Best Practices
Using Spend Analysis to Help Agencies Take a More Strategic Approach to Procurement Gao ID: GAO-04-870 September 16, 2004"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.
Taking a strategic approach to procurement involves a range of activities--from using spend analysis to taking an enterprisewide approach to buying goods and services. Three of the five surveyed agencies have begun to use spend analysis to obtain knowledge and improve their spending for goods and services. Veterans Affairs' success in using spend analysis and a strategic approach to pharmaceutical procurement helped save $394 million in 2003. Currently, agency teams are organizing medical-equipment and supplies purchase data to develop national contracts to save an estimated $82 million a year. Spend analysis is being used by HHS to support strategic sourcing of office-related equipment and supplies through discount agreements with major vendors that could save an estimated $9.5 million per year. Agriculture used a 2001 spend analysis to negotiate a discount agreement for office supplies that yielded savings of $1.8 million to date and is identifying more such opportunities. Agriculture is also modernizing its acquisition system to develop automated data-mining, spend analysis, and reporting capabilities to support future opportunities. The departments of Justice and Transportation have not yet used spend analyses to support a more strategic approach to procurement. Veterans Affairs, HHS, and Agriculture have made good progress using spend analysis to improve their procurements, and they have adopted some elements of a strategic approach. Implementing spend analysis is challenging and can take time, and the agencies have not yet adopted the full range of private sector best practices. Fully adopting the supporting structure, process, and role changes that companies institute would enable these agencies to move away from a fragmented procurement process and determine how effective they are in using spend analysis to achieve significant savings.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-04-870, Best Practices: Using Spend Analysis to Help Agencies Take a More Strategic Approach to Procurement
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Report to the Committee on Governmental Affairs, U.S. Senate, and the
Committee on Government Reform, House of Representatives:
United States Government Accountability Office:
GAO:
September 2004:
Best Practices:
Using Spend Analysis to Help Agencies Take a More Strategic Approach to
Procurement:
GAO-04-870:
GAO Highlights:
Highlights of GAO-04-870, a report to the Committee on Governmental
Affairs, U.S. Senate, and the Committee on Government Reform, House of
Representatives:
Why GAO Did This Study:
’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 anas a foundation
for employing a strategic approach to procurement.
Recognizing the potential in government purchasing, GAO as a tool
for strategically identifying significant benefits opportunities
examined if with goods and services spending in 2002 totaling $30.2
billionacquired the departments of Agriculture, Health and Human
Services (HHS), Justice, Transportation, and Veterans Affairs are
using spend analysis to take a strategic approach. are using to take a
more strategic approach to acquisition. GAO assessed (1) if agencies
use spend analysis to obtain knowledge to improve procurement of goods
and services and to reduce procurement costs,(2) how agencies‘
practices compare to leading companies best practices.
What GAO Found:
Taking a strategic approach to procurement involves a range of
activities”from using spend analysis to taking an enterprisewide
approach to buying goods and services. Three of the five surveyed
agencies have begun to use spend analysis to obtain knowledge and
improve their spending for goods and services. Veterans Affairs‘
success in using spend analysis and a strategic approach to
pharmaceutical procurement helped save $394 million in 2003. Currently,
agency teams are organizing medical-equipment and supplies purchase
data to develop national contracts to save an estimated $82 million a
year. Spend analysis is being used by HHS to support strategic
sourcing of office-related equipment and supplies through discount
agreements with major vendors that could save an estimated $9.5 million
per year. Agriculture used a 2001 spend analysis to negotiate a
discount agreement for office supplies that yielded savings of $1.8
million to date and is identifying more such opportunities.
Agriculture is also modernizing its acquisition system to develop
automated data-mining, spend analysis, and reporting capabilities to
support future opportunities. The departments of Justice and
Transportation have not yet used spend analyses to support a more
strategic approach to procurement.
Veterans Affairs, HHS, and Agriculture have made good progress using
spend analysis to improve their procurements, and they have adopted
some elements of a strategic approach. Implementing spend analysis is
challenging and can take time, and the agencies have not yet adopted
the full range of private sector best practices. (See table.) Fully
adopting the supporting structure, process, and role changes that
companies institute would enable these agencies to move away from a
fragmented procurement process and determine how effective they are in
using spend analysis to achieve significant savings.
[See PDF for image]
[End of figure]
What GAO Recommends:
This report includes recommendations to help Veterans Affairs,
Agriculture, and HHS adopt the full range of spend analysis best
practices. This report also includes recommendations intended to help
Justice and Transportation step up the process of gaining knowledge of
their spending to take a more strategic approach to procurement. GAO
received written and oral comments on a draft of this report. The
agencies generally agreed with GAO‘s findings and recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-04-870.
To view the full product, including the scope and methodology, click
on the link above. For more information, contact David Cooper at (202)
512-4841 or cooperd@gao.gov.
[End of section]
Contents:
Letter:
Scope and Methodology:
Results in Brief:
Background:
Agencies Have Begun Analyzing Spending Trends to Improve Knowledge and
Procurement:
Agencies Have Not Adopted Full Range of Spend Analysis Best Practices
and Lack Some Supporting Structure, Processes, and Roles:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: GAO Analyses of Agencies' Spend Analysis Practices:
Appendix II: Comments from the Department of Veterans Affairs:
Appendix III: Comments from the Department of Health & Human Services:
Appendix IV: Comments from the Department of Agriculture:
Appendix V: Comments from the Department of Justice:
Tables:
Table 1: Veterans Affairs Spend Analysis Practices:
Table 2: Health and Human Services Spend Analysis Practices:
Table 3: Agriculture Spend Analysis Practices:
Figure:
Figure 1: Broad Principles and Practices of Leading Companies'
Strategic Approach:
Abbreviations:
DOD: Department of Defense:
FPDS: Federal Procurement Data System:
GSA: General Services Administration:
HHS: Health and Human Services:
IT: information technology:
United States Government Accountability Office:
Washington, DC 20548:
September 16, 2004:
The Honorable Susan M. Collins:
Chairman:
The Honorable Joseph I. Lieberman:
Ranking Minority Member:
Committee on Governmental Affairs:
United States Senate:
The Honorable Tom Davis:
Chairman:
The Honorable Henry A. Waxman:
Ranking Minority Member:
Committee on Government Reform:
House of Representatives:
Taking a strategic approach to procurement involves a range of
activities--from using "spend analysis" to develop a better picture of
what an agency is spending on goods and services, to taking an
enterprisewide approach for procuring goods and services, to developing
new ways of doing business. Our prior work has shown that such an
approach could help agencies leverage their buying power, reduce costs,
and better manage suppliers of goods and services, as leading private
sector companies have discovered on adopting these activities. One
survey of 147 companies in 22 industries indicated that such an
approach produced savings of more than $13 billion in 2000.[Footnote 1]
Spend analysis is a tool that provides companies knowledge about how
much is being spent for what goods and services, who are the buyers,
and who are the suppliers, thereby identifying opportunities to
leverage buying, save money, and improve performance. To obtain these
answers, companies use a number of practices involving automating,
extracting, supplementing, organizing, and analyzing procurement data.
Companies establish automated systems to extract and compile internal
financial data covering everything they buy; supplement that data with
information from external sources; organize this data into complete and
consistent categories of products, services, and suppliers; and have
the data continually analyzed. Companies then leverage this data to
institute a series of structural, process, and role changes aimed at
moving away from a fragmented procurement process to a more efficient
and effective corporate process in which managers make decisions on a
companywide basis.
