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Why Short-Term Cost-Cutting Can Do Long-Term Harm to Your Business

Don't hurt your organization's performance and customer satisfaction with short-sighted thinking.

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Opinions expressed by Entrepreneur contributors are their own.

As though the pandemic was not enough of a disruption, the price of most products is on the rise. It's harder than ever to find suppliers that align with your budget limitations, quality standards, and responsibility objectives.

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Cost cutting often comes first; a necessary business reality in uncertain times. Many business owners and decision-makers are already reducing expenditures, particularly when it comes to procurement. But with shortages of essential supplies and unpredictable fulfillment and delivery, the current strain on the just-in-time supply-chain model has made procurement a vulnerable — and expensive — part of business operations.

Slashing spending while juggling multiple suppliers, each promising lower prices than the last, may seem like the only option in the short term, but could lead to unnecessary complications in the long run. Business leaders should seize the opportunity to rethink their supplier strategy to drive sustained cost optimization and streamline purchasing.

Improve spend visibility

The first step in improving supplier strategy is gaining visibility into your teams' purchasing needs and patterns. Without this insight, your business can miss opportunities to streamline orders, meet quantity limits, and guide employee buying. Your goal throughout these conversations should be to better understand your team's needs and buying behaviors — while having frank conversations around budgets, costs, and timelines — so that you can retool or establish policies and workflows that empower your teams to make better buying decisions.

Focus on cost optimization

Cost optimization is often confused with cost reduction, but they have vastly different impacts on your business. Narrowly focusing on the latter can compromise product and service quality, squeeze already overworked teams, and impact team morale.

Instead, as you build and grow your procurement process, consider ways to optimize efficiencies by eliminating waste and automating manual processes. Smart business buying capabilities can help you to save money and time on administrative processes and reinvest those resources in value-add initiatives that advance your overall mission.

Simplify through automation

When considering solutions, it is important to prioritize simplicity and a great user experience. Simplicity often enables internal policy compliance: Amazon's 2022 State of Business Procurement Report found that 82% of business buyers want the same experience buying for work as when they're buying for themselves at home. Business leaders should invest in smart buying technology that can suggest products based on purchase history and what's popular among your employees, provide flexible shipping options, deliver intuitive user experiences, and grow with your business, so you can focus on what matters most.

Diversify and empower

The past few years have proved that the purchasing landscape will never be the same. Diversity and inclusion initiatives are – rightly – taking a more prominent role in many facets of business operations, including buying processes.

As you examine your buying processes, consider putting your values into action by implementing a Diversity Certifications Policy to highlight and prefer products sold by local and/or diverse merchants, as well as those who offer certified sustainable products. Recognized certifying agencies include the Department of Veterans Affairs (VA), the National LGBT Chamber of Commerce (NGLCC), the National Minority Supplier Development Council (NMSDC), and many more.

As I speak with business leaders across the country, in organizations large and small, we are finding leaders who are struggling to strike a balance between diversifying their supplier base; adhering to their environmental, social, and governance goals; and cutting costs. They are searching for a solution that can help them simplify their purchasing processes, reduce costs, and automate repetitive tasks to save time and increase efficiency.

Cost-cutting and short-term thinking can often impair an organization's agility, compromise performance, and affect strategic focus. Now is the time for business leaders to think beyond lower prices as the only priority to broader changes that reduce spend while delivering true, long-term value to their organization.

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