Procurement-led IT cost optimization: Strategies and best practices

In past approaches to IT cost management, it made sense to focus solely on acquiring goods and services as cheaply as possible. However, increasingly complex sustainability mandates and shifts toward IT cloud services mean that cost cutting alone can’t be your exclusive strategy to save money. 

To keep up with procurement modernization while driving profitability and IT compliance, you need to facilitate insight and control throughout your operations. Your ticket to accomplishing this is using a digital solution. 

IT procurement can transform from a limited transaction into a strategic lever that unlocks sustainable IT cost optimization.

Why optimization outperforms cost cutting

IT cost cutting may deliver short-term results for your team, but these immediate wins often result from short-sighted decision-making. That’s because cost cutting focuses on saving money without considering how cost reduction could risk lowering product or service quality, restricting indirect procurement network insight, or making your operations vulnerable to supply chain disruptions. What feels like a relatively minor decision to save on costs could actually have far-reaching consequences for your entire organization.

IT and procurement teams that recognize the risks of cutting costs while still needing to save money can succeed by expanding their IT cost-optimization efforts. This means optimizing IT procurement as an agile, strategic facet of your organization. 

This type of optimization views your operations as a cohesive whole that ebbs and flows as your business needs change. With it, you can create strategic goals for all parts of your network that will help you achieve cost savings, resilience, and purchase compliance.

Top sources of IT spend leakage

IT spend leakage occurs when your team orders using unapproved purchasing processes or suppliers. This type of leakage is usually more prevalent in decentralized environments or fast-scaling organizations due to a lack of financial visibility or control over their IT procurement. 

Because spend leakage poses a significant risk to an organization’s profits, it must be a top priority for IT procurement teams that are striving to regain spend control over their operations. 

As you get started, look for areas where IT spend leakage tends to exist. Here are some examples:

• Shadow IT purchases: Shadow IT occurs when employees use unapproved IT software, hardware, or services. It’s a problem for organizations because it limits their financial visibility, leads to overspending, and creates cybersecurity vulnerabilities.
• Duplicate SaaS licenses: Decentralized workflows, poor usage tracking, and ineffective employee offboarding can mean you overspend on SaaS licenses because you pay for duplicate or inactive accounts.
• Overlapping purchasing: Fragmented systems or misaligned teams increase the risk of multiple teams buying the same software or hardware. In doing so, they inadvertently create unnecessary redundancy and waste money.
• Inefficient order processes: Time-consuming order workflows can deter your buyers from using your organization’s desired purchasing process. As a result, you may see more maverick spending, overspending, or compliance violations.
• Poor purchase visibility: If you can’t see how your organization currently spends money, financial control and cost savings are far from attainable. This poor visibility can also result in missed opportunities to resolve maverick spending or negotiate for more favorable contracts.
   

Knowing your operations' prime candidates for IT leakage lets you identify and resolve problem areas quickly and intentionally.

Four procurement levers that drive IT savings

Because IT cost optimization initiatives examine your entire IT procurement lifecycle, everything from workflow bottlenecks to contract negotiations can be a lever for cost savings. The following procurement strategies can guide how you approach your network:

1. Vendor consolidation and contract management

Supplier consolidation helps you reach a favorable position during contract negotiations. For one, fewer suppliers mean less competition within your network, which gives you more room to advocate for better deals based on vendor performance. 

Instead of scattering IT purchases across a wide range of suppliers, you can rightsize your network to include a handful of trusted vendors. As a result, you’ll retain more control over your network, strategic sourcing, and purchase compliance violations, such as tail or maverick spend.

2. Volume discounts and tiered pricing

IT order and purchasing data help you make informed decisions to achieve your organization's needs at favorable prices. With this insight, you can procure IT equipment and software for discounted bulk fees. 

Such discounts are possible because you can tell your suppliers exactly how much supply you need and when, which enables them to plan accordingly. Using the same data, you could also negotiate tiered discounts that unlock savings based on order quantity or spend.

3. Compliance and policy automation

When improving your IT purchasing compliance, you must simplify the process of selecting and ordering from preferred vendors so it’s straightforward for buyers. 

