What is Cost Efficiency and How to Achieve It?

What is Cost Efficiency?

Cost efficiency is the act of saving money by changing a product or process to work in a better way. This is done to improve the organization’s bottom line by decreasing procurement costs and improving efficiencies across the board.

While cost efficiency isn’t the end-all-be-all of business, it is a very important piece of business strategy. The ability to decrease costs and increase the bottom line by making processes more efficient is key to the value that procurement offers organizations.

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Cost Efficiency vs Cost Effectiveness

Cost efficiency is an incredibly popular term and strategy used in organizations all over the world, but it is often confused with a similar term: cost-effectiveness. Both are ‘business buzzwords’ often used by C-Suite executives and managers alike when talking about the performance of their organizations and teams.

Some mistake these ideas to be very much the same, however, there is a fundamental difference between the two. Take a look at the definitions of effective and efficient from Dictionary.com:

Effective (adj.) – Adequate to accomplish a purpose; producing the intended or expected result.

Efficient (adj.) – Performing or functioning in the best possible manner with the least waste of time and effort.

Being cost-effective is more about getting a task done at all, while cost efficiency is about getting a task done, but with the least waste and with the best use of resources.

Peter Drucker has a quote giving an easy way to remember the difference, “Being effective is about doing the right things while being efficient is about doing things right.”

How to Achieve Cost Efficiency

A goal of most organizations is to become more cost-efficient. But how can you do this effectively and at scale? There’s a variety of ways you can go about achieving cost efficiency but one of the fastest ways to see ROI is to leverage technology innovations.

Utilizing a solution like JAGGAER’s Procure-to-Pay (P2P) Solution provides real-time data and analytics giving you the insight you need to save money and gain efficiency.

All Spend Under Control

The first step in achieving cost efficiency is to start managing and reducing your costs. For that to happen, you need visibility over all of your spending and cost data. Having a platform to act as a ‘single source of truth’ for your spend data, while offering automated, AI-powered recommendations for strategic actions, is a powerful tool.

Getting this visibility and transparency is a very important step. Without it, you will always be playing catch up, making reactive decisions as opposed to proactive, never truly getting a firm grip on your spending. After all, you can’t manage what you don’t measure.

Staying on Contract

One thing that can kill your cost efficiency efforts is people in your organization purchasing off-contract. This type of maverick spend can lead to damaging vendor relationships, a lack of visibility, and unnecessary costs associated with manual processing, even if the item bought was “cheaper”.

Oftentimes people don’t go out of their way to purchase off-contract; they just don’t understand the process or think they might be getting a better deal. With an eProcurement solution that’s part of a P2P suite, this problem is solved.

Having a system in place to identify and stop maverick spending is crucial. You need to be able to rest easy knowing that your organization is taking full advantage of automated processing, paying negotiated rates, and furthering supplier relationships by staying on contract.

Modern Invoicing Your Way

Outdated invoicing and accounts payable processes can be time-consuming, expensive, and lead to a lot of errors, all of which will negatively impact your cost efficiency. Instead take advantage of an automated, touchless, and customizable invoicing system.

You’ll be able to set up workflows and configure rules for n-way matching to start ‘managing by exception’ rather than manually handling every invoice.

“In our old process, we had to enter an exception invoice from scratch and handle it all the way from the mailroom to the file room. With JAGGAER’s touch-free processing of invoices, we can complete the same process in about a minute,” remarked the Assistant Director of Procurement Services at the University of Virginia.

JAGGAER Invoicing gives organizations a powerful and intuitive reporting system. You’ll get deep insight into processes, opening the door to maximizing cash flow and discounting opportunities. Out-of-the-box reporting and analysis produce data on suppliers, invoice matching and tolerance, and early payments and discounts.

This data will allow your Accounts Payable team to become an intelligence hub for your organization and increase its strategic value.

Visibility, Automation, and Increasing Cost Efficiency

If you’re looking to improve the bottom line while simultaneously cutting out wasted time and fine-tuning processes, then pursuing cost efficiency is for you. When you have visibility over your cost and spend data, it’s easier to ensure compliance, improve decision-making, and expose areas of your business that need attention.

JAGGAER’s P2P Suite gives you the full picture of your entire procure-to-pay spectrum, providing the insight you need to make timely and impactful decisions. Not to mention throwing automation and AI in the mix to cut out routine tasks and allow your procurement and AP teams to focus on more strategic initiatives.