The Cost Avoidance Paradox

Why Procurement Rewards the Wrong Behavior

Companies celebrate procurement teams that negotiate down inflated prices while ignoring those who never pay too much in the first place. The incentives are backwards.

Procurement has a measurement problem. The industry celebrates the wrong outcomes and ignores the right ones.

A recent statement at the EBG CPO Outlook conference captured the dysfunction perfectly: “Cost avoidance is better than cost reduction, because we never paid the cost in the first place.”

The logic is obvious. Yet most organizations assign far more value to cost reduction than cost avoidance. They reward teams that negotiate down inflated prices while giving little credit to teams that secure fair prices from day one.

The result is predictable. Procurement professionals optimize for metrics that make them look good rather than actions that serve the business best.