Approved vendor catalogs can be an easy initial win for this strategy. With a customizable supplier catalog, you can set buying conditions that include preferred vendors and budget limits. Such guardrails for buyers can lower maverick IT spend without preventing them from getting the IT resources they need.

4. Contract and spend visibility

Supplier contract and IT spend visibility grant your team more control over how you manage IT costs. For example, procurement analytics can surface contract renewal timelines so you know when to start renewal conversations. 

Spending insights can also reveal redundant tools or subscriptions, which helps you identify where to consolidate technology to strengthen your expense management and improve your operational efficiency.

How to achieve IT and procurement alignment

Laptops, keyboards, IT cloud services, and servers are examples of IT infrastructure that’s critical to smooth business operations. However, they can also come at a high price, both financially and in terms of cybersecurity. 

For IT cost optimization to be achievable, your IT, financial management, and procurement teams need to work together. These are each team’s responsibilities and how they intersect to secure operational alignment:

• IT or DevOps: IT leaders and teams focus on maintaining and implementing technology and cloud resources. They know which tools your organization needs, for what, and when.
• Finance or FinOps: Your finance team knows your organization’s budgets and how strategic cost allocation can drive profit. They are responsible for ensuring IT purchases are on budget and financially compliant. 
• Procurement: A procurement team bridges the gap between these two business units by combining financial limitations with IT needs to optimize acquiring goods and services.

In other words, procurement is the actionable application of your IT procurement cost analysis. It connects your organization’s IT needs to realistic budgets that drive measurable results and transform procurement into a profit driver. But to facilitate this alignment, your DevOps, FinOps, and procurement teams need access to shared dashboards and analytics.

When these three teams can access and implement the same data, they can collaborate to strategically boost efficiency and save money. For example, alignment among internal teams enables your organization to leverage company-wide software licenses rather than individual accounts. In doing so, you’ll reduce the risk of IT spend leakage from duplicate or unused SaaS licenses and save money since company-wide packages tend to be the more cost-effective option. 

Metrics for continuous cost optimization

IT cost optimization is an ongoing strategy that evolves as your organization scales, and key performance indicators (KPIs) measure its success. Your team can use the following metrics to benchmark and track your strategy:

• Percent of total operating expenses: This metric shows the percentage of your organization’s total costs that you spend on IT procurement. The ideal percentage will vary widely by industry.
• Maverick or off-policy spend percentage: This KPI shows how often your buyers stray from standardized purchasing processes, which could create additional risk for your organization.
• License utilization rate: This metric indicates how many software licenses your organization actually uses out of the total number you’ve purchased. If you identify unused licenses, you can cancel them and save money.
• Average cost per active IT seat: Calculating the average cost of each IT user relative to your total IT spend can help you identify where changing user access or downgrading accounts could save you money.
• Procurement cycle time: This metric tracks the total time it takes for an order to move from purchase requisition to supplier invoice payment. If your procurement cycle time decreases, it may indicate that your process is more cost effective and efficient.
   

KPIs facilitate the data-driven results you need to prove your IT cost optimization strategy’s success. However, for the data to be impactful, it also needs to be comprehensive and reliable. 

The simplest way to ensure data accuracy is to use an IT procurement solution that leverages advanced technologies like AI-powered analysis, automation, and policy enforcement. Amazon Business is one such system that can bolster your IT cost optimization strategy.

How Amazon Business supports IT cost optimization

Amazon Business helps enable your team to effectively spearhead your organization’s IT cost optimization strategy. Here’s how this solution can simplify and strengthen your approach:

Gain real-time visibility into IT spend

For IT spend data to be useful, it must be timely and accurate. Without deep insight, your team risks making critical business decisions with data that doesn’t accurately reflect your IT needs. 

Amazon Business can help here by clarifying your IT spend with Spend Visibility (a Business Prime feature). This feature aggregates purchase data from multiple accounts across your organization. By centralizing this information, your team can gain insight into the following parts of your operations:

• Spot purchase trends in IT hardware, software, and services: Based on your organization’s IT buying habits, you can plan ahead to strategize order timing, consolidate vendors, and forecast future needs.
• Identify duplicate or redundant purchases: Insights into your spending reveal where you may be paying for duplicate or unused SaaS accounts. You can then use this data to reduce order quantities and save money.
• Forecast renewals and upcoming costs: By tracking when you purchase IT software or services, you can anticipate when renewals will hit your budget so you’re not caught off guard.
   

