INSIGHT 6
Cost reduction a priority for 99% of CEOs
Cost reduction is a priority for CEOs; this time, it's bigger and bolder as they look to make greater financial impact faster. A traditional approach of auditing existing suppliers to identify cost reductions is rightly still core to this, with 52% of CEOs citing this as a core cost reduction lever.
However, what’s interesting in 2024 is that the same percentage are also looking into doing bigger and bolder initiatives to reduce costs. Our experience suggests that executive teams are getting more involved in the governance of cost reduction programs and the decisions around what is and isn’t a no-go area. In 2024, the C-suite increasingly wants to understand all options and work back from “full potential” to realistic and optimized supplier costs.
Further, just shy of the same at 50% are working on collaborative initiatives to reduce costs within the business, reflecting a more advanced approach to working with suppliers. Often, these initiatives also focus on innovation or revenue generation with partners to share the pain/gain from any cost reductions.
This tells us that the parameters are widening regarding the CEO’s view on good procurement and how it can make a fast and sustainable impact. With big and bold ideas as commonplace as the more “vanilla” style of cost reduction, procurement has never had such an opportunity to make an impact and has never been as visible to the C-suite.
Last year, the focus was very much on inflation – and subsequently, cost reduction in response to inflation, taking the form of job cuts, cutting costs with suppliers, delaying investments, and raising prices. Although some will feel the aftermath of inflation this year, there seems to be greater bandwidth to think strategically and implement bigger, bolder ideas that will return greater results, boosting EBITDA.
Proxima’s State of Spend report found that an average of 75% of revenue is held by external suppliers, meaning there is a significant opportunity for savings. Organizations seem to have been able to pause the inflation firefighting and approach it more strategically.
