Buy Lines: Spend management gains traction in government market
- By Bob Dickson
- Dec 12, 2003
Leading corporations have adopted strategic sourcing and enterprise spend-management initiatives to improve efficiency and enhance the bottom line. Some government agencies are watching and preparing to follow suit.
In the midst of these developments, there are real opportunities for both industry and government.
Traditional procurement approaches involved a "bottom-to-top" process. Deep down in the organization, requisitions and purchase orders were issued in support of the mission. Requirements were viewed as individual transactions to satisfy a particular need.
Spend management turns the process around and encourages management to look at requirements as part of the overall strategic mission. At the enterprise level, leading corporations are examining what they buy and how with an eye on corporate objectives. Such objectives include cost savings, supplier management and diversity, and just-in-time delivery.
A survey of roughly $250 billion in federal contract spending helps clarify why this approach is significant. In fiscal 2002, the latest year for which complete data are available, 92 percent of transactions were under $25,000 each, or 8 million out of 8.7 million procurement actions within the executive branch. That does not include an additional 25 million in purchase-card transactions.
All told, purchases under $25,000 each totaled up to a tidy $15 billion. These offer many opportunities for savings.
Within certain industries, spend-management techniques have produced dramatic results. One financial services institution reduced its competitive process from 140 days to less than 70 days while saving millions annually. In another sector, one company reported 100 percent return on its investment in spend management within six months of initiating the program while saving tens of millions per year.
The General Accounting Office has highlighted some of these practices, and some agencies have taken the first steps. The Defense Department has embarked on pilot spend-analysis initiatives and has formed an integrated process team to guide the effort. A commercial contractor with spend-analysis experience has been hired to look at areas that hold the most potential. So far, about 20 commodity areas have been identified.
Among the first to be reviewed are information technology services, miscellaneous professional services, management and advisory services and certain administrative services.
The Internal Revenue Service launched its own initiative to manage its cell-phone requirements. It formed a cross-functional team of stakeholders to manage its program. This effort resulted in greater compliance with IRS cell-phone policy, an "e-ordering" tool, consolidated ordering and real cost savings of hundreds of thousands of dollars.
There are several reasons these efforts should grow substantially over 2004. First is the passage of the Services Acquisition Reform Act, establishing a legal basis for major agencies to have chief acquisition officers. Spend management should be one of the first topics the new CAOs have to deal with. They will be the chief spend analysis officials as well.
Chief financial officers also have a critical role in agencies' management of expenditures, as do chief information officers, who are responsible for implementing technologies to improve operations.
Finally, program managers and process owners have much at stake and should be partners in agencywide spend-analysis and spend-management efforts.
As federal agencies increasingly adapt to business case management and enterprisewide solutions, they may find spend analysis their next challenge. It may very well become the next big thing.
Businesses that lead the way in spend-management practices will gain competitive advantages. They will also represent the best prospects for long-term partnerships with government agencies seeking to save money, reduce processing times and employ people more effectively. *
Bob Dickson is vice president of Acquisition Solutions Inc., Chantilly, Va. His e-mail address is