There's a conversation happening quietly inside most Australian procurement functions, and it goes something like this: the easy savings are gone.
The strategic sourcing waves that delivered 8-12% cost reductions five years ago now deliver 2-3%. The supplier consolidation that once created leverage has been done — and in some cases overdone, creating concentration risk. The competitive tenders that used to generate genuine competitive tension now feel performative, because there are only two credible suppliers left in the category. The annual negotiation cycle yields marginal gains that barely keep pace with inflation. And the procurement team — which once earned its seat at the table by delivering hard dollar savings — is now under pressure to justify its existence using increasingly creative definitions of "value."
This isn't an Australian problem alone, but it's acute here. The Hackett Group's 2026 Procurement Key Issues research shows procurement leaders facing an 8% increase in workload amid declining headcount and operating budgets. Deloitte's 2025 Global CPO Survey, covering more than 250 CPOs across 40 countries, found that 57% identify siloed working structures as the biggest barrier to delivering value. Competing priorities dilute focus for 46%, and 34% cite the talent gap. The traditional procurement model — run sourcing events, negotiate savings, report the number — is producing diminishing returns at the exact moment the organisation is asking procurement to do more.
This article is about where the next wave of procurement savings and value actually comes from, and why the organisations that find it will look fundamentally different from the ones still running the old playbook.
Why the traditional playbook has run its course
The procurement savings model that most Australian organisations still operate was built for a specific era. It was designed when globalisation was expanding the supply base, when switching suppliers was relatively easy, when commodity deflation was the baseline, and when procurement's primary job was to reduce the unit price of things the organisation was already buying.
That era is over.
Supply markets have consolidated. In many categories — particularly in Australia's relatively concentrated market — there are fewer credible suppliers than there were a decade ago. This means competitive tension is harder to create, switching costs are higher, and the "threat of substitution" that underpins traditional negotiation leverage is weaker. Running a tender with two suppliers who both know they're the only realistic options is theatre, not strategy.
Inflation has structurally changed the savings equation. After years of deflation-era thinking where procurement could reliably deliver year-on-year price reductions, many categories have experienced sustained cost increases driven by energy, labour, raw materials, and logistics. In this environment, cost avoidance — preventing prices from rising as much as they otherwise would — is genuinely valuable work, but it's hard to quantify and even harder to get credit for. Finance teams accustomed to seeing hard dollar savings struggle to recognise cost avoidance as equivalent value.
And globalisation is fragmenting rather than expanding. Tariff uncertainty, geopolitical risk, and the shift toward regionalisation mean that the cheapest source of supply is no longer always the smartest. Over 90% of manufacturers globally are now prioritising supply chain regionalisation, according to the World Economic Forum and Kearney. Nearly two-thirds are adopting "power of two" sourcing strategies where most direct spend is covered by two separate regions. These are strategically sound moves, but they often increase unit costs in the short term — precisely the opposite of what the traditional procurement savings model is designed to deliver.
The expectations placed on procurement have also expanded dramatically without a corresponding expansion in resources. The Hackett Group's 2024 CPO Agenda found that cost reduction had returned to the number one priority for procurement leaders, driven by economic uncertainty and executive pressure to reclaim margins eroded by inflation. But in the same breath, procurement is being asked to manage third-party risk, deliver on sustainability targets, support digital transformation, and serve as a strategic advisor to the business. Trying to deliver all of these with a team and operating model designed primarily for sourcing events creates the impossible equation that most procurement leaders are living with today.
The result is a procurement function that's working harder than ever but delivering less of what the organisation has historically measured. This isn't a failure of effort or capability — it's a structural shift that requires a fundamentally different approach to where procurement creates value.
The eight sources of next-wave procurement value
1. Spend visibility and leakage recovery
Before looking for new savings, most organisations should start by capturing the value they're already supposed to have.
The reality in most Australian organisations is that a significant portion of negotiated savings never reaches the bottom line. This happens through several mechanisms. Maverick spending — purchases made outside established procurement processes — costs organisations between 10-20% of their negotiated savings according to Ivalua's analysis. The Hackett Group's research puts the figure at 5-16% of targeted savings lost to maverick buying. The American Productivity and Quality Center found that maverick buying accounted for 1.8% of annual purchase value in organisations studied — which for a business with $1 billion in purchases means approximately $18 million in uncontrolled spend annually.
