Monday, May 23rd, 2011 - 10:19
Monday, May 23, 2011 - 10:17
By applying Smarter Spending principles appropriately, your organization could reduce costs by an average of 10 to 15% on a one time basis and 5 to 7.5% percent per year unadjusted for inflation.
Procurement reform is nothing new. Remember when Vice President Al Gore smashed that ashtray on television as he was launching the Reinventing Government campaign? That was 1993. Plenty of good things have occurred in the world of Federal procurement reform in the years since. Yet we still struggle with the same challenge: making sure that the government and more importantly the taxpayers get the maximum bang for their buck. The facts are that Congress controls the budgets, government agencies determine how to spend it, and procurement is really the last line of defense to help reduce costs. Over the next several blog posts, we’ll describe some private-sector best procurement practices. We hope you’ll read along and join the conversation. We’d love to hear what YOU think…and how you would improve Federal procurement.
The Federal Government procures a whopping $550 billion worth of goods and services, and these procurements occur largely within agencies and departments that have completely independent procurement processes. In 2005, the Office of Management and Budget’s (OMB) “strategic sourcing initiative” attempted to reduce these procurement costs by leveraging the purchasing scale of the government and pooling the purchases of commodity items. However, these benefits have yet to be fully realized due to a lack of effective procurement transformation in organization, policy, processes, and technology.
Many private-sector companies have faced—and overcome—some of the same problems the federal government faces today: declining revenues and significant cost pressures. Given its size and scope, IBM uses a procurement process that deeply resembles Federal Governments’. And in the 1990s, IBM desperately needed to find savings throughout the organization. This effort to save the company led to a company-wide implementation of two key strategies: Strategic Sourcing and Procurement Transformation.
Given our scale and complexity—33,000 suppliers, 45,000 business partners and 78,000 products with 3 million possible configurations – many of the solutions that IBM found are directly applicable to an organization as large and complex as the federal government. And what IBM found was that, as a result and detailed in our publication, Strategies to Cut Costs and Improve Performance, the company was able to consolidate 30 different internal supply chains and restructure its supplier network, eliminating $25 billion in costs while vastly improving supplier performance.
By applying similar principles appropriately, most government organizations could reduce costs by an average of 10 to 15% on a one time basis and 5 to 7.5% percent per year unadjusted for inflation. Take the U.S. Air Force (USAF) for example. To date, the USAF has realized over $100 million in savings with plans to drive more than $200 million in savings targeted for achievement in future years. Ultimately, the initiative aims to reduce the USAF’s end-to-end supply chain costs by 20% while simultaneously improving support to its customers.
In the next blog post we will dive into the details of our Smarter Spending strategies, discussed in the framework of three spend management principles; 1) Visibility, 2) Leverage, and 3) Control to demonstrate how these principles can be directly applied to government spending. In the meantime, we’d love any feedback on how YOUR organization has trimmed down spending via procurement. What were YOUR lessons learned?
Christopher Bock is an Associate Partner and Service Area Leader on the Public Sector Team at IBM Global Business Services. A graduate of the Department of the Navy’s Acquisition Intern Program in Contracting, Mr. Bock is a seasoned procurement professional with nearly twenty years of experience in the field.
Mr. Bock is acknowledged as a thought leader in the procurement field, and has been recognized repeatedly for excellence in project delivery. He currently leads IBM’s Public Sector Procurement Consulting Services team, solving client challenges across the industry. Mr. Bock earned his undergraduate degree in business from James Madison University in 1992, and a Master of Business Administration degree from The George Washington University in 1996.
Chris Bock (firstname.lastname@example.org)
Scott Padelsky is a Senior Managing Consultant on the Public Sector Procurement Team at IBM Global Business Services. As an IBMer, Mr. Padelsky is an accomplished consultant in the areas of procurement strategy, strategic sourcing, and eProcurement. Mr. Padelsky has over 15 years experience working for two companies recognized for thought leadership in supply chain and procurement, IBM and Intel Corporation. Mr. Padelsky earned an undergraduate degree in Finance from Arizona State University in 1999 and a Masters in Business Administration from the University of California, Irvine, in 2005.