This real-time visibility helps you demonstrate to stakeholders the results of your IT cost optimization efforts, which can increase procurement leadership buy-in and create momentum for long-term scalability.

Strengthen compliance and policy enforcement

A core function of IT cost optimization is enforcing purchasing policies. That means your buyers follow approved purchase procedures and only order from your preferred suppliers. However, complicated or time-consuming processes can deter buyers from using this desired workflow. 

This is where Guided Buying (a Business Prime feature) comes in handy. It helps you facilitate a purchase structure that respects your budget and buyer’s needs.

Your administrators can also customize Guided Buying to encourage buyers to order from preferred suppliers by adding a clear “preferred” tag to the vendors you want them to prioritize. By setting these purchasing guardrails, you may see the following benefits for finance and procurement:

• Reduced off-contract or unauthorized IT spend: By simplifying and clarifying the purchasing process and labeling preferred vendors, you’ll make sure buyers know exactly who to order from and how to do so without frustration.
• Ensured policy compliance without manual policing: Once IT leaders set purchasing guidelines in Guided Buying, they can rest assured their buyers can easily follow the desired order route without having to review every step manually.
• Strengthened protection for IT budgets: With greater control over the purchasing process, IT leaders can better manage budgets by reducing maverick spend and shadow IT risk.
   

When your team collaborates with Amazon Business, you can feel more confident that buyers are more likely to stick to preferred suppliers and order workflows.

Identify cost-saving opportunities

When building an IT cost optimization strategy, you’ll want to uncover big wins in cost savings, and analytics help your team gain the crucial insights to find these opportunities. In fact, Amazon Business Analytics bolsters your cost-saving campaign by helping you discover trends and inefficiencies in your IT purchasing data.

Business Analytics acts as your organization’s “insight layer” for procurement performance. By organizing IT purchasing data from throughout your organization in one place, this tool can assess and extract key insights to illuminate patterns, risk areas, and bottlenecks.

For example, your team could implement Business Analytics to identify underused or overpriced spend categories. This brings traditionally difficult-to-track parts of your operations, such as tail spend, into focus and gives you the insight you need to consolidate orders or vendors and save money strategically.

With the support of Business Analytics, you’ll have the insights and data to make informed procurement network changes for cost savings.

Simplify budget governance through ERP integrations

Governance is how your team operationalizes IT spend data. The simplest way to establish budget governance across your operations is to leverage enterprise resource planning (ERP) integrations to build a unified procurement tech stack.

These integrations merge your procurement and financial data, which allows you to improve cost control and audit accuracy. Fully integrated and unified procurement also empowers your team to unearth the following benefits:

• Sync IT purchase data with financial systems: If you integrate IT and finance systems, your spend data will be accurate and reliable. This empowers your team to make key business decisions with real-time insights.
• Automate budget validation and spend reconciliation: ERP integrations keep your IT, finance, and procurement data organized by reconciling flagging discrepancies, reconciling invoices with supporting documents, and tracking budgets.
• Reduce duplicate data entry and manual reporting: You can also relieve your team of the headaches and risks of manual data entry and reporting with these integrations. That way, your connected systems will automatically aggregate and organize data, which saves your team time.
   

Amazon Business integrates with over 300 procurement and ERP systems, including SAP, Oracle, Coupa, and NetSuite. With such robust integrations, Amazon Business can be your team’s strategic partner as you build a digital procurement network to simplify IT cost optimization. 

Turn cost control into a competitive advantage

In today’s procurement and supply chain, IT cost cutting poses more risk than benefit for your organization. To stay ahead of competitors, increase scalability through cross-functional alignment, and drive long-term profit, your team needs to shift its focus toward IT cost optimization. You can do this by partnering with IT purchasing technology.

Amazon Business, for instance, is an agile solution that helps you bolster your strategy now and grows with your organization. It does so by leveraging real-time analytics to facilitate alignment among IT, finance, and procurement teams, which transforms them into a unified, data-driven strategic powerhouse.

Ready to explore how Amazon Business can help you regain control of your IT spend? Contact Amazon Business today to discover how your team can implement the system to enable smarter, faster decision-making for your entire organization.