The leading commercial companies we  studied report achieving and expecting to achieve billions of dollars in  savings by developing companywide spend analysis programs and services  contracting strategies, as shown in table 2. Companies have experienced problems accumulating  sufficient data from internal financial systems that do not capture all of  what a company buys or are being used by different parts of the company  but are not connected. Although these are the  right first steps, the agency has yet to emulate the best practices of spend  analysis to the same extent as the private sector. For example, DOD is subject to statutory and regulatory goals for  contracting with small businesses and other socioeconomic categories,  such as woman-owned small businesses and small disadvantaged  businesses, that may constrain it from consolidating numerous smaller  contracts into larger ones. This is an approach often taken by the  companies we studied. DOD cites its lack of a single financial data system relative to  procurements as another challenge. Given that DOD’s spending on services’ contracts is approaching  $100 billion annually, the potential benefits of overcoming the challenges  and using best practices to establish an effective spend analysis program  are significant and can     achieve a total-spending perspective across DOD,    make the business case for collaboration in joint purchasing rather than    organize an effective management structure to assign accountability and  exercise oversight,  identify potentially billions of dollars in procurement savings  opportunities by leveraging buying power, and  identify opportunities to achieve other procurement efficiencies such as  reducing duplication in purchasing, supporting supplier diversity, and  improving supplier performance. Key elements of DOD’s approach should address    using technology to centrally automate the spend analysis process to make    using accounts payable and other internal financial and procurement data  to gain a comprehensive and reliable view of spending,    supplementing internal data with external information such as purchase  card expenditures and business intelligence to gain a more complete  picture of DOD spending and to refine analysis,  reviewing purchase data for accuracy and consistency, organizing the data  by commodity and supplier categories in order to identify opportunities to  leverage buying power,    promoting enterprise collaboration aimed at gaining the best value,  including the establishment of cross-functional teams to continue  developing strategic-sourcing projects, and    presenting relevant spending reports to appropriate decision makers to  establish strategic savings and performance goals, assign accountability,  and measure results. Moreover, for DOD to change management  structure and business processes for services-contracting will require  sustained leadership at DOD as well as the involvement and support of  Congress. Thus, for purposes of accountability and transparency in  support of such involvement and leadership, DOD needs to develop a plan  for timely changes necessary to implement a more strategic approach to  contracting. This engagement focused on  (1) the best practices of leading companies as they relate to conducting  and using spend analysis, and (2) the extent to which DOD can pursue  similar practices. Appendix: Comments from the Department of Defense
Why GAO Did This Study

Department of Defense (DOD) spending on service contracts approaches $100 billion annually, but DOD's management of services procurement is inefficient and ineffective and the dollars are not always well spent. Recent legislation requires DOD to improve procurement practices to achieve savings. Many private companies changed management practices based on analyzing spending patterns and coordinating procurement in order to achieve major savings. This report evaluates five companies' best practices and their conduct and use of "spend analysis" and the extent that DOD can pursue similar practices.

What GAO Found

The leading commercial companies GAO studied reported achieving and expecting to achieve billions of dollars in savings by developing companywide spend analysis programs and service-contracting strategies. Spend analysis answers basic questions about how much is being spent for what services, who are the suppliers, and where are the opportunities for leveraged buying to save money and improve performance. To obtain these answers, companies extract internal financial data, supplement this data with external data, organize the data into categories of services and suppliers, and have the data analyzed by managers or cross-functional teams to plan and schedule what services will be bought on a company wide basis. The results of spend analysis are also used for broader strategic purposes--to develop reports for top management, to track financial and other benefits achieved by the company, and to further improve and centralize corporate procurement processes. DOD is in the early stages of a spend analysis pilot. Although DOD is moving in the right direction, it has not yet adopted best practices to the same extent as the companies we studied. Whether DOD can adopt these practices depends on its ability to make long-term changes necessary to implement a more strategic approach to contracting. DOD also cites a number of challenges, such as its large and complex need for a range of services, the fragmentation of spending data across multiple information systems, and contracting goals for small businesses that may constrain its ability to consolidate smaller requirements into larger contracts. Challenges such as these are difficult and deep-rooted, but companies also faced them. For DOD to change management practices for the contracting of services will require sustained executive leadership at DOD as well as the involvement and support of Congress.