As South African businesses enter the second half of the year, many executives are once again facing the same uncomfortable reality: margins are tightening, costs continue to rise, and consumers remain under pressure.
The instinctive response is often to cut budgets, freeze hiring, or negotiate harder with suppliers. Yet according to Malcolm Herbert, CFO of Sapphire Corporate Solutions, many businesses are overlooking a far more significant opportunity hidden within their own operations.
“The biggest cost challenges facing businesses today are not always visible on a balance sheet,” says Herbert. “They’re often buried within fragmented supplier networks, duplicated procurement processes, inefficient service management, and the administrative burden of managing non-core functions internally.”
Globally, procurement is increasingly being recognised as a strategic business lever rather than a back-office function. According to McKinsey, procurement now contributes more than 20% of the total financial impact generated during major business transformation programmes, making it one of the most powerful yet underutilised levers for profitability.
The reason is simple: procurement has become one of the largest controllable cost centres in most organisations. According to Bain & Company, procured costs represent between 25% and 60% of a company’s total costs, depending on the industry, while world-class procurement organisations are able to reduce purchasing costs by between 8% and 12%. In an environment where revenue growth remains constrained, and margins are under pressure, few other functions offer a comparable opportunity to unlock value.
Herbert notes that despite this, many organisations continue to view procurement primarily through a cost-cutting lens.
The Cost versus Value Trap
“One of the most common mistakes businesses make is focusing solely on the price of a service rather than the total cost of managing it,” he adds. “A facilities contractor may appear cheaper on paper, but if internal teams spend hours managing service providers, resolving issues, processing invoices, coordinating vendors, and monitoring performance, the true cost becomes far higher.”
“Businesses often underestimate the internal resources required to manage non-core services effectively,” Herbert explains. “The question should not be what a service costs, but what it costs the organisation to manage that service.”
He says that as economic pressure intensifies, that distinction is becoming increasingly important.
Fragmented Supply Chains Are Quietly Destroying Margin
“Many organisations have accumulated dozens, sometimes hundreds, of suppliers over time. Different branches use different vendors,” he explains. “Contracts are negotiated independently, and reporting systems don’t speak to each other.”
The result, he points out, is fragmented procurement ecosystems that create inefficiencies at every level. “Consolidation is key, and can bring immediate savings through centralised purchasing.”
According to Deloitte, over 65% of procurement leaders report limited visibility into supplier performance, and organisations with highly fragmented supplier networks face higher administrative costs, weaker purchasing power, increased compliance risks, and reduced visibility over spend.
For finance leaders seeking margin improvement, procurement consolidation is becoming one of the few remaining opportunities that does not require increasing prices or reducing service levels.
“Every unnecessary supplier relationship creates complexity,” says Herbert. “Complexity creates cost, and cost ultimately reduces competitiveness. Your organisation then ultimately supports multiple supplier overheads, which combats consolidation.”
The Invisible Cost of Operational Drag
Perhaps the most underestimated threat to profitability is operational drag, he says. “This is the cumulative impact of small inefficiencies repeated thousands of times across an organisation.”
“Whether it is duplicate approvals, manual supplier management, inconsistent service standards, or poor visibility across operational functions, these inefficiencies rarely appear as a single line item,” he adds. “Instead, they quietly consume time, productivity, and resources.”
As South African businesses prepare for year-end budgeting cycles, Herbert believes the conversation needs to shift from cost containment to operational optimisation.
“The companies that will outperform over the next decade won’t necessarily be the ones spending less,” he says. “They’ll be the ones creating more value from every rand they spend. Procurement is rapidly becoming one of the most important competitive battlegrounds in business.”
In a low-growth environment, competitive advantage is increasingly found not in what businesses sell, but in how efficiently they operate.