Move beyond 'Law of Conservation of Price loop' - Procurement
Law of Conservation of Price (LCP)
(Similar to Law of conservation of mass by Antoine Lavoisier)
Ever bought a cheap umbrella and regretted it in the first rain?
Metaphorically, this is what happens when procurement focuses only on supplier price, while ignoring the broader and high price to pay in the form of --- risk, quality, resilience, and long-term value.
Why Price-tag Isn’t Everything?
In today’s disruptive, volatile business landscape, choosing suppliers purely for cost can inadvertently drive up expenses elsewhere—think missed deliveries, poor quality, supply chain disruptions, and even reputational harm.
These hidden costs erode operational efficiency and directly impact your EBITDA, where every decision in procurement plays a strategic, measurable role far beyond “initial savings”.
A vendor who delivers the lowest price may be costlier with highest risk. Lost time, unhappy customers, or emergency scrambling during “the first rain” pull vital resources away from strategic growth.
Traditional Procurement – often prefers L1 (Lowest price suppliers) .. naturally, KRAs are departmental
But a visibly-attractive low-price tag might bring in the Ghost of bigger hidden cost attributable to missed deliveries, poor quality, supply chain disruptions, and even reputational… “Cost savings” not really.. it will end up in a ‘negative sum game’
Strategic-Procurement:
Focus on real Savings based on:
- Efficient ways of managing the spend spread,
- Section categories, Apply situational strategies,
- Quality-Due diligence led RFP
- Savings on table based on WIP,
- Intelligent Contracts aligned to S&OP and Sales needs
Myopic procurement Savings could lead to higher price to pay. 15% procurement savings not good enough if the SKU miss DIFOT or COPQ (poor quality) targets
Organizations, COOs CPOs must rise beyond Law of “Conservation of Price” loop, embark on Strategic Procurement.
Work on the EBITDA with the right Guard-Rails overarching across E2E Supply Chain.