In today’s private equity landscape, the old playbook of cutting expenses and reducing headcount is no longer sufficient. With rising costs and historically long holding periods, firms and portfolio company management must pivot toward operational efficiency and uncovering hidden value. Two often-overlooked areas ripe for transformation are procurement and inventory optimization, which are functions that represent substantial financial impact yet frequently escape scrutiny in the value creation blueprint. This is especially true in middle-market companies, where entrenched portfolio company management routines and limited availability of operating partners can perpetuate inefficiencies that erode performance and delay profitable exits. By reassessing these areas, you can unlock cost savings, boost EBITDA, enhance operational performance, and reduce risk — making them indispensable levers in your strategic value creation toolkit.
Turning procurement into a value engine
Procurement offers a powerful lever for operational improvement, driving cost savings and efficiency. To realize its full potential, a structured approach is essential. Consider these actions to pinpoint fast wins in your procurement process.
Conduct a spend and supplier analysis
Begin by performing a comprehensive spend analysis to categorize purchases based on volume, cost concentration, and operational criticality. The spend analysis is used to segment spend, develop directional targets, and quantify potential savings opportunities for further analysis. Next, perform a supplier analysis to evaluate performance across cost, quality, and delivery metrics to identify opportunities for more favorable purchase price and terms.
Plan and implement high-impact initiatives to drive value
Consider possibilities to consolidate suppliers for volume advantages, renegotiate contracts to improve terms, drive cost reduction, and reduce risks. Also explore alternative sourcing strategies to build stronger supply relationships. For some companies focusing on tail-spend management (i.e., low-value/high-volume purchases) is a familiar option; however, the greatest immediate impact often comes from optimizing high-value, high-volume procurement categories.
Assess procurement maturity
With limited external exposure and entrenched institutional practices, many long-tenured procurement teams operate in isolation from industry best practices. It’s important to understand your procurement knowledge gaps and resource limitations and then move forward with achievable initiatives that deliver maximum value. Supplementing your resources with external experts can bridge knowledge and resource gaps, bringing industry-leading methodologies with high-impact results. Supplementing your resources with external experts can bridge knowledge and resource gaps, bringing industry-leading methodologies with high-impact results.
Optimize the procurement organization for sustainable value creation
With the high-impact “quick wins” in place, it’s time to establish long-term strategic and transformative procurement organization. This could involve standardizing processes, centralizing functions, and adopting best practices in purchasing. A well-executed procurement transformation will strengthen EBITDA and enhance your enterprise value, positioning portfolio companies for long-term success and setting the stage for a successful exit.
Inventory optimization: A strategic imperative
Inventory optimization is another important strategy for enhancing EBITDA, freeing up capital, and boosting efficiency. It aims to achieve a balance between reducing inventory and freeing up cash flow with maintaining enough inventory to support operations and customer order fulfillment. Here are some impactful ways to optimize inventory to your advantage. Here are some key ways to optimize inventory to your advantage.
Align inventory with demand
By making purchasing decisions based on real-time information, you can match inventory levels with actual demand, reducing stockouts, minimizing excess inventory, and improving service levels. This disciplined approach enhances cash flow and reduces working capital requirements — key metrics for investors that are focused on operational efficiency.
Right-size inventory to enhance cash flow
Inventory is often one of the largest uses of working capital, making it a critical area to maximize returns. Excess inventory will inflate your holding costs and tie up capital, while insufficient inventory can lead to lost sales and operational disruptions. Proper demand forecasting processes and regular assessments of your turnover rates, lead times, and storage constraints will help you optimize stock levels and avoid these pitfalls. Implementing dynamic replenishment strategies and safety stock calculations will ensure that your inventory remains aligned with business needs, improving service levels, and supporting both short-term liquidity and long-term profitability.
Enhance inventory visibility for better decisions
Inventory accuracy and visibility are essential for sustaining optimization efforts. By implementing systems and processes for real-time tracking, you’ll ensure alignment between physical stock and digital records. Standardized tracking and reconciliation processes across your portfolio companies will improve transparency, reduce discrepancies, and support informed decision-making. Replacing annual physical counts with ongoing cycle counts will improve accuracy and reduce shrinkage. By embedding these best practices into your daily operations you’ll drive efficiency, strengthen financial performance, and protect your investments through continuous improvement. By embedding these best practices into your daily operations you’ll drive efficiency, strengthen financial performance, and protect your investments through continuous improvement.
Objective insight that drives efficiency
When undertaking procurement and inventory optimization initiatives, an outside perspective can be invaluable to help identify and remedy overlooked cost drivers. Procurement and inventory are common areas where inefficiencies go unchallenged due to limited time and resources. External advisors can provide impartial assessments, validate your internal assumptions, and apply proven methodologies to streamline spending that enhances operational efficiency.
From extended holds to accelerated exits: A smarter path forward
In today’s private equity landscape, operational excellence isn’t a “nice-to-have” option — it’s essential to preserve and grow your investment. As traditional financial levers lose their edge, zeroing in on procurement and inventory can unlock powerful levers for value creation, risk reduction, and accelerated exits. Extended hold periods don’t have to mean stagnation — they can be the launchpad for strategic advantage. Invest in insight, and turn today’s challenges into tomorrow’s success.
