Don’t Give CEOs What They Ask For. Give Them What They Want.

Most CEOs want cost reduction.

They want Purchasing to help improve margins, strengthen competitiveness, and lower the company’s cost structure. They want cost reductions that drop to the bottom line and help the business win.

But too often, the way they ask for cost reduction is by asking Purchasing to report PO-to-PO savings or PPV.

That creates a problem.

PO-to-PO savings measure price reduction. They tell us whether the price on a purchase order went down from one period to another. They do not necessarily tell us whether cost was actually removed from the business.

A buyer can report PO-to-PO savings while Operations absorbs additional cost or Sales gives part of the savings to customers. A supplier can reduce price without reducing cost. A company can show savings while giving the benefit back to the customer, paying for implementation, absorbing quality issues, or creating risk somewhere else in the business.

The purchase order shows a lower price. The business may not actually be better off.

That is why Purchasing leaders need to be careful. When the CEO asks for PO-to-PO savings, do not stop there.

Give them what they actually want: real cost reduction.

Price Reduction Is Not the Same as Cost Reduction

At first glance, PO-to-PO savings appear to be a good measure of Purchasing performance.

If we bought a part for $10.00 last year and buy it for $9.70 this year, we can report a 3% savings. The math is simple. The result is visible. The report is easy to understand.

But the simplicity of the metric is also its weakness.

PO-to-PO savings answer one question:

Did the purchase price go down?

Cost reduction answers a much more important question:

Did we actually take cost out of the business?

Those are not the same thing.

A lower price may be the result of real cost reduction. But it may also be the result of a supplier accepting lower profit, moving cost somewhere else, reducing service, delaying investment, cutting corners, or front-loading the original price to create room for future reductions.

If the only thing we measure is price, we may never know the difference.

What Gets Measured Drives Behavior

Buyers respond to the way they are measured.

When buyers are measured on PO-to-PO savings, they naturally focus on price reduction. The buyer goes to the supplier and says, “I need a lower price,” or they bake in price reductions in long-term contracts that inflate prices in early years but provide PO-to-PO savings.

The supplier hears something different:

“I need you to take less profit.”

That immediately changes the nature of the conversation. The buyer is trying to hit a savings target. The supplier is trying to protect margin. Both sides become opponents.

The discussion becomes a negotiation over who gets to keep the dollars.

But the real enemy is not the supplier.

The real enemy is cost.

Cost lives in inefficient designs, poor specifications, excess material, low-volume production methods, long setup times, unnecessary packaging, scrap, quality problems, premium freight, poor forecasting, weak process capability, and commercial terms that do not match the way the product is actually produced or consumed.

A PO-to-PO savings mindset pushes buyers to fight suppliers over price.

A cost-reduction mindset pushes buyers and suppliers to fight the common enemy together.

That is a very different conversation.

Instead of asking, “How much price can you give me?” the better question is:

Where is cost being created, and how do we remove it together?

Price Reduction Often Attacks Supplier Profit

There are only a few ways a supplier can reduce price.

They can reduce their cost.

They can reduce their profit.

They can change what they provide.

They can push cost somewhere else.

When a buyer asks for a price reduction without understanding the supplier’s cost structure, the conversation often becomes a request for the supplier to reduce profit.

That may work in the short term. A supplier may agree to a price-down to protect the business, keep the customer happy, or avoid a resourcing threat. The buyer reports savings. The scorecard improves.

But nothing fundamental has changed.

The design is the same. The process is the same. The material usage is the same. The scrap is the same. The packaging is the same. The forecast variation is the same. The quality issues are the same. The freight assumptions are the same.

The cost is still there.

Only the supplier’s margin has changed.

That is not sustainable cost reduction. It is margin transfer.

And when suppliers believe every cost discussion will become a margin grab, they protect themselves. They are less transparent. They pad quotes. They resist sharing process details. They hold back improvement ideas because they assume every idea will simply become another price concession.

A price-focused process can unintentionally teach suppliers to hide cost information.

A cost-focused process encourages suppliers to help remove cost.

Cost Is the Common Enemy

“Cost is the common enemy” is a great quote from a Mexican buyer participating in our Cost Management Certification Program.

The best cost-reduction work changes the relationship between buyer and supplier.

The supplier is no longer treated as the enemy. The supplier becomes part of the solution.

The buyer and supplier work together to understand what is driving cost and what can be changed. They look at material utilization, labor content, cycle time, tooling, scrap, packaging, transportation, specifications, order quantities, design requirements, and quality expectations.

