Best Practices: Using Spend Analysis to Help Agencies Take a More Strategic Approach to Procurement
GAO-04-870
Published: Sep 16, 2004. Publicly Released: Sep 16, 2004.
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Highlights
"Spend analysis" is a tool that provides knowledge about who are the buyers, who are the suppliers, how much is being spent for what goods and services, and where are the opportunities to leverage buying power. Private sector companies are using spend analysis as a foundation for employing a strategic approach to procurement. Recognizing the potential in government purchasing, GAO examined if the departments of Agriculture, Health and Human Services (HHS), Justice, Transportation, and Veterans Affairs are using spend analysis to take a strategic approach. GAO assessed (1) if agencies use spend analysis to obtain knowledge to improve procurement of goods and services and (2) how agencies' practices compare to leading companies best practices.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Veterans Affairs | To help ensure that the varying spend analysis efforts by Veterans Affairs, HHS, and Agriculture go further in emulating the best practices of leading companies and that these agencies have the supporting structure, processes, and roles in place to effectively use the results of spend analysis and to identify, track, and evaluate what clinical care and support services are being purchased by veterans' medical facilities, the Secretary of Veterans Affairs should direct procurement headquarters officials to expand the planned development by 2006 of an automated medical supplies and equipment spend analysis system also to capture spending data on services. Such expansion should support automating, extracting, organizing, supplementing, and analyzing spending trends for clinical care and support services in the same way that improvements aimed at medical supplies and equipment are being made. The agency's new spend analysis system needs to include healthcare-related services' procurement data to improve decision makers' knowledge and help them identify opportunities for leveraged buying, including the planned development of a national strategy to contract for services. | The Department of Veterans Affairs (VA) concurs with GAO's recommendations. In April 2005, VA's Deputy Secretary wrote GAO that the Veterans Health Administration (VHA) established a workgroup to evaluate current and planned contracting databases and to develop management applications that will provide consistent information on health-related services contracts. According to the VA, this initiative will lead to a more strategic approach to services contracting throughout VHA. By October 2005, the VHA clinical logistics headquarters expects to complete an agency-wide system upgrade that will support an automated spend analysis capability that will capture data on health care services as... well as medical supplies and equipment. With this upgrade, VHA clinical logistics headquarters and business office staff will have a spend analysis tool that for the first time automates, extracts, organizes, and analyzes spending trends for clinical care and support services. VHA clinical logistics headquarters has also prepared advanced procurement plans for fiscal years 2006 through 2010 that call for more regional and national contracts to be awarded for clinical care and support services. In addition to VA's action, in May 2005, the Office of Management and Budget (OMB), in part in response to this report, adopted a new policy directing federal agencies to implement strategic sourcing, beginning with a spend analysis. Specifically, the OMB Deputy Director for Management sent a memorandum to agency Chief Acquisition Officers (CAO), Chief Financial Officers (CFO), and Chief Information Officers (CIO), directing them to take several actions for implementing strategic sourcing. For example, OMB directs the agencies to do a spend analysis of their procurement data and use this information to make business decisions about buying supplies and services more effectively and efficiently. Not later than October 2005, agencies' CAOs are to identify at least three commodities that could be strategically sourced, and may include existing strategic sourcing efforts for this purpose. Agency CAOs are to collaborate with their CIOs, CFOs, small business offices, and other key stakeholders to develop agency-wide strategic sourcing plans. OMB is requiring that the new agency-wide plans include processes, structures, and roles for governing strategic sourcing efforts as well as goals, objectives, and performance measures for monitoring and improving strategic sourcing programs. Beginning in January 2006, OMB is requiring agency CAOs to report annually to the Office of Federal Procurement Policy (OFPP) on their strategic sourcing outcomes, including price reductions for goods and services; total procurement cost savings; and changes in small and disadvantaged acquisition goal achievement. OMB's actions are responsive to our March 2004 briefing for OMB procurement policy officials on spend analysis and other best practices of leading companies. During this briefing, we advised OMB that wider adoption of such practices across the federal government could result in significant savings and other procurement performance benefits. OMB's action with the May 2005 strategic sourcing policy is responsive to matters GAO raised in the earlier briefing as well as the findings, and recommendations in this report focused on civilian agencies and the prior reports focused on the defense department's services acquisitions.