Contract leakage is equally significant. Prices paid don't match contracted rates — one analysis found systematic pricing leakage where actual payments exceeded contracted rates by 12%. Payment terms negotiated in contracts aren't reflected in actual payment practices. Volume commitments that unlock tiered pricing aren't tracked, so the organisation pays a higher rate than it's entitled to.
Tail spend — the long tail of low-value purchases that typically accounts for 80% of transactions but only 20% of spend — is where much of this leakage concentrates. These transactions involve hundreds of suppliers, often with no negotiated pricing, no consolidated demand, and no systematic management.
The first wave of next-generation procurement value comes from getting serious about spend visibility: consolidating procurement data across business units, identifying where actual spend diverges from contracted terms, quantifying the gap, and implementing the process and technology controls to close it. This isn't glamorous work, but in our experience at Trace, it routinely unlocks 3-7% of addressable spend — often more than the next sourcing event would deliver.
2. Demand management — buying less, not buying cheaper
The most powerful savings lever in procurement isn't negotiating a better price — it's reducing the volume of what gets purchased in the first place. Yet most procurement functions spend virtually all their time on supply-side levers (who to buy from, at what price, on what terms) and almost none on demand-side levers (whether to buy at all, how much to buy, whether the specification is right).
Demand management operates across several dimensions. Specification rationalisation involves reviewing whether the organisation is over-specifying its requirements — buying higher grades, tighter tolerances, or premium features that don't add value to the end customer. This is particularly prevalent in professional services, facilities management, and IT categories, where scope creep is endemic and requirements documents grow with each procurement cycle.
Volume challenge involves questioning whether the quantity being purchased is right. Are we ordering based on actual consumption data, or based on a budget allocation that hasn't been revisited? Are we carrying excess inventory because the min-max settings haven't been updated? Are we subscribing to software licenses we don't use? Gartner's research found that nearly 40% of SaaS spending goes unmonitored — a significant pool of value that procurement hasn't traditionally touched.
Substitution involves identifying whether a different product or service could meet the business need at lower cost without meaningful compromise. This requires procurement to understand the business need, not just the purchase requisition — which in turn requires the kind of stakeholder relationship that transactional procurement models don't build.
In our experience working with clients across FMCG, retail, resources, and government, demand management consistently delivers larger savings than the next round of supplier negotiations — but it requires procurement to be involved earlier in the buying cycle, to have credibility with business stakeholders, and to understand the operational context well enough to challenge requirements constructively.
3. Category strategy that goes beyond sourcing events
Traditional procurement treats categories as portfolios to be tendered on a cycle. Every 2-3 years, the contract comes up, procurement runs a go-to-market process, negotiates new terms, and reports the savings. Between cycles, the category is largely unmanaged.
Mature category management looks fundamentally different. It involves continuous market intelligence — understanding supply market dynamics, cost drivers, and supplier economics in enough depth to identify value creation opportunities outside the tender cycle. It involves supplier relationship management that goes beyond performance scorecards to genuine collaboration on cost reduction, innovation, and process improvement. It involves total cost of ownership analysis that considers not just the purchase price but the full lifecycle cost — including quality costs, logistics costs, inventory carrying costs, administrative costs, and disposal costs.
Deloitte's 2025 Global CPO Survey found a stark performance divide. Organisations they classify as "Digital Masters" — characterised by higher investment in technology and talent — met or exceeded their savings plans 96% of the time, compared to 80% for followers. These leading organisations aren't just negotiating harder. They're investing in the analytical capability and supplier relationships that unlock value sources that purely transactional procurement can't reach.
The Hackett Group's Digital World Class research reinforces this: top-performing procurement organisations deliver 2.6 times greater ROI than peers, while operating with 31% fewer full-time employees and at 19% lower cost as a percentage of spend. They achieve this not by doing more sourcing events but by investing in better analytics, deeper category expertise, and stronger supplier collaboration — and by spending 1.8 times more on procurement technology to enable it.
