The Procurement Glossary » Cost Reduction
Cost Reduction
Strategy & Operations
Definition
Lowering the actual price or cost paid for goods and services, reducing current spend.
Explanation
Cost reduction produces hard, budget-visible savings — a lower price than before — through negotiation, competition, consolidation or specification change. It differs from cost avoidance, which prevents a future increase rather than cutting today's cost.
Example
Re-tendering the cleaning contract achieves a genuine cost reduction of 9% against last year's price.
Related terms
- Hard Savings — Savings that produce a measurable reduction in actual spend, visible in the budget.
- Cost Avoidance — Value from preventing a cost increase or future expense, rather than reducing current spend.
- Cost Savings — A reduction in the price or cost of a purchase compared with a baseline, delivered through sourcing or negotiation.
- Should-Cost Analysis — A bottom-up estimate of what a product or service ought to cost, built from its materials, labour, overhead and reasonable margin.
Related concepts
- Spend Analytics — Turning raw procurement transaction data into a clear, categorised picture of what an organisation buys, from whom, and where the savings are.
Frequently Asked Questions
What is Cost Reduction?
Lowering the actual price or cost paid for goods and services, reducing current spend. Cost reduction produces hard, budget-visible savings — a lower price than before — through negotiation, competition, consolidation or specification change. It differs from cost avoidance, which prevents a future increase rather than cutting today's cost.
Can you give an example of Cost Reduction?
Re-tendering the cleaning contract achieves a genuine cost reduction of 9% against last year's price.
Back to the procurement glossary | Procurement concepts | Contact us