Even when these indicators appear healthy, they rarely tell the full story. Organizations targeting and achieving 2–3% year-over-year (YoY) cost reductions are almost always leaving significant value unrealized—particularly when those targets reflect gross savings rather than true net P&L impact. Too often, margin expansion efforts rely on superficial YoY cost management rather than a fundamental reset of the cost structure.
Based on Tenet’s experience, organizations that apply a focused, rigorous sourcing process across their direct material supply base routinely uncover 10–15% structural cost reduction opportunities that flow directly to the bottom line.
Here are the most common signs that meaningful opportunity is being missed.
1. COVID-Era Cost Increases Never Came Out
During the pandemic, availability mattered more than price. Many organizations accepted higher costs to secure supply—understandably.
The problem is that those increases are still embedded in COGS today, even though market conditions have normalized. Years later, suppliers are still being paid pandemic pricing, and no one owns the unwind. If these costs haven’t been actively challenged, they’re almost certainly still there.
2. Purchasing Reports Savings, but COGS Doesn’t Move
This is one of the clearest red flags we see.
Reported 2–3% year-over-year (YoY) cost reductions often exclude material cost increases and include cost avoidance, creating a distorted view of true P&L impact. When Purchasing is reporting “wins” but COGS is flat or rising, the issue isn’t effort—it’s the savings measurement model and the underlying cost structure.
3. “Guaranteed” Annual Supplier Reductions Sound Too Easy
When Purchasing tells you savings are already “budgeted” or “secured” for next year, it’s worth asking why those savings aren’t being realized today. Guaranteed year-over-year cost reductions are often negotiated to hit internal targets, but they rarely represent true savings. In practice, suppliers typically price future concessions into the initial quote, resulting in higher costs today in exchange for “savings” later—assuming the part isn’t re-priced due to a design or engineering change. That isn’t cost reduction; it’s cost deferral.
4. New Products Consistently Launch at Lower Margins
We see it constantly.
This is often driven by the “New Part Tax,” where suppliers use new part numbers—despite minimal or no design change—as an opportunity to re-price. Without a transparent pricing model and a clearly defined, globally competitive reference part, organizations struggle to distinguish legitimate cost drivers from opportunistic re-pricing, making margin erosion in new product launches almost inevitable.
5. Cost Reduction Is Episodic, Not Systematic
Cost reductions occur, but they are episodic—driven by isolated events such as limited market tests, contract renegotiations, or leadership mandates—rather than by a repeatable, sustainable process. Savings are captured, celebrated, and then quietly erode as markets shift, volumes change, suppliers re-price, and new parts are introduced without sufficient governance to prevent cost drift. Organizations that achieve durable margin expansion treat cost reduction as a systematic capability—embedded in sourcing, design, supplier management, and performance management—not as periodic “cost take-out” exercises.
If your organization relies on periodic “cost take-out” efforts to stay ahead of inflation or margin pressure, it’s a strong signal that a broader transformation is needed.
6. Engineering, Manufacturing, and Purchasing Aren’t Aligned
Design decisions lock in cost early—but accountability is often deferred.
When design, sourcing, and manufacturing aren’t aligned around cost and supplier strategy, Purchasing is left trying to “fix” decisions after the fact. Strong Approved Supplier Lists don’t just control vendors—they create structural advantage. Costs are designed out early. Supply risk is reduced by design. Launches happen faster, with fewer surprises.
7. Price Increases Have Become the Go-To Margin Lever
Pricing discipline matters. But when price increases become the default response to cost pressure, it usually means there’s untapped opportunity upstream.
Reducing cost accelerates margin expansion—without testing customer tolerance or risking volume.
These signals don’t capture every situation. But they show up consistently in organizations where significant value remains unrealized.If these sound familiar, it’s likely a sign that incremental fixes won’t be enough. What’s required is a rigorous, repeatable approach to supply chain transformation — one that drives measurable impact, not just reported savings.
If you want a quick, fact-based view of what might be hiding in your direct material spend, our Value Vault assessment can help quantify the opportunity and clarify next steps.
👉 Explore your potential savings with Tenet’s Supply Chain Savings Calculator
