Why procurement cost reduction?

You might reasonably ask: Why make procurement cost reduction a priority?

Consider the following illustration. Letís take a typical company:

What happens if we can reduce material costs by just 5%?
 

If the same profit increase were to be generated by increasing sales, what level of sales increase would be required?

At the existing 8% profit margin:

Profit increase = New sales x 0.08

£115,000 = New sales x 0.08

New sales  = 115,000 = £1,437,500
                         0.08
 
1,437,500 = 28.8%
5,000,000   
 
So in order to achieve the same profit increase generated by a 5% cost reduction, this company would need to increase sales by 28.8%! Consider the cost and effort required to achieve such a sales increase? 
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