Most government agencies want to reduce their enterprise spend to maximize funding available for mission critical programs and applications, and most procurement organizations are evaluated by their ability to continually reduce total enterprise spend. Difficulties reducing procurement spend can often be traced to a lack of visibility across suppliers and commodities.

A number of factors contribute to this lack of visibility, including data quality, data accessibility, and a preponderance of suppliers. Commodities are often not classified according to industry standards, so data quality suffers. And as organizations generate more and more information through disparate systems, data volumes become too large for many agencies to aggregate across the entire enterprise. Additionally, it is often difficult to aggregate various suppliers that are all under the same corporate umbrella. For example, over 110 companies are part of Northrop Grumman Corporation.

As a procurement executive, failure to understand when, why, how much, and with whom your organization spends its money results in missed opportunities to reduce cost and increase the bottom line. What's more, traditional approaches for ranking suppliers leave much to be desired, as they often rely on too many subjective measures, guesswork and incomplete information.

In September 2004, GAO released a report advocating the use of spend analysis to help agencies take a more strategic approach to procurement. A 2002 study by the consulting firm A.T. Kearney revealed that 147 companies across 22 industries produced over $13 Billion in savings in 2000 by applying spend analysis as a component of strategic procurement.

The following represent some best practices and guidelines for implementing an enterprise spend analysis program:

1. Collect 100% of agency spending including purchases on the purchasing card and other government credit cards.

2. Improve procurement visibility by automating manual systems and leveraging existing systems. Identify

• from whom you are buying
• what you are purchasing from each supplier
• when these items were purchased
• how they were purchased

The ability to aggregate data can identify key commodities from different suppliers and help prioritize your strategic sourcing efforts.

3. Seek additional data from other internal and external sources including rigorous market research.

4. Review data to ensure accuracy and completeness; organize data into logical, comprehensive commodity and supplier categories.

5. Analyze data 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.

6. Rank suppliers for improved relationships based on volume and performance.

7. Emphasize leading as well as lagging indicators. For example, keep an eye on upcoming purchases.

8. Validate cost savings and monitor return on investment (ROI) including people and processes as well as technology deployed.

9. Continually innovate in acquisition, classification, analysis, and deployment of data.

The entire GAO report can be found at the following address: http://www.gao.gov/