You’re not imagining it…Confidence among Australian CFOs recently fell to its lowest recorded level, and 56% of CFO’s name tightening cost control as their leading response to current conditions. The latest NAB Quarterly Business Survey backs this up, showing purchase costs rising 0.7 points to 1.6% quarter on quarter. While that gap has narrowed from 2.5% to 1% in recent months, costs are still outpacing pricing power. The CFO's best equipped to manage this, the ones at the largest, best-resourced companies in Australia, are more worried than they've ever been.
The RBA's liaison program puts a number on this. Businesses are bracing for input cost rises of 10% to 15% over the next twelve months, while expecting to pass through only around 30% of that in higher prices. That's not speculation about what might happen, it's margin squeeze happening right now inside businesses whose headline numbers still look healthy.
If only 30% of a cost increase gets passed on in price, the other 70% has to come from somewhere. For most businesses, that somewhere is margin nobody's watching closely enough. In the current environment, that gap is getting expensive to ignore.
Procurement - The cost cutting lever most businesses aren't fully leveraging
This solution is closer than most CFO's think. Typically I see procurement treated as a back-office function, useful for the odd phone call to a supplier to negotiate costs, when it should be a lever that moves EBITDA. At ERA Group we have plenty of documented case studies showing significant savings in the range of 30% when Procurement is treated as a strategic enabler rather than purely transactional. The number varies from business to business, but it’s a good indication of what's achievable when procurement is run with a disciplined approach, the market is properly benchmarked and results are monitored to ensure compliance.
You may have a contract that's been rolling for seven years, never re-tested against the market, because nobody has had a good reason to question it. Your team is comfortable, the supplier is reliable, and your AP team pays the invoices without a second look. That comfort is the problem. A contract that's gone untested for that long is a sign of stability, but it's also a sign that nobody has checked whether you're still paying a fair price. This is a real-life example from a large Aussie business whose name you undoubtedly know and whose savings were significant...And they didn't switch suppliers.
Here’s another example from a recent client I’ve worked with. I opened supplier agreements and found rebates nobody was claiming, freight charges being applied despite a free freight clause, and price increases that were never authorised under the terms of the contract. It’s incredibly common, particularly in businesses that are busy running themselves and haven't had the time to check the fine print against the invoice.
Cut costs to enhance margin, turning it into cash to reinvest back into your business
This is the part that gets missed in conversations about procurement. It isn't really about squeezing suppliers. It's about margin, and margin is cash flow before it's anything else. Being profitable on paper doesn't mean your business is getting the most from your cash position, for investment, for staff development or for weathering a downturn.
Profitable and well run are two different states, and the difference between them shows up directly in your EBITDA.
I've had CFOs push back on this, and fairly so, because their instinct is that if the business is profitable, procurement discipline is a nice-to-have rather than a priority. I'd argue that from my experience, the cash flow that can be recovered is far more significant than most think. Once you understand how big that gap is, you'd definitely prioritise it.
Confidence starts with checking your numbers
Not every business finds this problem the same way. Some of you are staring at margin compression already showing up in your Q1 numbers. Others have nothing visibly wrong and only look because a board member asked a pointed question or an advisor raised it during a broader review. Both are valid reasons to check your costs, and neither means something is wrong with how you've run the business so far.
The ground underneath every business is shifting, and the CFOs who check now can leverage procurement as a real strategic advantage. Those navigating this period well aren't relying on instinct to make that call, they're using a structured, evidence-based process to find out. Confidence built on data beats confidence built on assumptions, every time.