Budget control is crucial for organizations striving for sustainable growth and financial resilience.
But it is not possible to control costs if you don’t control what is, for most companies, a chaotic and scattered purchasing process. Getting control of that process means looping in multiple stakeholders and gaining transparency for those stakeholders from the very initial stages of making a request to spending money — even corporate card spend.
The right procure-to-pay (P2P) software facilitates cost reduction without sacrificing efficiency in busy organizations.
By seamlessly integrating purchasing, invoicing, and payment processes, the best P2P software not only enhances operational transparency and accuracy but also provides actionable insights for informed decision-making and cost-reduction strategies.
What is cost reduction in procurement?
Cost reduction in procurement refers to the strategic and systematic effort to decrease the procurement costs associated with acquiring goods and services.
This process involves optimizing the procurement cycle, negotiating favorable contracts with suppliers, using the best payment methods, ensuring the best ROI from a set of alternative sources, and more. Implementing and leveraging technology such as modern procurement management software is a crucial component to making this happen.
The importance of cost reduction in procurement lies in its direct impact on a business’s bottom line. Organizations can enhance their profitability and financial health by identifying opportunities for cost savings, negotiating better terms with suppliers, and streamlining the purchasing process.
Procurement cost reduction as a driver of business success.
Effective cost-reduction strategies not only contribute to immediate cost savings but also position a business for long-term sustainability and competitiveness.
When a business implements processes to reduce procurement costs, resources can be allocated efficiently, and the business can invest in strategic initiatives, innovation, and overall growth.
Ultimately, successful cost reduction in procurement is a key driver for improving a business’s overall financial performance and resilience.
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What is procure-to-pay software?
Procure-to-pay (P2P) software facilitates and automates an organization’s purchasing process. It streamlines and integrates various stages of the procurement lifecycle, from the initial request of goods or services to the final payment to suppliers.
Airbase’s Guided Procurement is procure-to-pay software that optimizes procurement savings.
Here are some of Airbase’s features that support a more efficient, streamlined procurement process and ultimately lead to procurement savings.
It all starts with intake.
As employees create purchasing requisitions, they are guided through the process, which ensures they include the correct information and any relevant documentation.
Information is routed to the correct stakeholders in their own business systems, like Jira or Ironclad. This automated procurement process takes the guesswork out of purchasing and ensures compliance for all spend.
Approval workflows.
Requests are automatically routed to the correct approvers. This approval flow can be configured to reflect your company policies with multiple options.
Because approval chains can be configured so they aren’t sequential, organizations save time and, ultimately, labor costs when multiple stakeholders can review at the same time. But if a sequential workflow is necessary, that can be set as the process.
Purchase order (PO) creation.
Once approved, the system automatically generates purchase orders to create a structured document outlining the agreed-upon terms, quantities, and prices.
Invoice processing.
P2P software automates the invoicing process, matching received goods or services with corresponding receipts and purchase orders (for NetSuite users) to facilitate accurate and timely payments.
Executing payment.
Payments can be made by corporate card, check, wire transfer, or ACH in multiple currencies and across subsidiaries. This flexibility can also work as a cost-reduction technique in procurement by providing opportunities to pay by virtual card to earn cash back.
Reporting and analytics.
P2P software often includes reporting tools that offer insights into spending patterns, supplier performance, and other key performance indicators, enabling data-driven decision-making.
Vendor management.
A secure vendor portal means vendors can update their payment details (with multiple controls against fraud) and track payment status. Maintaining good vendor relations can open the door to cost-reduction opportunities through negotiated supplier discounts and favorable payment terms.
Benefits of procure-to-pay software for cost control.
Streamlined procurement processes.
Airbase’s configurable workflows build controls right into the system. Automated processes mean all requests and associated information flow to the correct people.
OCR and AI ensure everything is coded correctly, which not only eliminates confusion for employees but also reduces the workload for finance.
Alex Schlick of Doximity appreciates the way everything is streamlined for his team.
“Having to code manually off an Excel spreadsheet will make you pull your hair out. With Airbase, it is all syncing through in the background, so folks are spending and it’s syncing automatically based on pre-set rules that you already have.”
Eliminate maverick spending.
Maverick spending is unauthorized or unmanaged purchases that deviate from your established procurement policies and negotiated contracts.
Airbase’s centralized approval workflows ensure that all purchase requests adhere to established policies, preventing unauthorized acquisitions. The system will alert users to possible duplicate payments, and HRIS system integrations prevent zombie spend by automatically deprovisioning users if they leave the organization.
Improved spend under management.
Spend under management (SUM) is a key indicator of how much control an organization has over procurement. SUM refers to the percentage of total expenditures that are actively controlled, monitored, and managed through centralized procurement processes and policies.
Christina Howlett Perez of Definitive Healthcare immediately noticed a difference in SUM after implementing Airbase.
“In just a few months from implementation, we tripled our percentage of spend under management, which is an important goal for me as a procurement leader.”
Strategies for cost reduction in procurement using P2P software.
Here are some key strategies within P2P software that contribute to cost reduction, from streamlined workflows to data-driven decision-making.
1) Centralize and streamline vendor management.
A central vendor management portal reduces costs by consolidating supplier relationships, enabling organizations to negotiate bulk discounts and favorable contract terms.
This approach also minimizes administrative overhead, because vendors can access and input their own information. It also enhances efficiency and reduces the likelihood of duplicate purchases, ultimately optimizing procurement processes and driving significant cost savings.
2) Implement automated requisition and approval workflows.
