Let’s get straight to it: if your procurement team is still just “buying stuff cheaper,” you’re leaving serious money on the table.
Across Australia and Asia-Pacific, the best procurement leaders have woken up to a new reality: their function is not some dreary cost centre but a roaring cash engine, capable of injecting liquidity into the business faster than almost any other lever.
And right now, with inflation chewing margins, interest rates still perched uncomfortably high, and supply chains behaving with all the predictability of Melbourne weather, executives are scrambling for ways to shore up cash.
The savvy ones are discovering that procurement armed with the right strategy and advisory support is no longer just about purchasing. It’s about wielding buying power as a financial instrument, a tool every bit as potent as the balance sheet.
Procurement and Working Capital: The Hidden Cash Flow Opportunity
Hidden in the workings of your balance sheet is a sizeable pile of untapped cash.
The trouble is, most procurement teams go at it with blunt instruments rather than precision tools.
Optimising Supplier Payment Terms for Cash Flow
Extending payment terms across the board is the lazy play. Smart operators are more selective:
- Critical suppliers: Keep them close with prompt or even early payments.
- Large, cash-rich vendors: They can manage 60-day terms without breaking stride.
- Everyone else: Treat case by case, based on strategic value and financial health.
Getting Procurement and Treasury on the Same Page
Procurement and treasury can’t afford to operate in silos. The best-run organisations link them through cross-functional teams and shared dashboards. That way, everyone sees in real time how a change in terms or order volumes affects cash flow.
A global retailer learned this the hard way during COVID, when relaxed payment terms tied up billions. By recalibrating with finance, they freed >$1Bn in cash. Small adjustments, big impact.
Inventory Management Strategies to Unlock Cash in Procurement
Inventory is another drain on liquidity. Out-of-date safety stock rules or excess SKUs can tie up millions. Smarter firms ask: are suppliers able to hold stock until needed? Which products are gathering dust?
We’ve seen companies cut holding costs by 10–20% by addressing these questions. Aligning procurement with treasury on metrics like DPO and inventory turnover can shorten the cash conversion cycle by 10–15 days unlocking millions in working capital.
How Dynamic Discounting Improves Procurement ROI
Another growing tactic is dynamic discounting. Instead of letting spare cash sit idle, companies offer early payments to suppliers in exchange for a discount. Procurement becomes a financial lever: you secure savings of 1–3% that go straight to the bottom line, suppliers get cheaper financing, and everyone benefits.
As Boral’s Group Treasurer said, these programmes “reduce our and our suppliers’ cost of liquidity.” In today’s interest rate environment, that matters.
Procurement Strategy Beyond Unit Price: Driving Total Value
Too many procurement teams are still hooked on the old obsession: getting the lowest possible price. But the real prize is total value weighing cost, risk, and strategic upside together.
Using Should-Cost Modelling in Procurement Negotiations
A should-cost model is like lifting the lid on a supplier’s quote. Break down the materials, labour, overheads and logistics, and you know what something ought to cost. That gives you data-driven leverage instead of guesswork.
Today, AI tools are making this kind of analysis available even to smaller teams, scanning thousands of SKUs for anomalies and savings opportunities.
Turn Suppliers Into Innovation Partners
The clever teams don’t just squeeze suppliers on price; they invite them into the tent. Share cost models, ask tough questions, and explore alternatives together:
Can the design be simplified without losing quality?
Is there a cheaper material that performs just as well?
Are packaging requirements heavier than they need to be?
One manufacturer discovered a lower-cost packaging option that worked just as well simply by involving suppliers in the discussion. Collaboration, not confrontation, delivered the saving.
Beyond Cost: Strategic Value That Drives Growth
World-class procurement doesn’t stop at price. Suppliers can accelerate innovation, strengthen ESG credentials, and protect margins through reliability and speed.
- Innovation: A supplier that trims six months off your product launch creates value far beyond unit savings.
- Resilience: Dual sourcing may raise costs by 3–5%, but avoids the catastrophic EBIT hit of a production stoppage.
- Sustainability: Choosing greener suppliers is now risk management as much as reputation.
A pharmaceutical company once paid 8% more for a “premium” packaging supplier. The payoff? Faster regulatory approvals and zero quality incidents. The net value dwarfed the extra cost.
The Risk-Adjusted Reality
Here’s the harsh truth: a component that looks 5% cheaper can end up wiping out ten times that in lost EBIT if it fails at the wrong moment. Imagine a supplier’s collapse cost you $12 million in delays and emergency sourcing all for a saving of $400,000. Penny wise, pound foolish.