We have already issued several reports examining the benefits of using
a strategic approach to procurement and spend analysis at the
Department of Defense.[Footnote 2] Recognizing the potential that
similar use might offer in civilian areas of government purchasing, on
the initiative of the Comptroller General, we reviewed the activities
of five federal agencies--the departments of Agriculture, Health and
Human Services (HHS), Justice, Transportation, and Veterans Affairs--
whose goods and services spending totaled almost $37.2 billion in
2003.[Footnote 3] Specifically, we assessed (1) if these agencies are
using spend analysis to obtain knowledge to improve procurement of
goods and services and (2) how these agencies' spend analysis practices
compare to leading companies' best practices, including whether
agencies have in place the supporting structure, processes, and roles
to effectively use the results of spend analysis. We are addressing
this report to you because of your jurisdiction over the efficiency,
economy, and effectiveness of all agencies and departments of the
government.
Scope and Methodology:
To conduct this work, we obtained information from the five agencies
about how they used spend analysis in support of a more cost effective
approach to procurement. We interviewed senior procurement management
officials at departmental headquarters to obtain information and views
about any agencywide spend analysis efforts and how such efforts
compared to leading companies' best practices identified in our recent
work.[Footnote 4] We reviewed internal memorandums and other documents
related to ongoing or proposed agency procurement reforms that
leveraged buying power, cut costs, and achieved other performance
benefits. For background on the agencies' contract and purchase card
spending on goods and services, we used summary fiscal year 2003
Federal Procurement Data System (FPDS) data from the General Services
Administration (GSA).[Footnote 5] Because we used FPDS data for
information purposes and not to support our findings, we did not verify
the data.[Footnote 6] We also did not verify the accuracy of any
strategic procurement costs savings reported to us by the agencies. We
conducted our work in accordance with generally accepted government
auditing standards between December 2003 and June 2004.
Results in Brief:
Three of the five agencies we studied have begun to conduct spend
analyses and used the results to better manage procurements. Veterans
Affairs, HHS, and Agriculture launched or expanded their efforts in the
last 2 years, with noteworthy results. Veterans Affairs, for example,
used an automated spend analysis of pharmaceutical procurement and a
strategic approach to help save $394 million in 2003. Currently, agency
commodity teams are beginning a manual review of medical equipment and
supplies procurement data to identify high-cost, high-technology items
such as magnetic resonance imaging and ultrasound equipment for
national contracting that could save $82 million a year. A recent HHS
spend analysis for office-related products was used to award agencywide
discount agreements with three vendors that will save an estimated
$9.5 million a year on thousands of office and custodial supplies and
computer monitors, scanners, and other peripherals. An Agriculture
spend analysis of products and services purchased in fiscal year 2000
led the department to negotiate an agreement for office supplies with
one major vendor that has so far yielded savings of $1.8 million.
At the time of our review, the departments of Justice and
Transportation, by contrast, had not begun to collect the data needed
for a strategic approach to procurement. Both agencies are engaged in
ongoing efforts to improve procurements or cut operating costs, and top
leadership is committed to using spend analysis to change the way goods
and services are purchased. One obstacle to using spend analysis cited
by both agencies was the lack of comprehensive and reliable spending
data, although since our review they report stepping up efforts to use
currently available data and evaluate business intelligence software to
overcome those obstacles.
Veterans Affairs, HHS, and Agriculture have taken some positive steps
in the use of spend analysis to improve procurements, but to fully
optimize the potential the technique offers, they will need to adopt
the full range of private sector best practices for automating,
extracting, supplementing, organizing, and analyzing data on all their
procurement spending. Although successful in the pharmaceutical area,
Veterans Affairs has made slow progress in improving other medical
supplies and services procurements. HHS had no plans for an automated
spend analysis system for compiling the necessary data on an ongoing
basis, although headquarters officials told us in June that they intend
to propose such a system. Agriculture's automated spend analysis
system, to be completed by 2006, will be a centralized tool shared by
constituent agencies that may or may not elect to use it to chart their
own strategic procurement paths.
This report includes recommendations intended to help Veterans Affairs,
Agriculture, and HHS adopt the full range of spend analysis best
practices and to help Justice and Transportation step up the process of
gaining knowledge of their spending to support a more strategic
approach to acquiring goods and services. In written and oral comments
on a draft of this report from Veterans Affairs, Agriculture, Justice,
and Transportation, the agencies generally agreed with our findings and
recommendations. Health and Human Services had no comments. The written
comments we received are reproduced in appendixes II through V.
Background:
Our past work studying how leading private-sector companies have
reengineered their approach to procurement offers federal agencies both
valuable insights and a general framework that could serve to guide
their efforts.[Footnote 7] While each of the companies we studied is a
leader in its respective market, each was also not immune to market or
stockholder pressures to improve performance or to challenges from
senior corporate leadership to improve the manner in which the company
acquired goods and services. In turn, these companies adopted a
strategic approach to leverage their buying power, reduce costs, better
manage their suppliers, and improve the quality of goods and services
acquired.
As shown in figure 1, we identified broad principles and practices that
were critical to carrying out the companies' strategic approach
successfully. Taking a strategic approach involves a range of
activities from developing a better picture of what the company is
spending on procurement to taking an enterprisewide approach to
procuring goods and services and developing new ways of doing business.
Figure 1: Broad Principles and Practices of Leading Companies'
Strategic Approach:
[See PDF for image]
[End of figure]
Pursuing such an approach in the private sector clearly pays off.
Studies have reported significant cost savings for some companies of 10
to 20 percent of their total procurement costs. And the leading
commercial companies we studied reported savings and anticipated
savings in the billions of dollars.
Conducting a spend analysis to obtain improved knowledge on procurement
spending is a critical component of an effective strategic approach. A
spend analysis permits company executives to review how much their
company has spent each year, what was bought, from whom it was bought,
and who was purchasing it. The analysis identifies where numerous
suppliers are providing similar goods and services--often at varying
prices--and where purchasing costs can be reduced and performance
improved by better leveraging buying power and reducing the number of
suppliers to meet the company's needs.
Spend analysis is an important driver of strategic planning and
execution, and it allows for the creation of lower-cost consolidated
contracts at the local, regional, or global level. At the same time, as
part of a strategic procurement effort, spend analysis allows companies
to monitor trends in small and minority-owned business supplier
participation to address the proper balance between small and minority
business utilization and equally important corporate financial savings
goals for strategic sourcing.
Setting up a spend analysis program can be challenging, according to
our prior research. Companies have had problems accumulating sufficient
data from internal financial systems that do not capture all of what a
company buys or are being used by different parts of the company but
are not connected. Because simplified data may not exist or be
available, companies have frequently been unsure who their buyers are
and have had to contend with databases that include listings of items
and suppliers that in reality are identical to each other but which are
all stored under different names. Companies have also found that
existing databases have not captured anywhere nearly enough details on
the goods and services for which vendors are being paid.
Despite the challenges, companies that developed formal, centralized
spend analysis programs have found that they have been able to conduct
effective and ongoing spend analysis through the use of five key
processes, involving automating, extracting, supplementing,
organizing, and analyzing data.
Building the foundation for a thorough spend analysis involves creating
an automated information system for compiling spending data. The system
routinely extracts vendor payment and related procurement data from
financial and other information systems within the company. The data
are then automatically compiled into a central data warehouse or a
spreadsheet application, which is continually updated. Most of the
automated spend analysis systems currently in use were developed in-
house, although some companies have hired third-party companies for
expertise and technology.
The data are primarily extracted from vendor accounts payable financial
systems and reviewed for completeness. Accounts payable data can be
voluminous and very detailed. Companies process large numbers of vendor
invoices for payment each year, and each of those must be examined by
their spend analysis systems. When necessary, the accounts payable data
are supplemented with other sources, such as purchase card data
obtained from external bank-card vendors' systems or other information,
such as suppliers' financial status and performance information.
Companies must obtain as much information as possible from both
internal and external sources to gain a complete understanding of their
spending.