4. Supplier collaboration and value engineering
Once you've exhausted the savings available from competitive tension, the next wave comes from working with suppliers rather than against them. This sounds counterintuitive to procurement functions raised on adversarial negotiation, but the logic is straightforward: your suppliers understand their own cost structures better than you do, and in a mature supply relationship, there are often opportunities to reduce costs jointly that neither party can capture alone.
Value engineering involves working with suppliers to redesign products, processes, or service delivery models to reduce cost without reducing value. This might mean changing a packaging format to reduce material cost and freight cost simultaneously. It might mean adjusting delivery schedules to optimise the supplier's production runs, reducing their manufacturing costs in exchange for a share of the savings. It might mean co-investing in automation that reduces the supplier's labour cost on your account.
Joint process improvement involves eliminating waste in the transaction and relationship itself — simplifying ordering processes, reducing unnecessary quality inspections, consolidating deliveries, standardising specifications, or integrating planning processes to reduce buffer inventory on both sides of the relationship.
Innovation capture involves positioning procurement as a channel through which supplier innovations reach the organisation — new materials, new processes, new technologies that can improve performance or reduce cost. This only works if the supplier sees the relationship as worth investing in, which in turn only works if procurement has moved beyond treating every interaction as a price negotiation.
None of this is possible with a purely transactional procurement model. It requires procurement professionals with deep category knowledge, relationship management skills, and the commercial judgement to structure collaborative arrangements that create value for both parties. It also requires a procurement operating model that gives category managers the time and mandate to do this work — which means automating or eliminating the low-value transactional activities that currently consume most of their time.
5. Working capital and commercial terms
Procurement's impact on the balance sheet is often larger than its impact on the P&L, but most procurement functions don't measure it, don't manage it, and don't get credit for it.
Payment terms directly affect working capital. Extending payment terms from 30 to 60 days on $100 million of annual spend frees up approximately $8 million in working capital — real cash that the organisation can deploy elsewhere. Procurement is uniquely positioned to negotiate these terms because it controls the commercial relationship.
Inventory optimisation is equally significant. Procurement decisions about order quantities, delivery frequencies, and safety stock levels directly determine how much working capital is tied up in inventory. The Hackett Group's 2025 U.S. Working Capital Survey identified $1.7 trillion in trapped liquidity across the companies studied; the European equivalent found €1.4 trillion. Much of this is locked in inventory and payables that procurement can directly influence.
Supply chain financing and dynamic discounting programmes create additional value by allowing buyers to offer early payment to suppliers (at a discount) when the buyer has excess cash, or to extend payment terms when they don't. These programmes generate returns that typically exceed the organisation's cost of capital, creating genuine value rather than just transferring it between buyer and supplier.
For procurement functions that have traditionally been measured only on cost savings, expanding the value framework to include working capital improvements often reveals a pool of value that's larger than the remaining savings opportunity on the P&L.
6. Risk reduction as value creation
Every supply disruption has a cost. When a supplier fails and the organisation has to source material at spot market prices, the premium paid is a cost that procurement could have prevented. When a quality failure causes a product recall, the cost dwarfs the savings that were achieved by choosing the cheapest supplier. When a single-source supplier raises prices by 15% because they know you have no alternative, the cost of that dependency is a procurement failure, even if the original sourcing decision looked sound.
Deloitte's CPO Survey found that the most effective risk mitigation strategies among leading CPOs are maintaining active alternative sources (74%), enabling greater visibility into the supply chain (64%), and enhancing supplier information sharing and collaboration (61%). A CDP study of over 8,000 businesses estimated that climate-related supply disruptions alone will cost $120 billion by 2026, with manufacturing and food industries most affected.
Procurement organisations that quantify the cost of risk — and that treat risk reduction as a measurable value contribution — can unlock investment in resilience measures that would otherwise be seen as pure cost. This includes supplier diversification, qualification of alternative sources, inventory buffering for critical materials, and supply chain mapping to identify and mitigate hidden dependencies.
