You buy things for your household, in bulk on Amazon, in an effort to save money. You’re careful to find the best available deals. But while your attention is on the price of consumer goods, you don’t notice that your pool maintenance costs have increased by 15%, or that your yard guy is now charging $50 more a week. In the end, the savings from curating some household expenses are virtually wiped out by others you’ve ignored. You’re not focusing on the total picture.  

Savings are a crucial element of boosting business sustainability and profitability. But just focusing on hard savings creates a silo vision — it’s myopic, and will ultimately prove problematic for your company.

In today’s world economy, heavily impacted by tariffs and inflationary cost pressures, companies must focus on complete cost avoidance as an essential savings strategy.

Cost avoidance is cost savings because it prevents future expenditures and increases that could otherwise occur. It’s crucial to a company’s financial success. In short, today’s cost avoidance is tomorrow’s EBITDA.

Companies might be experts at direct spend — procuring materials and goods that go directly into a product or service. But indirect spend tells a different story. Despite often accounting for more than 20% of an organization’s revenue, it’s typically managed by a small team responsible for hundreds or even thousands of categories spanning IT, marketing, logistics, HR, and facilities. That complexity, combined with limited visibility, leads to inefficiencies and missed opportunities for cost avoidance. 

The benefits of cost avoidance include:

• Ensuring that realized hard savings will not be lost, and will continue to have a sustainable EBITDA impact;
• Addressing tariff and inflationary impacts proactively, by either minimizing or eliminating their effect;
• Preventing future costs from arising in the first place;
• Helping businesses manage risk, mitigate long-term impacts, and ensure sustainable growth;
• Supporting higher profitability and strengthening the company’s financial position, and
• Making company dollars go further. 

Meaningful savings initiatives start with real data, not assumptions. Before launching into action, you need a clear picture of your current state through category-specific market intelligence, detailed spend analysis across indirect categories, and benchmark data from comparable organizations.

Market intelligence should address the ever-changing tariff situation and inflation forecast by geography and market segments. These detailed insights support long-term strategies for both hard savings and cost avoidance.

Visibility into the budgeting process and full alignment with the financial planning and analysis (FP&A) team can help you determine how much of anticipated savings will directly impact the bottom line. For example, if your FP&A team budgeted a 5% increase in ocean freight to offset announced industry increases, this increased spend will be your baseline to measure savings against forward spend. If you can negotiate only a 2% increase, then the 3% delta against your budgeted baseline becomes a hard savings.

Accurate tracking and reporting between cost savings and cost avoidance, in addition to full alignment with the FP&A team, is instrumental to measuring and reporting these estimates correctly. 

During these inflationary times, a cost avoidance target for a procurement organization should be between 20% to 25% above the hard savings target. Savvy business executives work with strategic partners who can deliver this improvement right away. 

Following are four proactive steps to take today:

• Consider whether your organization has the time, resources, staffing, reach and influence across all suppliers to manage your indirect spend successfully.
• Ask if your team has the knowledge and experience to overcome the initial roadblocks that can disrupt your overall cost-improvement strategy.
• Assess whether your organization has sufficient insights and market intelligence to address ever-shifting tariff and inflationary pressures. Industry expertise, continued insights into changing market conditions, and regular market intelligence updates are needed to stay ahead of the curve.
• Embrace a long-term view of procurement transformation. Organizations can certainly capture rapid savings opportunities, but the most significant and enduring value emerges from carefully orchestrated and strategic programs that unfold over time.

Despite tariffs and inflation, market pressures to reduce costs remain relentless. Successful companies recognize that the traditional playbook for achieving savings no longer works. Organizations that acknowledge this shift and adapt their approach accordingly will discover new opportunities that their competitors miss — not just in 2025, but well into the future.

Michael Braunschweiger is managing partner and chief client value officer with LogicSource.