The ability to easily build unique, multi-layered intake and approval rules means that all purchases comply with your company’s policies. Workflows can be customized to reflect budgets, such as having requests over a certain amount requiring executive approval or legal review.
This makes it easy to enforce and adjust budgets, as the cost controls are built right into the purchasing process.
3) Category management implementation.
By analyzing and strategically sourcing within categories, organizations can leverage economies of scale, negotiate better terms with suppliers, and ultimately achieve significant cost reductions.
Airbase uses AI and machine learning to ensure correct categorization, taking the burden off employees when making a purchasing request and ensuring better accuracy and consistency for financial records.
4) Supplier performance benchmarking.
By systematically assessing suppliers against predefined criteria, organizations gain insights into reliability, quality, and adherence to contractual agreements.
Benchmarking allows for comparative analysis, enabling businesses to identify top-performing suppliers, address underperforming ones, and ultimately enhance overall supply chain efficiency.
5) Utilize electronic catalogs and contract management.
Electronic catalogs help efficient contract management by providing a central platform to organize and access contracts.
Electronic catalogs streamline the procurement process with a consolidated repository of pre-negotiated terms, pricing, and supplier information.
This enhances contract visibility and ensures that users within an organization can easily access and adhere to approved catalogs, which minimizes risk and improves overall compliance.
In Airbase, contracts can be routed through Ironclad as part of an initial spend request, and reviewed, approved, or denied right in Ironclad. Information is synced between Airbase and Ironclad, so nothing is missed.
6) Integrate P2P software with ERP systems.
A real-time sync between P2P and ERP systems provides comprehensive insights into current financial data, allowing for better decision-making and cost savings.
Airbase’s automated ERP sync optimizes workflow efficiency, reduces manual errors, and ensures consistency across the organization, ultimately fostering improved financial management and operational agility.
7) Spend analysis.
Spend analysis supports informed decision-making by helping organizations understand trends in their spending.
By leveraging Airbase’s P2P system, businesses can access comprehensive spend analytics. Airbase’s reporting capabilities help stakeholders identify cost-saving opportunities, negotiate favorable terms, and make strategic decisions.
8) Implement budget control measures.
By setting and enforcing budget limits before a purchase is made, businesses can promote significant cost savings and better align procurement with strategic priorities.
Plus, budget control fosters a culture of fiscal responsibility and accountability.
Airbase users tell us that their teams have more ownership of spending, and that conversations around purchasing become more collaborative after implementing Airbase.
Implementing procure-to-pay solutions.
Don’t miss out on the cost-reduction potential of a modern procurement solution because you’re afraid of complex change management. The implementation doesn’t have to be as burdensome as you might think.
When Recharge realized the new procurement process they’d built into their contract management system was slowing things down, they asked for an Airbase demo since they already used other Airbase modules. Immediately, they saw the value.
“Once I saw Airbase Guided Procurement in action, I realized, yes, this is the process we need,” says their AP Manager, Erin Marchbanks. But, having just spent a year rolling out their new system, they were reluctant to undergo another implementation.
Those fears proved unfounded, as the Airbase implementation was quick and straightforward.
Procurement cost reduction examples with P2P.
Recharge: Fraud prevention.
Recharge also appreciates the fraud control measures built into Airbase’s procure-to-pay platform, designed to mitigate the risk of fraudulent payments.
Recharge Controller, Joe Gibbons, called out the added protections that Airbase’s Risk Team provides by monitoring payments moving through the platform. The Airbase team helps monitor certain invoice details and payment activities to help mitigate the risk of fraudulent payments.
“It’s good to know that on the payments side, Airbase is behind the scenes helping keep our payments safe,” says Joe.
Medely: Visibility into the procurement process.
Visibility into the procurement process is crucial for effective budget management as it provides organizations with a comprehensive understanding of their spending patterns and purchasing activities.
By implementing tools such as procurement software and analytics platforms, businesses can gain real-time insights into the entire procurement lifecycle, from requisition to payment.
This visibility allows for better tracking of expenses, identification of cost-saving opportunities, and enforcement of budgetary controls. Detailed analytics help organizations monitor supplier performance, evaluate contract compliance, and assess the efficiency of procurement workflows.
With a clear view of the procurement process, businesses can proactively manage budgets, make informed decisions, and implement strategic measures to optimize spending, ultimately contributing to improved financial control and resource allocation.
Airbase’s real-time visibility helps budget owners implement cost-reduction measures at any point.
“Our leaders, particularly cost center owners, have much more visibility. They have a full lens on all of their spend, and their finger on the pulse as they think about budgets and planning,” says Medely’s Controller, Eoin Hession.
Budget control.
Implementing effective procurement cost-reduction strategies is essential for organizations aiming to control budgets and enhance financial stability. One key approach involves strategic sourcing, where businesses actively seek cost-effective suppliers and negotiate favorable terms.
By conducting thorough market research, evaluating vendor performance, and leveraging economies of scale, organizations can identify opportunities to reduce procurement costs without compromising product or service quality.
This strategic approach helps secure better prices and establishes long-term partnerships with reliable suppliers, fostering a sustainable cost-reduction model.
Spend analytics tools provide real-time insights into spending patterns, identifying areas for cost-saving measures. With a data-driven approach, organizations can make informed decisions, negotiate better contracts, and enforce policies to ensure that every procurement process aligns with budgetary constraints.
By combining strategic sourcing with technological advancements, businesses can establish a robust procurement cost reduction strategy that contributes significantly to budget control and financial efficiency.
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