The old saying "Profit lies in procurement" is well-known in the business world. Today, it seems more relevant than ever, and it sets high expectations for procurement organizations. In the manufacturing industry—whether in aerospace, electronics, or chemicals—material costs often account for over 50% of total costs. In the automotive industry, this figure can rise to over 70%. This shows that optimizing material costs not only boosts efficiency but also increases profitability. Procurement, therefore, holds significant potential for cost savings. However, volatile markets and rising costs across different sectors are gradually limiting procurement’s levers. In this article, we will explain why focusing on material costs remains essential in the pursuit of cost-saving initiatives.
"You don’t get rich by what you earn, but by what you don’t spend." – Henry Ford Even the American inventor and automotive pioneer Henry Ford recognized the potential in procurement at the end of the 19th century. We illustrate his quote with a current example.
Profit Lies in Procurement – A Case Example Imagine an automotive supplier selling a brake system to an OEM for €100. The cost breakdown looks like this:
€60 for materials €20 for production €15 for other costs (e.g., R&D) €5 profit margin This results in a 5% margin. Here’s where procurement comes in: A 5% reduction in material costs doesn’t just save €3—it directly increases the profit margin from €5 to €8. That means a 60% increase in margins! The takeaway: Procurement is not just about cost-cutting—it's about margin growth. With the right tools, data, and market insights, even small savings can have a significant impact on profitability.
Procurement Today: More Responsibility, More Complexity Ordering, sourcing, analyzing—today's procurement tasks are far more complex. Market monitoring, strategic supplier management, and value analysis are all on the agenda. Moreover, procurement no longer operates in isolation; it now works in collaboration with development, production, and logistics to achieve the shared goal of improving economic efficiency. The increasing pressure to cut costs makes efficient procurement strategies essential. Without the support of digital tools, procurement teams today cannot meet all demands and contribute effectively to the company’s success. This is where Procurement Intelligence solutions come into play.
From supply analytics and procure-to-pay to risk management, a look at the ProcureTech100 , benchmark for recognizing industry leaders, reveals the best providers on the market.
Optimizing Supplier Management – Ensuring Profit The relationship with suppliers is also evolving. External factors, such as tariffs driven by political decisions, are pushing companies to minimize dependency. At the same time, strategic partnerships with suppliers are becoming increasingly important. Prepare Your Procurement Team for the Future – with ivoflow
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