Once you’ve made all these changes to your procurement organization and processes, you want them to last, right? The last principle of IBM’s Smarter Spending approach, “Control”, helps organizations sustain the value found in "Visibility" and secured by the "Leverage" techniques. It would be a waste to make all of these changes and not have them last, and for government agencies, these cost saving measures need to last.

So how can you make these changes long term?

We’ve found that three concepts, procurement policy, processes, and compliance, are important ways to make sure that supply chain organizational changes last.

Procurement Policy:

This may be the most important factor of all of our Smarter Spending preaching. An organization without an effective procurement policy is like a company without a mission statement; it lacks direction and focus. For example, procurement policies give organizations the sole authority to enter into agreements with suppliers and commit funds. An effective procurement policy is essential to sustaining Smarter Spending principles.

Procurement Processes:

Too many organizations have “leakage” or uncontrolled spending through non-purchase order processes. So, another important way to cut costs is to establish a clear-cut procurement processes, which avoids excessive spending. These processes should be tied into the organization’s larger procurement policy. If anything, good procurement processes allow organizations to properly capture spending data, which aids in getting “visibility” into what’s going on.

Compliance:

Rogue spending, or spending that occurs outside of approved channels, can represent over half of all expenditures. Therefore, organizations that want to realize full value from strategic sourcing should achieve compliance levels in excess of 90%. How can you do this? To start, organizations can attack contract price variance, which is when a supplier charges two individuals in an organization two different prices. Organizations that have focused on contract price variance often see savings between 6-14%.

Another “leakage” is in improper payments, like overpayments, early payments, duplicate payments, and in some cases fraud. A recent GAO report estimates that the Federal Government loses $125 billion each year in improper payments. But, here’s the good news: This is perhaps the easiest and most effective way for organizations to reduce costs! 

Improper payments, or “fraud and abuse,” can be identified through advanced analytics and recovered by automating audit and recovery processes.  This can also include establishing controls on refunds, payments, expense reports, check requests, cash advances, and purchase card platforms.  These solutions quickly pay for themselves and tax payers love them because they increase transparency and demonstrate that government organizations are responding to increased citizen demands for fiscal accountability.

For example, in the State of North Carolina, the Department of Health and Human Services is applying advanced analytics to reduce Medicaid claim fraud and abuse. In the State of New York, the Department of Taxation and Finance is applying advanced analytics to identify tax refund fraud and abuse. The actions of these two states have resulted in saving their taxpayers millions of dollars.

A quick look back…and what’s next

The past three blogs have outlined our Smart Spending Principles of “Visibility, Leverage, and Control.” At the end of the day, our aim is to see what’s going on, apply tools to cut costs and stop leakage, and then make sure the changes last for the long haul. In our next blog, we’ll wrap up Smarter Spending by focusing on how these principles can be applied to government agencies.

What do you think?

In the meantime, would these ideas work for your organization? Do you think these changes would be beneficial? Take a moment and share your thoughts with us.

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 (christopher.bock@us.ibm.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.

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