For spend analysis to be effective, data files must be accurate,
complete, and consistent. The data are subjected to an extensive review
for accuracy and consistency, and steps are taken to standardize the
data in the same format, which involves the creation of uniform
purchasing codes. The data are typically organized into comprehensive
categories of suppliers and commodities that cover all of the
organization's purchases.[Footnote 8]
In tandem with building a spend analysis foundation, commodity managers
or cross-functional commodity teams are established to access and
analyze the information on an ongoing basis, using standard reporting
and analytical tools.[Footnote 9] Each team is responsible for one or
more commodities, which may also include responsibility for a number of
sub-categories. Once the spending data has been organized and reviewed,
companies use the data as the foundation for a variety of ongoing
strategic decisions and efforts.
Our past work also shows how federal agencies, in particular DOD, might
apply these private sector best practices to obtain lower prices from
suppliers and improve procurement effectiveness. For example, we
noted that although DOD's spending on services contracts approaches
$100 billion annually, its management of services procurement has been
inefficient and ineffective.[Footnote 10] To achieve the potential for
billions of dollars in savings, we recommended that DOD take a more
strategic approach to services contracting that includes adopting the
spend analysis best practices of leading companies. In response, in
2004 the agency started developing a spend analysis system that will
pull purchasing data from disparate databases for analysis by newly
organized DOD-wide commodity teams. DOD expects that users of this
spend analysis system will be able to identify procurement trends,
buying patterns, and opportunities for strategic sourcing, which will
result in cost savings and quality improvements.
The government purchase card program offers yet another arena for the
use of spend analysis. Through the purchase card program, agency
personnel can acquire the routine goods and services they need directly
from vendors as long as the purchase is $2,500 or less. From 1994 to
2003, the use of such cards exploded from $1 billion to $16 billion,
but we found that agencies generally were not taking advantage of
opportunities to negotiate discounts with major vendors.[Footnote 11]
We therefore recommended several actions--including conducting spend
analysis using available data and gathering additional information
where feasible--that would ultimately help agencies to achieve $300
million annually in potential savings.
Agencies Have Begun Analyzing Spending Trends to Improve Knowledge and
Procurement:
Three of the five agencies we reviewed--Veterans Affairs, HHS, and
Agriculture--have each conducted spend analyses, either by using their
own resources or by hiring consultants to do the work. Each agency is
beginning to use spend analysis to obtain knowledge and to plan and
carry out changes in agencywide procurement processes intended to
leverage buying power, eliminate redundant and duplicative acquisition
activity, and reduce purchasing costs for goods and services. The
departments of Justice and Transportation have not begun to collect the
data needed for using spend analysis nor taken steps that would be part
of a strategic approach to procurement.
For several years, Veterans Affairs has had significant success using
spend analysis on an ongoing basis to take a more strategic approach to
pharmaceutical procurement. Reflecting national trends, Veterans
Affairs' pharmacy procurement costs have risen significantly in recent
years, consuming an increasing percentage of the department's health
care budget. The $2.1 billion the agency spent on such items in 2000
were primarily for prescription drugs and their dispensing, but also
included some supplies and over-the-counter drugs. To mitigate this
increase in pharmacy procurement costs, the agency created a pharmacy
benefits management strategic health group in 1995 that analyzes
pharmaceutical spending trends across all medical facilities and
employs various procurement arrangements for purchasing prescription
drugs at substantial discounts.[Footnote 12] According to the agency,
the pharmaceutical procurement standardization program led to savings
of $394 million in fiscal year 2003 alone.
Veterans Affairs has also made progress in the areas of medical and
prosthetics supplies and equipment. In fiscal year 2001, the agency
purchased about $500 million in medical-surgical supplies and $1.1
billion in medical equipment and prosthetics. For example, VA created a
national prosthetics spend database that extracts procurement data from
all medical facilities' systems and organizes data on purchased items
into commodity categories, such as wheelchairs and aids for the blind.
The agency's prosthetics strategic health group also formed a number of
commodity teams with stakeholders from across the medical facilities
and health care regions to use spend analysis to identify commonly used
items that can be purchased at substantial discounts under a national
contract.[Footnote 13] The prosthetics group also uses spend analysis
to monitor medical facility compliance with the national contracts and
to ensure potential savings are realized. As of June 2004, the group's
spend analysis and strategic-sourcing efforts have resulted in 23
national contracts and accumulated more than $57 million in cost
avoidance.
The agency is just beginning to develop a spend analysis tool for
medical and surgical supplies and high-technology medical equipment.
Specifically, it is working with a contractor to create uniform
medical-product names for an agencywide spend analysis system. When the
system is fully operational in fiscal year 2006, it will automatically
extract medical supplies and equipment procurement data into a central
data warehouse, organized by common categories of products. Until this
system is fully operational, this year the agency decided to form
several cross-functional commodity teams to pursue new national
contracts on 45 categories of high-technology, high-cost medical
equipment and supplies (such as magnetic resonance imaging and
ultrasound equipment).
Since 2003, HHS has been obtaining spend analysis and procurement
consolidation advice from outside consultants to help reduce the
department's operating costs and redirect the savings to programs. Like
other agencies, procurement activities in HHS were operating under a
decentralized environment of independent, transaction-oriented buying
processes, with limited visibility over the agency's total procurement
spending.
For example, HHS has conducted a spend analysis of commonly contracted
products. In its first phase, $100 million in yearly spending for
thousands of office-related products such as custodial supplies, office
supplies, office furniture, office equipment (such as photocopiers and
facsimile machines), and peripheral information technology products
(such as computer monitors and scanners) was analyzed to identify
opportunities for significant savings to purchase card buyers through
agencywide discount agreements.[Footnote 14] Between May and July 2004,
HHS awarded the first agreements to three vendors for the office
supplies, custodial products, and peripheral items.[Footnote 15] HHS
estimates the potential savings from these discount agreements range
from 7 percent to 54 percent and could yield at least $9.5 million in
annual savings for the department on just the office supplies, office
equipment, and information technology peripherals. Later this year, the
agency will work with its consultant to do a new round of spend
analysis to identify potential categories and savings opportunities in
the next phase of the strategic-sourcing initiative for products.
In a second initiative, HHS procurement headquarters hired a consultant
in August 2003 to support a newly organized agencywide group of 100
senior procurement and other key managers to work on consolidation of
services acquisitions.[Footnote 16] One of the contractor's key tasks
was to conduct a spend analysis of almost $4.9 billion in fiscal year
2002 HHS contract actions to identify high-volume or high-dollar common
services for consolidation. Twenty-four categories--such as security
guards and patrol services and office administrative services--were
subsequently identified for possible consolidation--totaling almost
$1.7 billion in value.
The consultant's plan included steps to organize and segment HHS
contract workload and spend data into categories of services and
suppliers. This step was intended to help the services acquisition
consolidation working group identify opportunities across divisions to
reduce the number of suppliers where competition for new agencywide
contracts is practical. However, according to the working group's
project officer, in view of small business and contract-bundling
requirements and the long lead times needed to obtain division
consensus on new contract arrangements, the working group decided
instead to pursue alternative consolidation strategies in the near-
term.
As a result, HHS headquarters officials expect the working group to
finalize criteria and a timeline for selecting existing division
service contracts that would be listed in an HHS-wide database that
other division purchasers might use before initiating their own new,
stand-alone contracts. Potential contract categories include temporary
services, information technology services, focus groups, and conference
management and support.
Agriculture is currently using the results of a consultant's October
2001 spend analysis as updated with more recent spending data to obtain
favorable prices on small purchase card buys through agencywide
discount agreements with major vendors. The contractor analyzed almost
$2.1 billion in fiscal year 2000 spending data from across the agency,
organizing the agency's spending in terms of commodities and suppliers
to identify high-volume, high-dollar areas that could yield significant
savings and other benefits and also identifying 24 commodities for the
agency's more detailed review.[Footnote 17]
In 2003, Agriculture's procurement management division began to use
this spend analysis, competitively awarding an agencywide discount
agreement with a national office supply vendor that yielded savings of
$1.8 million to the agency's purchase card holders--a price 10 percent
less then the vendor's Federal Supply Schedule contract
prices.[Footnote 18] To receive the discounts, registered agency
purchasers must use the national office supply vendor's electronic
catalog and ordering system.
