Procurement is full of conventional wisdom, some of it valuable, some of it outdated. In an increasingly complex business environment, many of the assumptions that once defined procurement success are limiting the value organizations can create today.
In our Procurement Reality Check: Myth vs. Margin series, developed in partnership with Omid Ghamami, President of the Procurement and Supply Chain Management Institute, we’re separating fact from fiction by challenging common procurement myths and uncovering where the greatest opportunities for value, resilience, and competitive advantage really exist.
Let’s start with one of the most persistent myths in procurement. And so, we head into supplier negotiations, aiming to extract incremental savings against increasingly aggressive targets. But there’s a fundamental issue, one worth emphasizing: this is not where most of the value resides.
The real opportunity lies upstream, in the design of demand itself. End users clearly define their needs, but they lack the training to specify them in a cost-optimized way. This gap, subtle but pervasive, creates a significant source of inefficiency. Consequently, teams structure demand in ways that unintentionally inflate costs, even across the many dimensions of this challenge.
According to the Procurement and Supply Chain Management Institute (PSCM), analysis across Fortune 500 organizations shows that for complex purchases, as much as 18% of total cost is inadvertently embedded at the specification stage.1
Consider that for a moment: are typical supplier negotiations yielding savings at that level? In most cases, they are not. That delta represents a largely untapped opportunity. Importantly, these savings are not mutually exclusive to traditional negotiation strategies. Once teams engineer unnecessary cost out of demand, Procurement can still engage suppliers to drive further price improvements.
The implication is clear: to consistently achieve, and exceed, savings targets, organizations must shift focus earlier in the value chain.
With this in mind, let’s examine how these unnecessary costs systematically appear in end‑user specifications and scopes of work and eliminate them.
Requirement created is custom when it could have been standard
End users often take significant pride in their work, which can lead to a preference for building solutions from the ground up. After all, recognition is rarely earned by selecting from a catalogue of standard options.
However, this inclination toward customization introduces substantial cost and risk. It shifts the organization away from proven, market-tested solutions and toward unproven designs that require suppliers to deviate from established, efficient delivery models.
In many cases, these added costs do not translate into incremental value for any stakeholder, they simply create inefficiency across the system.
As a result, custom solutions should be rigorously challenged. Where viable standard alternatives exist, they are typically superior: lower cost, lower risk, and significantly faster to deploy.
Overengineering
To mitigate risk, end users often overengineer solutions, adding complexity without delivering meaningful risk reduction.
A well-known example illustrates this dynamic: the U.S. Air Force historically required weekly stripping and rewaxing of all hard floors. This approach far exceeded what was necessary to maintain performance, akin to washing a car multiple times a day. By reframing the requirement around outcomes rather than prescribed activities, they significantly reduced service frequency and cut contract costs by 50%.2
This highlights a critical challenge: overengineering is largely invisible. When a solution performs as intended, no obvious signals indicate overdesign or overspecification. As a result, the issue rarely surfaces without deliberate intervention.
Procurement is uniquely positioned to uncover these inefficiencies.
One effective approach anchors discussions on performance metrics and engages suppliers directly: given the desired outcomes, is the solution optimally designed?
This not only offers opportunities to simplify and reduce costs but also creates alignment. When suppliers help shape a more efficient approach, they are inherently more accountable to it, strengthening both commercial and delivery outcomes.
Unnecessary bells, whistles, and gold plating
End users frequently specify features, capabilities, and components that are rarely, or never, actually required.
Several factors drive this behavior, including fear of missing out, limited clarity on true requirements, a tendency toward “gold plating,” and, in some environments, the need to exhaust budgets before fiscal deadlines.
The result is systematic over-specification, with each additional feature incrementally increasing cost without a commensurate increase in value.
To counter this, Procurement must anchor decision-making in outcomes.
Starting with the key performance indicators (KPIs) that define success for the purchase, teams should rigorously evaluate each requirement against its contribution to those outcomes.
- Which KPI does removing this feature impact?
- To what extent does it impact performance?
This approach brings transparency to the value (or lack thereof) associated with each element of the specification. From there, teams make decisions based on a clear, objective assessment of cost versus value, ensuring every requirement earns its place.
Reframing the procurement mindset
Procurement can no longer afford to receive a scope of work or specification and simply execute against it as provided.
The real value is created by stepping back, interrogating the demand itself, and applying disciplined, outcome-driven thinking:
- Is this requirement necessary?
- Has the solution been overengineered?
- Does this need to be customized?
- Is there a viable standard alternative?
- What business outcome are we trying to achieve?
This is the inflection point where procurement evolves from a tactical sourcing function into a strategic driver of enterprise value.
Every dollar of unnecessary cost eliminated at the demand stage delivers a full 100% savings on that cost, before negotiations even begin. These savings are then additive to any value captured through supplier negotiations.
Organizations that embed this discipline do more than meet savings targets, they consistently and materially outperform them.
In our next blog, we’ll be debunking Myth #2: Cost savings achieved in negotiations are inherently parasitic.
Sources:
1 Procurement and Supply Chain Management Institute (PSCM)
2 A Guide to Best Practices for Performance-Based Service Contracting
