In many companies – especially in manufacturing – procurement accounts for 50 to 70 % of revenue. Yet, the enormous potential within procurement is often underutilized. As one of the most powerful levers for profitability, procurement has a direct impact on margins, resilience, and competitiveness. In this context, data-driven decisions can make all the difference. This blog post explores procurement’s impact on overall business success, explains why the right KPIs are critical for effective decision-making, and highlights the role of different levers in unlocking procurement’s full strategic potential.
Why Procurement Determines Business Success The higher the share of material costs, the more purchasing decisions impact profitability. Even a few percentage points of cost reduction can have a greater effect on the bottom line than revenue increases or process optimizations elsewhere.
At the same time, procurement has never been more complex: volatile raw material prices, global supply chain risks, rising sustainability and compliance requirements, diverse product variants, and competitive cost pressure all pose major challenges. Without a structured data foundation, developments are often detected too late, and decisions are made in isolation.
EBIT Walk vs. Cost of Goods Sold – Why KPIs Are Often the Problem Many companies manage profit using the classic EBIT Walk: Revenue – Costs – Result. While this approach works in principle, it often leads to silo optimization. Each department optimizes “its” area instead of working together to achieve the best outcome for the company. A typical example: logistics wants to spend more on packaging to reduce storage costs, while procurement seeks to prevent this to protect its KPIs. Both are correct – yet they work against each other.
A better approach is management based on Cost of Goods Sold (COGS) . Here, procurement, logistics, and production share responsibility for the entire product cost block. Benefits include aligned KPIs, fewer political discussions, lower material and logistics costs, and better decisions across the entire value chain. Real-world examples show that switching from EBIT to COGS management can significantly boost profitability – often enough to turn a loss into a profit.
The Key: Data, Transparency, and Fast Response Volatile markets – material costs, energy prices, exchange rates, or transportation costs – make rapid decision-making essential. Only with transparent, up-to-date, and reliable data can companies respond effectively.
Common challenges in procurement without good data:
Is today’s price still fair after recent raw material fluctuations? Which parts are affected by global crises (e.g., chip shortages)? Where are hidden savings opportunities across thousands of items? Which suppliers and sites are particularly high-risk? Data enables companies to combine internal and external information, analyze it, and translate it into actionable cost-saving measures.
Three Concrete Examples from Spend Analytics Material, Energy, and Labor Cost Development Manufacturer Part Number (MPN) Matching Linear Price Models Why All Levers Must Be Considered Together Many companies tackle savings initiatives sequentially: “This year material costs, next year price tiers.” A more effective approach is to consider all relevant levers simultaneously, as each category reacts differently.
To turn procurement into a true strategic value driver, companies should follow these principles:
Data-driven decisions Cross-functional collaboration Transparency over costs, markets, and risks Focus on end-to-end value rather than silo KPIs Companies that implement these principles increase profitability, act more resiliently in crises, and develop a sustainable supply chain. Procurement is one of the strongest levers for long-term business success – and data is the key.
Curios to dive deeper? We covered the above in our recent webinar: "Data Speaks Louder Than Words – How to Turn Procurement Into a Value Driver"