Building on this experience, Agriculture recently began to use the
consultant's spend analysis to improve its purchase card buying power
in additional commodity areas. A temporary "electronic marketplace"
subcommittee was organized in January 2004, including representatives
from across the agency. According to the co-chair, this subcommittee is
using the consultant's spend analysis and updating it with more recent
data on spending with major vendors to help negotiate more favorable
prices based on the agency's dollar volume. By October, the
subcommittee plans to implement at least three agencywide discount
agreements comparable to the 2003 agreement.
In the future, Agriculture plans to provide automated and repeatable
spend analysis, data-mining, and reporting capabilities that identify
opportunities for savings through negotiated volume discounts. These
will be available through electronic catalogs as part of a redesign and
modernization of its agencywide acquisition system, an effort that will
be complete in about two years.[Footnote 19] Agriculture began this
effort upon recognizing that the current multisystem environment does
not provide an integrated, streamlined, or consistent approach to
procurement and does not effectively support the agencywide goal for
electronic commerce between agency purchasers and suppliers.
To develop its spend analysis capabilities, Agriculture will create a
centrally maintained data warehouse to be shared by agency procurement
and financial management organizations. This warehouse will extract and
capture all Agriculture procurement data, to be supplemented with
business intelligence and organizational data from internal and
external financial and corporate sources.[Footnote 20] Once the
warehouse is in place, it will allow for comprehensive spend analysis
and reporting on procurement in real time, on issues such as the
opportunities to be pursued for agencywide discount agreements with
major suppliers for specific commodities and the extent of small
business utilization.
The departments of Justice and Transportation have not used spend
analyses yet to focus management attention on changing the way they
purchase goods and services to foster a more strategic approach. One of
the obstacles to using spend analysis cited by both was the lack of
comprehensive, detailed, and reliable spending data. Nevertheless,
future use of spend analysis could become an important tool in their
efforts to streamline their administrative functions or improve
procurement performance.
Department of Justice:
Spend analysis could be useful in assisting the Department of Justice
to implement its November 2001 strategic plan, which established
streamlining, eliminating, or consolidating duplicative functions as
key elements of supporting the agency's new counterterrorism mission.
In February 2004, high-level discussions were begun to plan cross-
cutting initiatives to eliminate duplication and cut overall agency
operating costs, so that funding can then be redirected to other
critical tasks. The agency also formed a core group of financial and
management executives responsible for overseeing the streamlining and
efficiency initiatives.
Officials told us that it is too early to say if the new core group's
efforts would include analysis of Justice's spending trends or
considering broad-based structure, process, and role changes to support
a more strategic approach to procurement, although some agency
officials are familiar with the concepts. Officials said that some
Justice components had made incremental progress in consolidating and
leveraging certain categories of spending, such as litigation support
services, jail detention space services, and prison system medical
supplies. Officials also told us that the agency will similarly look
into pursuing a comprehensive approach to buying Web-based training
services, jail guard services, and employee household relocation
services.
In the near term, Justice officials questioned the agency's ability to
analyze spending trends effectively, even though the officials agreed
that such an analysis could benefit the agency. Lack of a single
acquisition and financial management system makes it difficult to
collect accurate and complete spending data and identify opportunities
for coordinated purchasing, the officials said. Although the agency is
trying to establish a single system, it is not likely to be in place
until 2009.[Footnote 21]
Before the single system can be put in place, we discussed with these
officials the prospects for using existing contract and purchase card
data that the agency feeds into the FPDS, in the same way that
Agriculture and HHS have used such data to support their spend analysis
efforts. Justice officials expressed interest in potentially using FPDS
data for this purpose. According to the procurement executive, for
financial audit purposes, Justice has been analyzing purchase card data
and had already obtained better insight into what goods and services
were being bought across the agency and opportunities to leverage
buying power in return for lower prices from vendors.[Footnote 22]
Given that Justice has almost $5 billion in annual procurements, agency
officials acknowledged that their streamlining and efficiency efforts
could be substantially aided by the expanded use of spend analysis to
consider taking a more strategic approach to procurement.
In commenting on a draft of this report, the agency reports that it is
working to identify additional opportunities for purchase card savings
through current discount agreements and has begun analyzing FPDS data
to identify savings opportunities. We commend the agency for expanding
purchase card spending analyses, which is also responsive to previous
recommendations aimed at achieving agency savings through the purchase
card program.[Footnote 23] Moreover, by taking the promising first step
to analyze FPDS data on contract spending for goods and services--which
accounted for another $4 billion in 2003--we believe that Justice will
be able to identify many more opportunities for leveraging buying power
and achieve even more significant savings in the future.
Department of Transportation:
Transportation's senior procurement officials told us that they plan to
use spend analysis to support ongoing implementation of strategic
procurement practices across the agency. According to these officials,
such support should be facilitated by the favorable experience
Transportation has already gained from similar cross-cutting strategic
procurement planning to modernize information systems and standardize
computer equipment as part of a fiscal year 2007 office relocation of
agency headquarters. Under the agency's chief information officers'
council, commodity councils are being formed to help the agency move to
a common operating environment and leverage buying power for
information technology goods and services.[Footnote 24]
According to these officials, the agency currently has no spend
analysis capability, but a first step was taken this year through the
agency's procurement performance management program that could help
drive the adoption of a more strategic approach to buying goods and
services.[Footnote 25] A general analysis was conducted of fiscal year
2003 FPDS data for $1.6 billion in agency contracts, sorted by the
categories of research and development, other services, and
products.[Footnote 26] A more in-depth agencywide analysis has yet to
be achieved, however. Officials told us more detailed analysis of
spending trends--for example, by high-dollar, high-volume commodity and
vendor categories--was inhibited by workload constraints and their
concerns about the accuracy of FPDS data and the lack of more specific
product and service information. Nevertheless, they indicated that in
the future, spend analysis could become an important tool in the
agency's procurement performance management program. Specifically, in
commenting on a draft of this report, the senior procurement executive
indicated that agency leadership supports additional funding in fiscal
year 2005 to enhance spend analysis capabilities. He also told us the
agency is evaluating software options for a future agencywide spend
analysis system as part of the ongoing financial information system
modernization.
Agencies Have Not Adopted Full Range of Spend Analysis Best Practices
and Lack Some Supporting Structure, Processes, and Roles:
Veterans Affairs, HHS, and Agriculture have made good progress using
spend analysis to improve their procurements, and they have adopted
some elements of a strategic approach. Like the private sector's
experience which indicates that implementing spend analysis can be
challenging and take time, these three agencies have not had a lot of
time to adopt the full range of private sector best practices with
regard to automating, extracting, supplementing, organizing, and
analyzing data that covers all of their procurement spending. Also, to
one degree or another, they have not created the type of supporting
structure, processes, and roles leading companies institute to make the
best use of the knowledge gained and foster a more strategic approach
to buying goods and services. The extent to which agencies can do both
will determine their success in achieving substantial savings and
performance improvements. Private sector experience suggests that
agencies that start with effective spend analysis programs will be
better able to institute the changes needed to move into a more
coordinated, leveraged purchasing environment.
Veterans Affairs has earned a world-class reputation for highly cost-
effective pharmaceutical procurement practices, which include spend
analysis as well as supporting structure, processes, and roles. (See
appendix I, table 1.) Its progress in making similar improvements in
its procurements of other medical supplies and equipment has been
slower, however, and its efforts related to clinical care or facilities
support services are in their very early stages.
A March 2004 inspector general's audit report, for example, noted that
the agency's efforts to reform medical supplies and equipment
purchasing practices since 2002 have not yet translated into
significant national contracting results and medical purchasing cost
savings. The audit recommended increasing efforts to pursue
aggressively more national contracts that, if implemented, could
achieve about $82 million per year in savings.
