How analytics can cure today's procurement woes
- By Walt Sirene
- Mar 21, 2014
The federal government, with an annual spend of nearly $500 billion on products and services, is now facing the harsh reality of shrinking budgets and continuing resolutions. Government acquisition and procurement organizations are looking for new ways to save every penny they can and relieve some of their fiscal pressures.
As a result, service providers to government agencies are being compelled to squeeze their rates and product and software suppliers are being pushed to drive their unit prices to all-time lows.
But this might have some repercussions. By blindly driving rates and pricing lower across the board, acquisition and procurement organizations could risk moving their most trusted suppliers out of the market. Government acquisition and procurement leaders must look for new methods to drive cost savings that give them the ability to make strategic acquisition decisions, without negatively impacting their supplier base.
Spend analytics is a one such effective method to drive cost savings that is very popular in the commercial sector but has not been utilized to its full potential in the federal space.
Spend analytics is the process of aggregating, cleansing, and analyzing corporate acquisition data to identify savings opportunities, reduce cost, and improve operational performance. When done correctly, spend analytics can unlock valuable insights that can help federal acquisition and procurement organizations drive structured acquisition strategies and make informed decisions.
Spend data should be looked at as a valuable input that can help with both tactical and strategic acquisition decisions. Many organizations underestimate the power of their internal acquisition-related data. Understanding what is going on currently with a specific acquisition and how much money is actually being spent seems like a very basic activity, but it’s something that’s often overlooked by government acquisition organizations. Federal acquisition organizations should think of the following questions while analyzing their spend data:
- What is the current spend?
- How much of this spend is currently under contract?
- Are we locked into these contracts or can we get out of them?
- How fragmented/concentrated is our spend?
- How many suppliers account for 80 percent of the spend?
- Is pricing consistent throughout the organization or does it vary with location or supplier?
- If there’s a difference, is it justified? (transportation costs, higher quality, etc.)
- How is the item currently being purchased?
- At the local, regional, or national level? (centralized/decentralized)
- What is the total cost of ownership of an acquisition?
These questions seem rather basic and occur sporadically in federal acquisition parlance but can lead to significant insights that can feed future acquisition strategies.
Once there is an understanding of what is being spent currently, you can also assess the marketplace to see what is possible. By understanding the current spend patterns inside the organization as well as what is possible in the marketplace, the acquisition organization would be able to develop the right acquisition strategy.
It can’t be stressed enough that it is extremely important to utilize acquisition data to develop acquisition strategies and, in turn, drive down acquisition spend throughout the acquisition lifecycle.
Developing educated acquisition strategies that drive smart acquisition decisions is something that all government agencies need to strive toward.
Spend analytics is a trusted and effective method that can help unlock key acquisition insights that will, in turn, help generate savings and reduce fiscal pressure on federal acquisition and procurement leaders.