They ask better questions:

• Can the design be simplified?
• Can material usage be reduced?
• Can the specification be changed without hurting performance?
• Can packaging be improved?
• Can setup time be reduced?
• Can the order pattern be smoothed?
• Can scrap be reduced?
• Can a different manufacturing process be used?
• Can freight or logistics costs be lowered?
• Can quality issues be prevented instead of inspected?
• Can volume be consolidated?
• Can Engineering, Operations, Quality, and Purchasing work together to remove cost from the system?

This is where real cost reduction happens.

It rarely happens by simply demanding a lower price.

It happens when Purchasing understands cost drivers and leads a cross-functional effort to remove unnecessary cost from the business.

CEOs Want the Business Result

Most CEOs are not asking for PO-to-PO savings because they are passionate about purchase orders.

They ask for PO-to-PO savings because it is a visible way to measure Purchasing’s contribution.

But what they really want is the business result.

They want improved margin.

They want stronger competitiveness.

They want better use of supplier capability.

They want less waste.

They want lower total cost.

They want suppliers who help the company improve.

They want Purchasing to support the company’s strategy, not just report a price variance.

That means Purchasing leaders need to translate the CEO’s request into the CEO’s intent.

The request may be:

Show me PO-to-PO savings.

The intent is:

Help me lower the company’s cost structure.

Those are not the same assignment.

If Purchasing only reports price reduction, it may satisfy the request while missing the intent.

Cost Reduction Requires Different Buyer Skills

If buyers are only expected to negotiate price, they need negotiation skills.

If buyers are expected to deliver cost reduction, they need more.

They need to understand cost drivers. They need to read supplier quotes. They need to understand material, labor, burden, tooling, packaging, logistics, tariffs, scrap, yield, and volume assumptions.

They need to know when a supplier’s price is high because of margin and when it is high because the customer is creating unnecessary cost.

They need to understand when a lower price is real and when it is simply cost moved somewhere else.

They also need to work cross-functionally. Many of the biggest cost-reduction opportunities require support from Engineering, Operations, Quality, Finance, Sales, Program Management, and suppliers.

Purchasing may lead the effort, but Purchasing cannot remove all cost alone.

A buyer can negotiate a lower price by themselves.

Real cost reduction usually requires the business to change something.

That might be a specification, a process, a supplier strategy, a design, a packaging requirement, a forecast, a quality expectation, or a sourcing decision.

That is why measuring buyers only on PO-to-PO savings is too narrow. It treats cost reduction as if it is a Purchasing-only activity. In reality, cost reduction is often a cross-functional business improvement process led by Purchasing.

A Better Way to Answer the CEO

Purchasing should not ignore PO-to-PO savings. Price still matters. CEOs care about price. CFOs care about price. Purchasing leaders should care about price.

But PO-to-PO savings should be treated as one data point, not the full definition of success.

A better report to the CEO would separate price reduction from cost reduction.

It would show:

• What price changed.
• Why the price changed.
• Whether supplier cost was actually reduced.
• Whether implementation costs were included.
• Whether savings were offset by customer givebacks.
• Whether the change improved total cost.
• Whether any cost was moved to Operations, Quality, Engineering, Logistics, or the customer.
• Whether the improvement is sustainable.
• Whether the supplier relationship was strengthened or weakened.
• Whether the company’s cost structure actually improved.

That kind of reporting gives the CEO something more valuable than a savings number.

It gives the CEO confidence that Purchasing is improving the business.

Give CEOs What They Want

When CEOs ask for PO-to-PO savings, give them the number.

But do not stop there.

Give them the story behind the number.

Give them the difference between price reduction and cost reduction.

Give them cost models that show where money is being spent.

Give them supplier ideas that remove waste.

Give them cross-functional projects that lower total cost.

Give them sourcing strategies that improve competitiveness.

Give them evidence that Purchasing is helping the business win.

Most importantly, give them a better cost structure.

That is what they wanted in the first place.

Final Thought

Most CEOs want cost reduction, but they ask Purchasing to report PO-to-PO savings.

That request can push buyers toward price reduction negotiations, where the supplier’s profit becomes the target.

But supplier profit is not the real enemy.

Cost is the enemy.

The Purchasing organizations that understand this distinction will create more value. They will move beyond annual price-downs and negotiation events. They will build the skills, tools, supplier relationships, and cross-functional processes needed to remove cost from the business.

So do not give CEOs only what they ask for.

Give them what they want.

Give them real cost reduction.