A spend analysis tool that would examine Veterans Affairs' medical
supplies and equipment spending trends will not, in fact, be ready
before 2006, when best practices--such as automated compilation of
purchase data, extracted from facilities' procurement and vendor
payment systems and supplemented and organized--will be put in place
for use by established commodity teams.
The agency is also beginning to focus on taking a more strategic
approach to acquiring services for veterans medical facilities from
contract providers. In May 2004, the Secretary announced that Veterans
Affairs must more effectively purchase contract health care services
for veterans (such as skilled nursing and laboratory services) by
leveraging its purchasing power as a national healthcare system. The
Secretary directed that a national clinical-contracting strategy be
drafted by November 2004 that would identify high-value, competitively
priced purchasing options for obtaining medical services from contract
providers throughout the country. In addition, in commenting on a draft
of this report, the agency stated its intent to pursue national
contracts for non-clinical services as well. Facilities now contract
locally for a wide variety of support services, such as facilities
maintenance, housekeeping, and food service.[Footnote 27] According to
the agency, both efforts will use spend analysis as appropriate.
However, we believe it will be difficult for the agency to accomplish
this objective since the new spend analysis tool, expected in 2006,
will only capture data on medical supplies and equipment spending
trends.
HHS asked its division heads to begin planning for departmentwide
consolidation of procurement activities in April 2003. Although
headquarters managers had worked with consultants to conduct spend
analyses to improve their knowledge of overlapping and duplicative
procurement spending, they had no plan to develop an automated tool to
repeat the process and only a small number of consolidated procurement
actions were expected to result. (See appendix I, table 2.)
In June 2004, however, HHS procurement managers told us that an
agencywide working group was going to propose obtaining commercial
software to develop an automated spend analysis system to compile the
necessary data and generate standardized reports. As result, they
believe that HHS' spend analysis efforts could make use of an
automation tool in the future to enable the process to be repeated
consistently, obtain data from HHS sources such as financial management
systems, and analyze data on a continual basis. The proposal was
intended to augment ongoing plans for an HHS-wide standard electronic
procurement system to be phased in over the next year or so. According
to these officials, details on the proposed system's spend analysis
capabilities are forthcoming, pending approval and funding to implement
it.
Agriculture's current spend analysis efforts are also not automated,
include no financial management data such as vendor accounts payable
systems, and do not analyze data on a continual basis. (See app. I,
table 3.) The agency does have plans to have an agencywide spend
analysis system in place by 2006, but the system will be a centralized
tool shared by component organizations that may or may not choose to
chart their own strategic procurement paths.
A temporary subcommittee in the meantime is reviewing some agencywide
spending data to identify a few categories of high-dollar purchase card
vendors for use in negotiating discount agreements. However, a senior
procurement policy official told us that a large-scale strategic
approach to buying goods and services may be neither feasible or
advisable, given the agency's highly diverse missions and decentralized
operations. When it comes to changing the buying culture across the
agency, the agency wants to use spend analysis to create attractively
priced discount agreements with a few vendors that agency purchasers
will be encouraged, not mandated, to use. Although he indicated that
Agriculture may establish a few agencywide commodity councils in the
future to pursue more areas for consolidated buying, he did not
anticipate creating new structure, processes, and roles within the
agency.
Aside from their spend analysis activities, the three agencies have not
consistently created the type of supporting structure, processes, and
roles leading companies institute to foster a more strategic approach
to buying goods and services. While Veterans Affairs has used the best
practice of establishing commodity teams that coordinate buying
strategies for pharmaceutical, prosthetics, and more recently high-
cost, high-technology medical equipment and supply items, the same
practice has not been used to coordinate buying strategies for
services. Outside of forming single, cross-agency working groups to
leverage a few categories of supplies commonly bought by purchase
cardholders, Agriculture and HHS have not fully embraced viewing
procurement as an agencywide process for streamlining acquisitions,
saving money, and increasing the quality of purchased goods and
services when compared to the current decentralized environment of
independent, stand-alone contract actions. Agriculture and HHS have not
adopted the best practice of using cross-functional commodity teams to
establish a network of technical experts to support volume and
technical leveraging of agency spending.
Conclusions:
When the government faces enormous fiscal pressures and a growing
budget deficit, agencies' transformations of their business processes
is more important than ever if the agencies are to get the most from
every dollar spent. Leading companies that have successfully used spend
analysis as a foundation for their procurement activities set an
example for how the federal government can more effectively leverage
its buying power.
Federal agencies such as the Departments of Veterans Affairs, HHS, and
Agriculture can achieve significant benefits using spend analysis best
practices to support a more strategic approach to buying goods and
services. Like leading companies, agencies that establish an effective
spend analysis program can then achieve a total-spending perspective
across the agency; make the business case for collaboration in joint
purchasing rather than fragmented purchasing, create supporting
structure, processes, and roles to assign accountability and exercise
oversight; identify potentially hundreds of millions of dollars in
procurement savings opportunities by leveraging buying power; and
identify opportunities to achieve other procurement process
efficiencies such as reducing duplication in purchasing, supporting
small and minority-owned business utilization, and improving supplier
performance. In contrast, agencies such as the departments of Justice
and Transportation, which have yet to make extensive use of spend
analysis and may well miss out on the opportunity to achieve savings to
the same extent possible as other agencies.
Recommendations for Executive Action:
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, we are making the following three
recommendations:
* 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.
* 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.
* 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 light of the significant potential for savings and performance
improvements that the two agencies not using spend analysis could
achieve, we recommend that the Attorney General of the United States
and the Secretary of Transportation 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, we are making the
following two recommendations:
* 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.
* 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.
Agency Comments and Our Evaluation:
We received written comments on a draft of this report from the
Departments of Veterans Affairs, Agriculture, and Justice, and we
received oral comments from the Department of Transportation. The
agencies generally agreed with our findings and recommendations. The
Department of Health and Human Services had no comments, but provided
technical comments, which we have incorporated where appropriate. The
written comments are reproduced in appendixes II through V.
The Department of Veterans Affairs concurred with our recommendation to
expand the planned development of an automated spend analysis system to
capture spending data on services as well as medical supplies and
equipment data. At a later date, the agency plans to provide a more
complete discussion of its efforts to include clinical and non-clinical
services in its spend analysis.
In general, the Department of Agriculture agreed with our
recommendations. Commenting on one of the draft's statements on the
agency's use of a consultant's 2001 spend analysis to obtain more
favorable prices, Agriculture indicated they did not solely rely on the
consultant's report but needed to perform additional analysis for the
agencywide discount agreements. Further, Agriculture also commented
that many other federal departments, through the use of existing
purchase card data and other available data systems, can discern
sufficient information to begin leveraging their spending to obtain
reduced prices for commonly acquired services and supplies. We agree.
While the Department of Justice generally agreed with the report's
findings and recommendations, the agency also clarified the status of
spend analysis efforts. Specifically, the agency stated that data
collection efforts have begun to conduct a spend analysis, focusing on
purchase card spending trends and procurement actions based on reviews
of agencywide data from a bankcard vendor and the FPDS. We revised the
report where appropriate to incorporate information on these efforts.
In oral comments, Transportation's senior procurement executive told us
that he agrees with our recommendations, but believed our report did
not adequately capture the agency's commitment to strategic procurement
objectives and support for using spend analysis. In addition, this
official informed us that the agency is expanding its spend analysis
efforts. For example, his office recently reviewed purchase card
spending data to identify volume discount opportunities and is now
using the results to negotiate new discount agreements with several
office product vendors. In addition, he told us that to facilitate
future agencywide purchase card spend analyses, Transportation awarded
a task order in June 2004 with one bank-card company that includes
purchase-card audit software and enhanced data-mining capabilities. He
also indicated that agency leadership supports fiscal year 2005 funding
to enhance spend analysis capabilities and that software options for a
new agencywide spend analysis system are now being evaluated as part of
the ongoing financial and procurement management system modernization.
