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 another word for cost-cutting as it seeks to maintain the current spending to reduce the chances of increased costs due to inflation or other economic factors. In general, cost avoidance may not influence cost savings immediately, but in the long run, it can ensure considerable benefits for the company. 

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. It is important to precisely track the costs of inputs to maintain stability in the overall value created through procurement.