibilities, and turnaround times early on to avoid procurement delays.

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‍Step 2. Establish a license tracking system

‍Gathering your SaaS procurement information is critical to effectively manage and monitor licenses. You'll need a centralized system to serve as a single source of truth. Your license tracking system, which could be a spreadsheet or a dedicated SaaS management tool, should capture:

• Tool name and description
• Number of licenses purchased  
• License type (user-based, feature-based, usage-based, etc.)
• Cost per license
• Renewal/expiration date
• Vendor contact info
• Contracts and related documentation
• Utilization data

Many SaaS management platforms like Spendflo can automatically discover your SaaS footprint and populate this data by connecting to your identity provider, expense system, and application APIs.

We follow the “Define. Measure. Automate” principle.

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Step 3. Monitor utilization and right-size licenses

‍Tracking actual license utilization is key to identifying areas of waste. Establish a process to periodically review usage data for each tool, either manually or using a SaaS management platform.Look out for:

• Inactive licenses: Identify users who haven't logged in within a specified time period. Deprovision their licenses to free up spots for others.  

• Low usage licenses: Review usage frequency and depth to pinpoint under-utilized licenses. Consider downgrading these users to a lower tier license or replacing the tool altogether.  

• Redundant tools: Spot SaaS tools with overlapping functionality. Standardize on the tool with the highest adoption and consolidate your licenses.

• Unusual usage patterns: Investigate accounts with abnormal usage patterns, like a sudden drop-off in activity or excessive consumption. There may be an underlying training or security issue.  

Based on your utilization insights, adjust your license quantities with the vendor. Begin with the lowest usage tiers to secure quick wins.

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‍Step 4. Alert on key events 

‍In addition to periodic utilization audits, set up automatic alerts for important license events, such as:

• Renewals: At Spendflo, we send out renewal alerts 90, 60, and 30 days before the contract end date. This also assigns alerts to the procurement owner to provide ample time to review usage and negotiate terms.

• Expirations: Set notifications for when a contract is about to expire. This is critical for tools with monthly subscriptions or auto-renewals. 

• Spend thresholds: Create alerts when SaaS spend exceeds predefined thresholds, like 80% of budget consumed. Investigate unexpected spikes.

• License quantity changes: Get notified when your license quantity increases, especially for tools licensed via an API. Sudden increases could signal the need to buy more licenses.

• New tool purchases: Alert relevant stakeholders like IT, security, and finance when a new SaaS tool is purchased so they can validate it meets requirements

• User deprovisioning: Notify IT to disable SaaS access when a user is deactivated in the identity provider. This is key to preventing unauthorized access.

‍Spendflo Helps Save On Your Procurement Cost With Guaranteed ROI and Save up to 30% Annually

‍Spendflo is a powerful ally in your quest to optimize SaaS buying costs and achieve significant savings.  With our extensive market intelligence, benchmarking data, and procurement expertise, Spendflo can help you identify and execute on a wide range of savings opportunities. 

With a proven track record of delivering up to 30% in annual savings, Spendflo is the partner you need to keep your SaaS costs under control.

‍See how much you can save with Spendflo Now!