We incorporated these comments where appropriate in the text.
We are sending copies of this report to the Secretaries of Agriculture,
Health and Human Services, Transportation, and Veterans Affairs; the
Attorney General; the director of the Office of Management and Budget;
and interested congressional committees. We will provide copies to
others on request. This report will also be available at no charge on
GAO's Web site at http://www.gao.gov.
If you have any questions about this report or need additional
information, please call me at (202) 512-4841 (cooperd@gao.gov) or
Carolyn Kirby at (202) 512-9843 (kirbyc@gao.gov). Other major
contributors to this report are Cristina Chaplain, Timothy DiNapoli,
Bob Swierczek, and Grant Turner.
Signed by:
David E. Cooper:
Director:
Acquisition and Sourcing Management:
[End of section]
Appendix I: GAO Analyses of Agencies' Spend Analysis Practices:
We obtained information about agencywide spend analysis efforts through
interviews with Veterans Affairs, HHS, and Agriculture procurement
headquarters officials and documents they provided to us. We reviewed
this information and also discussed with agency officials how their
efforts compared to leading companies' best practices identified in our
recent work.[Footnote 28]
In analyzing agencies' practices, we compared their efforts with the
five key processes that companies adopt that enable them to conduct
effective and ongoing spend analysis, which are:
* Automation--data automatically compiled.
* Extraction--essential data culled from accounts payable and other
internal systems.
* Supplemental information--additional data sought from other internal
and external sources.
* Organization--review data to ensure accuracy and completeness;
organize data into logical, comprehensive commodity and supplier
categories.
* Analysis and strategic goals--using standard reporting and analytical
tools, data analyzed on a continual basis to support decisions on
strategic-sourcing and procurement management in areas such as cost
cutting, streamlining operations, and reducing the number of suppliers.
Scope generally covers an organization's entire spending.
The following tables summarize our analysis of agencies' spend analysis
practices.
Table 1: Veterans Affairs Spend Analysis Practices:
Spend Analysis Process: Automation; Agency practice: Automated
compilation of pharmaceutical and prosthetic and sensory aid purchase
data into two central databases, which are updated continuously.
Automated compilation of medical supply and equipment purchase data but
not clinical care and support services into a central database will be
available in 2006.
Spend Analysis Process: Extraction; Agency practice: Pharmaceutical and
prosthetics spend analysis covers all veterans' medical facilities
purchases. Facilities' pharmaceutical purchase and vendor payment data
are extracted from centralized commercial distributors' on-line
ordering and delivery systems. Prosthetics data extracted from multiple
medical facilities' procurement and vendor payment systems; In 2006,
standardized medical supply and equipment data will be extracted from
facilities' procurement and vendor payment systems. None will be
extracted on facilities' purchases for clinical care and support
services.
Spend Analysis Process: Supplemental Information; Agency practice:
Veterans Affairs obtains pharmaceutical sales and payment data from
centralized commercial distributors' on-line ordering and delivery
systems. The agency's chief logistics office analyzes weekly summaries
of bankcard vendor's transactions with the agency. The agency recently
required purchase card program managers to consolidate quarterly
reviews from the cardholders and analyze purchases.
Spend Analysis Process: Organization; Agency practice: Pharmaceutical
and prosthetics spend analysis databases fall into logical
comprehensive categories of commodities and suppliers. Veterans Affairs
is organizing and standardizing procurement data on medical supplies
and equipment purchases; a spend analysis database is planned for
completion in 2006. In 2004, a naming standard will be developed for
each high-technology/high-cost medical product given a national
contract. To track compliance with contracted products, a standard name
will have to be used when buying. Veterans Affairs will not organize
facilities' clinical care and support services procurement data into
logical, comprehensive categories of commodities and suppliers.
Spend Analysis Process: Analysis and strategic goals; Agency practice:
Commodity teams are continually analyzing pharmaceutical and
prosthetics spending data to make decisions in contracting and
procurement management. In 2003, Veterans Affairs saved $394 million
through discounted pharmaceutical national contracts. As of June 2004,
prosthetics contract savings were more than $57 million. By 2006,
standard reporting and analytical tools will be in place for medical
supplies and equipment purchases, which new commodity teams will use to
help reduce the number of suppliers, cut costs, streamline operations,
and address the agency's small business goals. Veterans Affair's spend
analysis system plan does not include purchased clinical care and
support services, however.
Source: GAO analysis of agency information.
[End of table]
Table 2: Health and Human Services Spend Analysis Practices:
Spend Analysis Process: Automation; Agency practice: HHS furnishes
services procurement data to one consultant and products procurement
data to a second. While both use commercially available automation
tools to compile data for more rapid spend analyses, these are one-time
or periodic requirements. No automation tool is available to allow HHS
to consistently repeat the spend analysis process, but the agency may
consider obtaining such a system.
Spend Analysis Process: Extraction; Agency practice: HHS wants its
acquisition consolidation initiative to cover as many of its services
buys as possible, and provided its spend analysis consultant services
contract data from one 2002 database. (Contracts for $25,000 or less
were not included.) For its product-focused strategic sourcing
initiative, HHS provided a consultant with data from 2002 on office
supplies, office equipment, office furniture; peripheral information
technology (IT) equipment, and custodial supplies. Furnished data was
extracted from two contract databases, actions for $25,000 or less, and
for more than $25,000. This year, the HHS consultant will receive 2003
purchase data for all other products, extracted from the same two
databases, as well as data from HHS financial management sources, such
as accounts payable systems.
Spend Analysis Process: Supplemental Information; Agency practice: To
identify the top-selling office product suppliers, HHS provided the
consultant data from the agency's bankcard vendor on all purchase card
transactions, as well as other information from prospective commodity
suppliers on estimated sales to agency purchasers. This enhances
awareness of the volume and scope of HHS purchasing. This year, the HHS
consultant will receive 2003 purchase card data as well. HHS sought no
additional spend analysis data for the services acquisition
consolidation.
Spend Analysis Process: Organization; Agency practice: In 2003, both
consultants cleansed and validated data that HHS furnished based on
their spend analysis experience and supply market knowledge. The
consultants used the federal product and service classification to
organize categories of commodities and suppliers. This helped them
identify and rank high-dollar, high-volume opportunities to target for
office product strategic-sourcing and services acquisition
consolidation. In 2004, the consultant will analyze new data involving
small and larger purchase card and contract buys. The data will be
organized into logical, comprehensive categories of products and
supplies to identify and rank top categories to target for additional
strategic sourcing.
Spend Analysis Process: Analysis and strategic goals; Agency practice:
HHS is not analyzing data on a continual basis. The agency had two
consultants analyze data in 2003 and will have one consultant do a
second round of product-focused spend analysis in 2004. HHS is using
that analysis to support strategic sourcing decisions for national
discount agreements with a few major suppliers for office supplies,
office equipment, office furniture, IT peripherals, and custodial
supplies. HHS will use the consultant's spend analysis of services
acquisitions to plan areas where existing contracts can be used by
agency division purchasers to leverage buying power and reduce the need
for new stand-alone contracts. As of June 2004, HHS is continuing its
planning and anticipates shared implementation of at least some of the
existing contracts in 2005.
Source: GAO analysis of agency information.
[End of table]
Table 3: Agriculture Spend Analysis Practices:
Spend Analysis Process: Automation; Agency practice: In 2001,
Agriculture furnished 2000 data to a spend analysis consultant, who
used commercially available automation tools to compile the data to
expedite the analysis to fulfill a one-time requirement. Agriculture
plans to create an automated spend analysis tool to extract data from
the single acquisition system to begin in October 2006. The data is
expected to be compiled into a new shared data warehouse that will
extract components' procurement data as the new system goes on line.
The warehouse is expected to contain business intelligence and data
mining capability so that the spend analysis process can be repeated at
the agency or component levels.
