Tuesday, May 24th, 2011 - 17:23
Tuesday, May 24, 2011 - 15:04
In our last blog, we laid the groundwork for IBM’s Smarter Spending approach and how this can help government organizations control procurement spending. In the next three posts we’ll get down to business. In a nutshell, our Smarter Spending approach consists of three main pieces; Spend Visibility, Leverage, and Control. We’ll get started by taking a closer look at visibility.
What do we mean by “visibility?”
Simply put, we have to first step back and take a look at the big picture to see, understand, and determine what’s actually going on. In short, we need to gain visibility and insight, which we can then use to develop action plans.
With Smarter Spending, organizations have to take the same approach, and this generally starts with an assessment designed to establish basic “visibility” into an organizations’ procurement demand, policy, organization, processes, and technology. Organizations can then use these results to identify areas to improve, and from there, dive deeper into ways to develop and implement transformational steps.
Organizations can get this big picture view by using an array of assessment tools, analytics, and market intelligence, among other solutions. Here are just a few of them:
Procurement Maturity Assessments: Where do you start? Most government organizations begin with some sort of procurement assessment. In these assessments, organizations evaluate their procurement capabilities based on the 6 key cornerstones depicted in the graphic to the right. After assessing the “as-is” environment, the organization can then identify gaps and deliver tailored recommendations to improve the overall procurement process.
Spend Analytics: A lack a visibility into procurement spending is often the number-one roadblock for organizations. Fortunately, organizations can use advanced technology and automation to provide better data quality and, as a result, greater insight into their spending. These spend analytic methods and software tools can help organizations rapidly aggregate, normalize, categorize, enrich, and report on spending, all of which help lower the Total Cost of Ownership (TCO). These solutions are generally hosted and come with numerous pre-built reports and dashboards, allowing the Total Cost of Ownership (TCO) to be lower.
Internal Demand: Organizations can also develop a clear understanding of the internal demand that drives spending. With this understanding, organizations can begin to consolidate suppliers and identify lower cost alternatives for procurement.
For example, the DoD identified more than 190 different oscilloscopes, a device that measures the voltage and frequency of an electric signal, in their inventory. This was causing them to manage 100+ contracts and to track 190 unique item inventories. By examining internal demand, the DoD narrowed their inventory to three different types of oscilloscopes, leading to millions of dollars in annual savings.
Total Cost Approach: Many spend management approaches focus just on price. However, organizations should look at a gamut of hidden factors that impact the total cost of goods and services, including service level agreements, quality, transportation, and warranties. Helping an organization understand the total cost of their supply decisions is important. For example, many federal agencies have seen significant cost reductions and increased flexibility when they reduce lead times and have a full understanding of the total cost of their supply base decisions. Savings can also be realized by shifting award criteria from “lowest price” to “best value” and increasing the use of performance-based contracts
Supply Market Intelligence: The value of market intelligence should never be underestimated. What’s happening with oil prices? What’s going on with market dynamics of a given product or service? By keeping an eye on national and global markets, organizations can better leverage their buying power. When market demand is low, organizations can negotiate favorable pricing on a long-term basis, whereas when demand is high, agreements can be negotiated on a short term basis, avoiding excessive cost overruns.
In the next blog, we’ll delve into greater details through our second principle, Leverage. We’ll elaborate on how organizations can realize increased value from procured goods and services by leveraging demand management, strategic sourcing, and selective use of managed spend providers.
At the end of this series we’ll describe how these principles can be applied to help government agencies. In the process, we’ll also describe how we applied these very principles to solve our own internal supply chain challenges and other success stories.
Let us hear from you.
How does your organization “see” what’s happening? Are there some areas of your procurement practices that have really benefited from a total cost approach or better market intelligence? Let us know. We look forward to hearing your thoughts.
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 (email@example.com)
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.