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| Department of Health and Human Services | To help ensure that the varying spend analysis efforts by Veterans Affairs, HHS, and Agriculture go further in emulating the best practices of leading companies and that these agencies have the supporting structure, processes, and roles in place to effectively use the results of spend analysis and to address agency leadership's direction to eliminate redundant management activities, the Secretary of Health and Human Services should direct headquarters' procurement officials to identify additional steps needed to adopt a more strategic approach to acquiring goods and services. HHS headquarters' procurement officials should also be directed to consider using current financial and procurement management information systems to extract the type of spending data on an automated and repeatable basis that the agency needs to identify opportunities to leverage its buying power, reduce costs, and provide better management and oversight of key suppliers. Such data would include what categories of goods and services are being acquired; how many suppliers are being used for specific categories; and how much HHS is spending on specific categories, in total and with each supplier. Their assessment should also address the creation of supporting structures, processes, and roles as necessary, such as the establishment of cross-functional commodity teams, to help obtain the necessary buy-ins across the agency's divisions, eliminate duplication of effort, and improve the coordination and volume discounting of high-dollar, high-volume categories of goods, services, and suppliers on an ongoing basis. | The Department of Health and Human Services (HHS) had no comments on a draft of GAO's report. In December 2004 however, the Secretary wrote GAO to comment that HHS has subsequently taken major actions considered to be in line with the report's recommendations. For example, GAO recommended that the Secretary direct headquarters procurement officials to eliminate redundant management activities associated with their separate strategic sourcing initiatives for products and services. As a result, by December 2004, HHS reorganized under the initiative Acquisition Integration and Modernization, merging the earlier strategic sourcing initiative for products and acquisition consolidation...
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| Department of Agriculture | To help ensure that the varying spend analysis efforts by Veterans Affairs, HHS, and Agriculture go further in emulating the best practices of leading companies and that these agencies have the supporting structure, processes, and roles in place to effectively use the results of spend analysis, while waiting until 2006 for the planned agencywide spend analysis system to come online, the Secretary of Agriculture should assess whether the agency's temporary electronic marketplace subcommittee provides sufficient structure, processes, and roles for analyzing spending trends on an ongoing basis and supporting a more strategic approach to acquiring goods and services. Agriculture's assessment should address expanding the subcommittee's current narrow focus on leveraging the agency's almost $600 million in purchase card buying power, to also yield discounts applicable to larger contract actions across the range of goods and services being acquired and whether the establishment of cross-functional commodity teams would help obtain the necessary buy-in across the agency's diverse mission organizations and improve the coordination and acquisition of high-dollar, high-volume categories across a wide range of goods and services. | In 2008, USDA expanded its spend analysis capability through their purchase card program known as SmartPay, which involved awarding a new contract with a national bank credit card vendor. With this action, USDA is able to obtain detailed, repeatable, and actionable spend analysis from the SmartPay vendor based on USDA's purchase card spending data, which includes some of USDA's contract payment spending as well. According to USDA procurement headquarters, USDA will use this enhanced spend analysis to identify additional commodities for strategic sourcing. USDA officials anticipate the enhanced and expanded SmartPay spend analysis capability will enable the department to leverage its...
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| Department of Justice | In light of the significant potential for savings and performance improvements that the two agencies not using spend analysis could achieve, the Attorney General of the United States and the Secretary of Transportation should direct officials responsible for procurement and financial management and other appropriate stakeholders to step up the process of gaining knowledge of their spending to take a strategic approach to procurement, adopting the type of best practices employed by leading companies. Specifically, Justice and Transportation should assess using current financial or procurement information systems such as FPDS and purchase card data on an automated and repeatable basis to extract the type of spending data that the agencies need to identify opportunities to leverage the agencies' buying power, reduce costs, and provide better management and oversight of suppliers. Such data would include what categories of goods and services are being acquired; how many suppliers are being used for specific categories; and how much the agency is spending on specific categories, in total and with each supplier. | The Department of Justice agreed with the report's findings and recommendations. According to Justice's November 2004 statement of actions taken, the agency has already begun implementing GAO's recommendations. Consistent with GAO's recommendation, Justice is assessing the automated and repeatable use of current procurement systems as the Federal Procurement Data System (FPDS) and purchase card data and identifying categories of goods and services that can be strategically sourced. Specifically, Justice conducted a spend analysis of fiscal year 2003 federal procurement system and purchase card data and used the results to identify categories of products and services (i.e., commodities),...