Spend Analysis Process: Extraction; Agency practice: Agriculture wanted
the 2001 spend analysis to cover all products and services procurements
other than the nonprocurement-related agricultural commodity
purchases. To accomplish this, the agency extracted data from three
databases--contract actions for $25,000 or less; contract actions of
more than $25,000; and the purchase card management system. Spend
analysis did not include financial management data such as accounts
payable systems.
Spend Analysis Process: Supplemental Information; Agency practice:
Agriculture's purchase card management system obtains data from the
bankcard vendor on all purchase card transactions with agency
cardholders. The agency furnished 2000 purchase card data for the 2001
spend analysis. In 2004, Agriculture obtained up-to-date purchase card
data on agency transactions with high-dollar, high-volume vendors from
its bankcard vendor to supplement the 2001 spend analysis.
Spend Analysis Process: Organization; Agency practice: Agriculture's
spend analysis consultant cleansed and validated 2001 data the agency
furnished, based on its spend analysis experience and supply market
knowledge. The consultant used federal product and service
classification to organize agency spending into 15 categories
encompassing 52 more detailed subcategories. Information technology
(IT) for example, included telecom equipment, IT equipment, office
technology, and IT/telecom services. The spend analysis consultant also
proposed a feasibility classification strategy that could be used for
more detailed opportunity analyses of high-potential subcategories.
Spend Analysis Process: Analysis and strategic goals; Agency practice:
Agriculture is not analyzing data on a continual basis. Following the
completion of the initial spend analysis in October 2001, Agriculture
used the results to support decisions for an agencywide office supply
discount agreement with a major supplier. An agreement was awarded in
2003 so that Agriculture purchase cardholders could use the supplier's
Web-based catalog to obtain small purchases of a wide range of office
supplies at reduced prices. In 2004, Agriculture created a temporary
subcommittee of procurement managers to review the 2001 spend analysis
report and more recent purchase card data where available. The agency
will identify a few more high-dollar, high-volume product subcategories
where purchase card buying power can be leveraged through discount
agreements with major suppliers.
Source: GAO analysis of agency information.
[End of table]
[End of section]
Appendix II: Comments from the Department of Veterans Affairs:
THE SECRETARY OF VETERANS AFFAIRS:
WASHINGTON:
September 8, 2004:
Mr. David E. Cooper:
Director:
Acquisition and Sourcing Management Team:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Cooper:
The Department of Veterans Affairs (VA) has reviewed your draft report,
BEST PRACTICES: Using "Spend Analysis" to Help Agencies Take a More
Strategic Approach to Procurement (GAO-04-870).
The Department agrees with your conclusion that Federal agencies can
achieve significant benefits using spend analysis best practices to
support a more strategic approach to buying goods and services. As the
Government Accountability Office (GAO) has observed, VA has achieved
considerable savings in using spend analysis.
The Department concurs with GAO's recommendation on page 23
specifically addressed to VA. When responding to GAO's final report, VA
will provide a more complete discussion of its efforts to include
clinical and non clinical services in its spend analysis. The enclosure
contains a technical clarification to your draft report.
Thank you for the opportunity to comment on your draft report.
Sincerely yours,
Signed by:
Anthony J. Principi:
Enclosure:
[End of section]
Appendix III: Comments from the Department of Health & Human Services:
DEPARTMENT OF HEALTH & HUMAN SERVICES:
Office of Inspector General:
Washington, D.C. 20201:
AUG 19 2004:
Mr. David E. Cooper:
Director:
Acquisition and Sourcing Management:
United States Government Accountability Office:
Washington, D.C. 20548:
Dear Mr. Cooper:
The Department has reviewed your draft report entitled, "Best
Practices-Using `Spend Analysis' to Help Agencies Take a More Strategic
Approach to Procurement" (GAO-04-870), and has no comments at this
time.
The Department provided technical comments directly to your staff.
The Department appreciates the opportunity to comment on this draft
report before its publication.
Sincerely,
Signed by:
Lewis Morris:
Chief Counsel to the Inspector General:
The Office of Inspector General (OIG) is transmitting the Department's
response to this draft report in our capacity as the Department's
designated focal point and coordinator for Government Accountability
Office reports. OIG has not conducted an independent assessment of
these comments and therefore expresses no opinion on them.
[End of section]
Appendix IV: Comments from the Department of Agriculture:
USDA:
United States Department of Agriculture:
Office of the Assistant Secretary for Administration:
Ms. Carolyn Kirby:
Assistant Director:
Acquisition and Sourcing Management:
United States Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Ms. Kirby:
AUG 27 2004:
We have reviewed the draft Government Accountability Office (GAO)
report number GAO-04-870 entitled: "Using Spend Analysis to Help
Agencies Take a More Strategic Approach to Procurement." In general, we
agree with the recommendations in the report, but offer the following
comments:
On page 14, the following sentence: "Agriculture is currently using the
results of a consultant's October 2001 spend analysis to obtain more
favorable prices on small purchase card buys through agency-wide
discount agreements with major purchase card vendors" tells only part
of the story. The consultant's report was useful in identifying segments
of USDA's spend, however, additional analyses were required in areas
where discount agreement are already in place or planned to be
implemented. For example, we reviewed additional level 3 purchase card
information or vendor data beyond that contained in the consultant's
report.
While we believe detailed spending analyses conducted by consultants
can be of value, we caution against overplaying the need for such
studies. Many Federal departments, through the use of existing purchase
card data and other available data systems, can discern sufficient
information to begin leveraging their spending to obtain reduced prices
for commonly acquired services and supplies. We would not want to see
these efforts delayed by the mistaken impression that consultant
reports are a prerequisite to such action.
On page 16, the "Department of Agriculture" title is erroneously shown
in an agency profile that addresses the Department of Transportation.
On page 23, please note that it was always our intention to expand our
e-Alliance strategic procurement program beyond purchase card spending.
Purchase card is only the first phase of the program.
Thank you for the opportunity to comment. Should you require any
further information, please contact the undersigned at (202) 720-6206
or via e-mail at david.shea@usda.gov.
Sincerely,
Signed by:
David J. Shea:
Chief Procurement Policy Division:
[End of section]
Appendix V: Comments from the Department of Justice:
U.S. Department of Justice:
Washington, D.C. 20530:
AUG 26 2004:
David E. Cooper:
Director, Acquisition and Sourcing Management:
U.S. Government Accountability Office:
441 G Street, NW, Rm. 7071:
Washington, DC 20548:
Dear Mr. Cooper:
Thank you for the opportunity to review the draft report entitled
"Using "Spend Analysis" to Help Agencies Take a More Strategic Approach
to Procurement," GAO-04-870. We appreciate the opportunity to review
and comment on the draft report.
While the Department generally agrees with the findings and
recommendations in the report, we would like to clarify the status of
our spend analysis efforts. The report concludes that the Department
has not yet used spend analysis to foster a more strategic approach to
acquisition nor has it begun to collect the data needed for such an
analysis. While we have not yet reached a point with sufficient data to
allow us to focus on strategic approaches, we have already begun the
data collection efforts necessary to conduct a spend analysis. Our
efforts are presently focused based around two key existing databases
of procurement information: purchase card usage information available
from our bankcard provider and procurement data contained in the
Federal Procurement Data System (FPDS).
We have begun an analysis of purchase card expenditure patterns to
identify opportunities for savings and to assess whether cardholders
are taking advantage of current discount agreements such as the General
Services Administration's (GSA) lower pricing under its Federal Supply
Schedule (FSS) contracts. In this effort, we are working closely with
our purchase card provider, Bank One, to analyze our purchase card data
and determine a baseline of our current performance as well as future
opportunities for savings. Similarly, we have begun to examine our FPDS
data to identify patterns and opportunities for efficiencies and
savings.
Again, we appreciate the opportunity to comment on this report. If you
have any questions regarding our comments, please contact Richard P.