In Australia's concentrated supply markets, this is particularly important. Many categories have limited domestic supplier options, making the cost of supplier failure disproportionately high. Procurement functions that can quantify this risk and present it alongside traditional savings metrics are more likely to secure the investment needed to build genuine supply resilience — and to get credit for the value that resilience creates.
7. Sustainability as a procurement value driver
Sustainability has moved from a reporting obligation to a genuine source of procurement value — though most organisations haven't yet made that connection operationally.
The regulatory trajectory is clear. In Australia, the Australian Sustainability Reporting Standards (ASRS) are progressively requiring large entities to report on climate-related financial risks, including Scope 3 emissions — which for most organisations are dominated by the supply chain. European regulations including the Corporate Sustainability Due Diligence Directive (CSDDD) are creating extraterritorial compliance obligations for Australian companies with European operations or customers. And the Australian Government's Environmentally Sustainable Procurement Policy is requiring businesses bidding for government work to demonstrate specific sustainability outcomes.
But the value opportunity extends beyond compliance. Sustainable procurement practices often reduce cost in parallel: reducing packaging reduces both waste disposal costs and freight costs; energy-efficient specifications reduce operating costs for the buyer; circular economy approaches to end-of-life management can convert disposal costs into recovered value. Supplier sustainability assessments frequently reveal operational risks — poor environmental management often correlates with poor quality management, financial instability, or regulatory non-compliance.
Procurement functions that integrate sustainability criteria into category strategies, supplier assessments, and total cost of ownership analysis can deliver measurable value across multiple dimensions simultaneously — cost, risk, compliance, and brand. Those that treat sustainability as a separate workstream divorced from commercial procurement will find it adds cost and complexity without delivering proportional value.
8. Procurement operating model redesign
This is the meta-lever — the one that enables all the others. Most Australian procurement functions are structured to run sourcing events and manage contracts. Their operating models, capabilities, technology, and performance metrics all reflect this transactional orientation. The next wave of value requires a fundamentally different operating model.
The Hackett Group's 2026 research found that 76% of organisations now report AI-driven improvements of 25% or more in key performance metrics as adoption scales. Deloitte found that Digital Master procurement organisations — those allocating up to 24% of their budgets to technology — achieved a 3.2 times return on their generative AI investments. But the technology alone isn't what drives the performance. It's the combination of technology and the operating model redesign that allows people to work differently.
An operating model redesign for next-wave procurement value typically involves several elements. First, automating transactional procurement — purchase order processing, invoice matching, catalogue management, routine supplier queries — to free up human capacity for strategic work. Second, investing in analytics capability — spend analytics, market intelligence, cost modelling, risk analytics — to provide the insights that drive better decisions. Third, restructuring the organisation around categories rather than around processes — so that category managers have end-to-end accountability for value creation, not just for running tenders. Fourth, redesigning the performance framework to measure total value (savings, cost avoidance, working capital, risk reduction, sustainability, innovation, stakeholder satisfaction) rather than just cost savings. Fifth, building the capability pipeline — through recruitment, development, and strategic use of external expertise — to close the skills gap that 34% of CPOs identify as a barrier to value delivery.
What this means for Australian organisations
Australian procurement functions face a particular version of this challenge shaped by the characteristics of this market.
The domestic supply market is smaller and more concentrated than in the US or Europe, which limits competitive tension in many categories. Industries like construction materials, facilities services, packaging, and professional services have seen significant supplier consolidation over the past decade. In some categories, there are effectively two or three viable suppliers nationally — which makes adversarial negotiation not just unproductive but counterproductive, since the suppliers know their position as well as procurement does.
The tyranny of distance adds logistics cost and complexity that procurement must factor into total cost decisions. A supplier in Melbourne serving sites in Perth faces fundamentally different cost economics than a supplier serving sites in Sydney. Network design and distribution configuration directly affect the supply base available to procurement — a connection that's often invisible when procurement and supply chain planning operate in silos.
Tariff and trade policy shifts — including the flow-on effects of US tariff volatility on global supply chains — are reshaping sourcing economics in real time. Australian organisations that source components, materials, or finished goods from China, Southeast Asia, or the US are navigating a tariff environment that changes faster than contract terms can adapt. This requires procurement to develop scenario planning capability and supplier optionality that the traditional annual sourcing cycle doesn't provide.