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| Department of Transportation | In light of the significant potential for savings and performance improvements that the two agencies not using spend analysis could achieve, the Attorney General of the United States and the Secretary of Transportation should direct officials responsible for procurement and financial management and other appropriate stakeholders to step up the process of gaining knowledge of their spending to take a strategic approach to procurement, adopting the type of best practices employed by leading companies. Specifically, Justice and Transportation should assess using current financial or procurement information systems such as FPDS and purchase card data on an automated and repeatable basis to extract the type of spending data that the agencies need to identify opportunities to leverage the agencies' buying power, reduce costs, and provide better management and oversight of suppliers. Such data would include what categories of goods and services are being acquired; how many suppliers are being used for specific categories; and how much the agency is spending on specific categories, in total and with each supplier. | In its November 2004 reply to the final GAO report, the Department of Transportation (DOT) concurred with GAO's recommendations intended to improve the agency's spend analysis capabilities to support a more strategic approach to procurement. DOT has taken several actions to improve its spend analysis capabilities and expand its strategic sourcing efforts to leverage buying power for products and services from suppliers, gain efficiencies, reduce costs, and facilitate mission accomplishment. For example, in December 2004, DOT's senior procurement executive, with active support from the Chief Financial Officer, implemented a new automated spend analysis tool with the agency's purchase card...
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| Department of Justice | In light of the significant potential for savings and performance improvements that the two agencies not using spend analysis could achieve, the Attorney General of the United States and the Secretary of Transportation should direct officials responsible for procurement and financial management and other appropriate stakeholders to step up the process of gaining knowledge of their spending to take a strategic approach to procurement, adopting the type of best practices employed by leading companies. Specifically, once an initial spend analysis can be completed to arm the agencies with the knowledge of such opportunities, Justice and Transportation should assess whether their current procurement structure, processes, and roles are adequate to support a more strategic approach to acquiring goods and services, for example whether cross-functional commodity teams would provide more effective, coordinated management of high-dollar, high-volume categories of goods, services, and suppliers on an ongoing basis. | The Department of Justice agreed with the report's findings and recommendations. According to Justice's November 2004 statement of actions taken, the agency has already begun implementing GAO's recommendations. Between October 2005 and November 2006, Justice anticipates completing spend data improvements and identification of categories of products and services where buying power can be leveraged. By April 2007, once these spend analyses are completed, Justice plans to assess its current procurement structure, processes, functions, and roles to determine their adequacy to support a more strategic approach to buying goods and services. In the meantime, Justice officials will also have to...
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| Department of Transportation | In light of the significant potential for savings and performance improvements that the two agencies not using spend analysis could achieve, the Attorney General of the United States and the Secretary of Transportation should direct officials responsible for procurement and financial management and other appropriate stakeholders to step up the process of gaining knowledge of their spending to take a strategic approach to procurement, adopting the type of best practices employed by leading companies. Specifically, once an initial spend analysis can be completed to arm the agencies with the knowledge of such opportunities, Justice and Transportation should assess whether their current procurement structure, processes, and roles are adequate to support a more strategic approach to acquiring goods and services, for example whether cross-functional commodity teams would provide more effective, coordinated management of high-dollar, high-volume categories of goods, services, and suppliers on an ongoing basis. | In its November 2004 reply to the final GAO report, the Department of Transportation (DOT) concurred with GAO's recommendation intended to improve the agency's organizational structure, processes, and roles to support a more strategic approach to procurement. According to DOT, and as reflected in GAO's report, the agency is creating support structures for strategic sourcing starting with information technology products and services. For example, DOT's senior procurement executive continues to work with the Chief Information Officer (CIO) to create a commodity council process that includes cross-functional representatives from technical and procurement staff. To further support the IT...
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