Theis, Acting Director, Audit Liaison Office, on (202) 514-0469.
Sincerely,
Signed for:
Paul R. Corts:
Assistant Attorney General for Administration:
[End of section]
FOOTNOTES
[1] A.T. Kearney, Inc., Assessment of Excellence in Procurement 2002
(Chicago, Ill.: 2002).
[2] GAO, Best Practices: Taking a Strategic Approach Could Improve
DOD's Acquisition of Services, GAO-02-230 (Washington, D.C.: Jan. 18,
2002); Best Practices: Improved Knowledge of DOD Service Contracts
Could Reveal Significant Savings, GAO-03-661 (Washington, D.C.: June 9,
2003); and Contract Management: High-Level Attention Needed to
Transform DOD Services Acquisition, GAO-03-935 (Washington, D.C.: Sept.
10, 2003).
[3] Fiscal year 2003 data for contract actions (about $30.2 billion)
and purchase card spending (about $7 billion), Federal Procurement Data
System and the Federal Aviation Administration.
[4] GAO-02-230 and GAO-03-661.
[5] Fiscal year 2003 is the last year for which complete governmentwide
data is available. FPDS is the federal government's central database on
contracting and purchase card transactions. Additionally, we obtained
summary fiscal year 2003 contract action data from the Federal Aviation
Administration, which is not required to report their procurement
activities to the FPDS.
[6] The current system contains known errors, as discussed in GAO,
Reliability of Federal Procurement Data, GAO-04-295R (Washington, D.C.:
Dec. 30, 2003). Although we have not fully assessed the extent of
reporting errors, we have found sufficient problems to warrant concern
about the current reliability of FPDS information. As we understand the
design of an ongoing modernization of that system through FPDS-Next
Generation, many of the sources of the errors in the current FPDS
should be eliminated. In the short term, as the transition to FPDS-Next
Generation occurs, we have made recommendations to improve data
reliability.
[7] Between 2000 and 2003, we studied procurement best practices of
eleven companies--Bausch & Lomb; Brunswick Corporation; ChevronTexaco;
Delta Air Lines; Dell; Dun & Bradstreet Corporation; Electronic Data
Systems Corporation; Exxon Mobil Corporation; Hasbro, Inc;
International Business Machines; and Merrill Lynch & Co., Inc. Our past
work focused on how the companies used best practices to improve
procurement of services where costs were increasing faster than for
procurement of goods. However, the companies told us that they followed
the same practices to procure goods. See GAO-02-230 and GAO-03-661.
[8] A commodity is a category of products or services segmented by
commonality of materials or service type. The term does not imply an
expendable or noncomplex item. This grouping will allow volume and
technical leveraging of organizational spending and the establishing of
a network of commodity experts.
[9] Companies use commodity teams to make sure they have the right mix
of knowledge, technical expertise, and credibility. The teams can vary
in size but generally include representatives from a company's
procurement unit, internal clients or users of the product or service,
and the budget or finance office. The teams analyze spending data,
define internal needs and requirements, and conduct market research.
This approach has helped companies to define their needs better and to
identify, select, and manage suppliers and, in turn, helped ensure that
users' needs were met at the lowest total costs to the companies.
[10] GAO-02-230, GAO-03-661, and GAO-03-935.
[11] GAO, Contract Management: Agencies Can Achieve Significant Savings
on Purchase Card Buys, GAO-04-430 (Washington, D.C.: Mar. 12, 2004) and
Purchase Cards: Increased Management Oversight and Control Could Save
Hundreds of Millions of Dollars, GAO-04-717T (Washington, D.C.: Apr.
28, 2004).
[12] GAO, VA and DOD Health Care: Factors Contributing to Reduced
Pharmacy Costs and Continuing Challenges, GAO-02-969T (Washington,
D.C.: July 22, 2002) and DOD and VA Pharmacy: Progress and Remaining
Challenges in Jointly Buying and Mailing Out Drugs, GAO-01-588 (May 25,
2001).
[13] According to Veterans Affairs, national contracts are used to
leverage the agency's buying power on health care commodities
identified as high usage. The agency develops the requirements for
national contracts with clinician customer input and openly competes
the requirements. The agency's national contracts are generally firm,
fixed-price requirements-type contracts, with a base year and four 1-
year option periods. Veterans Affairs exercises options after market
research reveals that the prices are fair and reasonable and the award
is in the best interest of the government.
[14] Although HHS intends to market the discount agreements to agency
cardholders for small purchase card buys, HHS divisions with larger-
dollar orders will also be able to buy the same discounted items
through the agencywide agreements. However, the agreements are not
mandatory sources of supply for either purchase card holders or other
agency buys.
[15] HHS anticipates awarding two more agreements in August 2004 for
the office furniture and equipment categories.
[16] HHS hired the consultant to provide spend analysis services and
procedural, technical, and briefing support to and collaboration with
the agencywide workgroup to help implement various phases of the
services acquisitions consolidation initiative. Workgroup members
include representatives from the Office of the Secretary and all HHS
divisions, such as the National Institutes of Health, Centers for
Disease Control and Prevention, and the Food and Drug Administration.
[17] For the spend analysis, Agriculture furnished the consultant
fiscal year 2000 data files extracted from FPDS and the agency's
Purchase Card Management System. The contractor analyzed about 473,000
contract transactions totaling about $1.6 billion and 2.3 million
purchase card buys totaling $467 million. The contractor organized the
spend data into 52 commodity categories of products and services, such
as agricultural machinery, construction services, fleet maintenance,
telecom equipment, and office supplies and paper.
[18] Under the Schedules program, the GSA negotiates to obtain
discounted prices on a wide range of commercial goods and services on
its contracts with multiple vendors.
[19] Since 2002, Agriculture has carried out a cross-agency effort,
with contractor technical and program management support, to develop,
test, and phase-in the enterprise Integrated Acquisition System to
replace more than 40 different procurement systems in use across eleven
agencies and administrative offices. Agriculture plans to have the
replacement system fully operational by October 2006.
[20] When fully operational, the data warehouse will automatically
extract procurement data for all contract actions processed via the
Integrated Acquisition System and extract procurement data on all
purchase card buys captured in the agency's purchase card management
system.
[21] In 2002, the agency launched a unified financial management system
program to replace six major accounting systems now in use with one
agencywide system. Plans for the new system include integration of
financial and acquisition management, assure access to timely
information, and speed up business process and decision making. Justice
hired a contractor in March 2004 to provide software for the new system
and plans to replace legacy systems between fiscal years 2005 and 2009.
[22] In fiscal year 2003, Justice had 12,842 purchase cardholders that
accounted for over $588 million in small purchases of goods and
services for $2,500 or less. For more information, see GAO-04-430.
[23] GAO-04-430.
[24] According to the deputy senior procurement executive director, the
agency's architectural review board was expected to approve a charter
and an enterprisewide information technology procurement business
process to guide the commodity councils' activities.
[25] Since 1995, Transportation procurement activities have implemented
this program as a major initiative to improve procurement performance.
This program assists procurement managers in targeting areas for
improvement based on the results of specified metrics chosen for their
importance to the administration, agency management, or agency
customers.
[26] The general analysis did not include data for the Federal Aviation
Administration or organizations transferred to the Department of
Homeland Security (Coast Guard and Transportation Security Agency).
Transportation's analysis used fiscal year 2003 FPDS data for contract
actions in excess of $25,000. Dollars analyzed totaled $1.6 billion and
were sorted by research and development (6 percent), other services (84
percent), and products (10 percent). Transportation did not analyze
vendor or individual product and service details available in the FPDS
records.
[27] For more information on opportunities to improve Veterans Affairs'
purchasing practices and increase savings, see GAO, Contract
Management: Further Efforts Needed to Sustain VA's Progress in
Purchasing Medical Products and Services, GAO-04-718 (Washington, D.C.:
June 22, 2004).
[28] GAO-02-230 and GAO-03-661.
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