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. Conducting a spend analysis to obtain improved knowledge on  procurement spending is a critical component of an effective strategic  approach. 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. 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. 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. 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. The audit  recommended increasing efforts to pursue aggressively more national  contracts that, if implemented, could achieve about $82 million per year in  savings. 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. 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. 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.
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 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.

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. 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.