Cost Avoidance in Procurement - All About It

What is Cost Avoidance in Procurement?

Cost avoidance in procurement is activities undertaken to avoid incremental costs that may affect the company's profitability. It is a strategy used by businesses and organizations to reduce expenses and increase profits. Cost avoidance involves taking proactive steps to prevent potential expenses from occurring in the first place. This can be achieved through a variety of means, such as implementing cost-saving measures, negotiating better contracts with suppliers, investing in new technology or processes that reduce costs, or improving internal efficiencies to streamline operations and reduce waste.

Another way to understand what avoidance means is to look at some examples. Many manufacturing units opt for an extended warranty on machines to minimize their maintenance expenses in the future. cost avoidance can have a longer-term impact on a business's financial health.