And the talent shortage in procurement and supply chain is structural, not cyclical. Hays reports that category managers, sourcing specialists, and procurement professionals with technology and sustainability expertise are among the hardest roles to fill in Australia. Strategic sourcing managers in Perth and Melbourne can command salaries up to $210,000, reflecting the scarcity of qualified professionals. This means procurement functions can't simply hire their way to better performance — they need operating models and technology that amplify the capability of the people they have.
Against this backdrop, procurement functions that continue to measure themselves primarily on negotiated savings will find themselves on a treadmill — working harder to deliver diminishing results while the organisation's expectations grow. The procurement functions that thrive will be the ones that redefine what value means, invest in the capabilities to deliver it, and build the credibility with the business to be measured on it.
This requires honest conversations with CFOs and CEOs about what procurement can and should deliver. It requires investment in technology, analytics, and people — not as cost to be minimised but as capability to be built. And it requires a procurement leadership that sees the function's role not as reducing the cost of what the organisation buys, but as optimising the total value of how the organisation engages with its supply markets.
Where to start
For procurement leaders reading this and recognising their own organisation, the question is where to begin. The answer depends on context, but there are several practical starting points that apply broadly.
Conduct a savings leakage audit. Before investing in new savings initiatives, quantify how much of your existing negotiated value is reaching the bottom line. Map contracted terms against actual prices paid, identify maverick spend by category, and quantify the gap. This exercise typically takes four to six weeks and almost always reveals more value than expected — value that requires process improvement and governance rather than new sourcing activity.
Redefine the value framework with finance. Have the conversation with your CFO about what procurement value means beyond cost savings. Build a value framework that includes cost avoidance, working capital improvement, risk reduction, and sustainability outcomes. Agree on how each will be measured and reported. This isn't a cosmetic exercise — it fundamentally changes what procurement focuses on and how it allocates its limited resources.
Identify the categories where traditional levers are exhausted. Not every category needs a new approach. Some categories still have competitive supply bases and genuine switching optionality — traditional sourcing approaches work fine there. Focus the new playbook on the categories where traditional approaches have plateaued: sole or limited source categories, long-standing supplier relationships with no recent competitive test, categories where specification drift has increased costs without corresponding value, and categories where risk concentration is high.
Invest in analytics before investing in technology. The most common mistake is buying a procurement technology platform before understanding what questions you need the data to answer. Start with spend analytics — getting clean, classified spend data that tells you where your money goes, who you're buying from, and how that compares to what you contracted. This foundation supports every other initiative in the value framework.
Build category management capability. The shift from transactional sourcing to strategic category management is the single most impactful organisational change most procurement functions can make. It requires dedicated category managers with market knowledge, analytical skills, and stakeholder credibility — not generalist buyers who run tenders across unrelated categories. If you can't hire these people (and in today's market, you may not be able to), consider supplementing with external category expertise while you build internal capability.
How Trace can help
At Trace, we work with Australian organisations to diagnose where procurement value is being lost, redesign procurement operating models for the next wave of value creation, build category strategies that go beyond sourcing events, and implement the governance, processes, and performance frameworks that make it sustainable.
Our procurement advisory spans strategic sourcing and go-to-market, category management, spend analytics, procurement operating model design, supplier relationship management, and procurement technology strategy. We work across government, health, FMCG and manufacturing, retail, and resources sectors — each with distinct procurement challenges and value opportunities.
We're independent — we don't sell procurement software, and we don't have commercial relationships with technology vendors. Our recommendations are driven by what will create the most value for your organisation, not by what generates licence revenue for a platform provider.
If your procurement function is working harder to deliver less, the answer isn't more effort on the same playbook. It's a different playbook entirely. Get in touch to discuss how we can help you find the next wave.
Trace Consultants is an Australian supply chain and procurement consulting firm. We help organisations move procurement from cost centre to value driver — with deep category expertise, rigorous analytics, and practical operating model design grounded in the realities of Australian supply markets. Visit our insights page for more on the challenges shaping Australian procurement and supply chain.
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