The best teams run scenarios to test these risks and compare options side by side. Sometimes the smarter play is paying a little more for proven reliability because the true return comes in business continuity, not just today’s invoice.
Getting Your CFO to Actually Trust Your Numbers
Here’s an awkward truth: only 29% of CFOs have real confidence in their procurement team’s savings. The rest suspect that “savings” vanish somewhere between the contract and the P&L like socks in a washing machine.
Why? Because too often procurement marks its own homework. Deals are struck, numbers are reported, but Finance never sees the promised benefit in black and white.
The One Version of Truth
The teams earning CFO trust are disciplined. They:
- Document savings jointly with Finance at the point of negotiation.
- Adjust budgets immediately, so the money is captured not quietly re-spent.
- Track the impact all the way to the P&L.
A tech firm did just this, setting up a “savings leadership team” of procurement, FP&A and accounting. Within two years they had funnelled $80 million of verified savings into a CEO-controlled fund. That’s credibility.
Stop Marking Your Own Homework
If procurement sets its own targets and keeps score without oversight, confidence will never follow. The solution is simple: hand the scoreboard to Finance. FP&A validates, measures, and signs off. Procurement delivers Finance confirms. Everyone knows where they stand.
This approach even extends to incentives. In leading firms, procurement bonuses are tied to Finance-approved metrics, not self-reported numbers. Accountability breeds trust.
Standardise What Counts as Savings
Definitions matter. Is a saving measured against last year’s budget or against the supplier’s opening quote? Does cost avoidance count? The best firms establish clear rules:
- Cost reduction: Money off this year’s P&L.
- Cost avoidance: Prevented increases, tracked but treated differently.
- Baseline: Agreed in advance to avoid endless arguments.
These definitions are built into the budget cycle so everyone is aligned from day one. No surprises, no mid-year disputes.
The Discipline of Real-Time Budgeting
Tracking is not enough. Progressive companies cut departmental budgets the moment a saving is secured. If procurement saves $1 million on software, IT’s budget is reduced by $1 million straight away. That ensures the cash really lands in the accounts not in someone’s discretionary spend.
Some organisations even funnel captured savings into a central pot for strategic investment. The point is simple: savings should be seen and felt across the business, not evaporate in the margins.
Speak CFO Language
Finally, procurement wins credibility by reporting in terms CFOs actually care about:
- Working capital improvements: DPO, inventory turnover, cash conversion cycle.
- Risk indicators: single-source exposure, supplier financial health.
- EBIT protection: reduced warranty claims, avoided downtime.
- Strategic value: ESG metrics, innovation pipeline contributions.
Show procurement’s impact in these terms, and suddenly you’re not just “saving money on contracts” you’re influencing the financial health of the enterprise. That’s what earns a seat at the top table.
The Australian Procurement Consulting Advantage
Across Australia, the organisations getting ahead are the ones treating procurement as a financial lever, not just a cost-cutting exercise.
And the difference is showing up in the numbers: companies with strong procurement strategy and advisory support are generating two to three times more margin impact than their peers.
It isn’t about hiring a silver-tongued negotiator to knock a few cents off supplier quotes. The real edge comes from capability:
- Data-driven should-cost models that arm teams with facts instead of hunches.
- Integration with Finance so every saving shows up in the P&L, not just a PowerPoint slide.
- Risk-adjusted decision-making that avoids the trap of false savings that unravel later.
- Working capital optimisation that turns procurement into a reliable liquidity engine.
Australian firms are already proving this works. Whether it’s a construction group running billions through early payment programmes or CFOs using real-time dashboards to tighten cash conversion cycles, the message is clear: procurement done properly doesn’t just save money it creates financial resilience.
For boards and executives staring down inflation and volatility, that’s not a nice-to-have. It’s a competitive advantage.
Your 2025 Action Plan
So, what’s the playbook if you want procurement to stop plodding along as a cost cutter and start striding forth as a cash and profit engine? It comes down to five moves: practical, powerful, and ready to deploy.
- Audit your payment terms: Stop bludgeoning every supplier with blanket terms. Segment them, be strategic, and free up cash without wrecking relationships.
- Implement should-cost modelling: Pull apart your top categories, expose the true cost drivers, and negotiate with facts, not wishful thinking.
- Get Finance onside: Track savings jointly, adjust budgets in real time, and prove the money lands in the P&L. Credibility is currency.
- Review your inventory: Clear out the dead weight. Challenge assumptions, lean on suppliers, and turn warehouses back into working capital.
- Measure what CFOs care about: Show your impact in DPO days, cash conversion cycles, risk scores, and EBIT contribution. Speak their language, win their trust.
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