Procurement
May 7, 2012

Procurement cube-anomics: The spend management paradigm

When he was younger, our son liked to play with Rubik’s cubes. For most people, solving this iconic puzzle seems overwhelmingly difficult. However, as we were often informed by our teenager, it’s quite simple (and quick) if you learn the underlying algorithm. So what’s this got to do with solving budgetary shortfall dilemmas?

Every government is under extreme pressure to solve similar complex problems. Lack of money for critical programs, bankruptcy and the fear of having to raise taxes in difficult times have focused political attention on procurement.

Some governments have begun using a cubed matrix approach encompassing spend analysis tools from the private sector to reap incredible savings for their governments in relatively short turn around times. Procurement cube-anomics (as we’re dubbing it) seems like what our son would call a “no brainer.”

Spend management approach

The usual approach for cutting costs within the procurement function is for each department or agency (the traditional silos) to search for new savings. Typically, they pursue best practices, alter specific procurement practices and try new approaches.

Often, these approaches have already been tried and few new savings are found. However, there are major savings available by taking an enterprise view of procurement.

In New York State, Governor Cuomo in January 2011 announced that he would preside over the radical redesign of governmental structures and operations: “We must transform the State of New York from a government of dysfunction, gridlock and corruption to a government of performance, integrity and pride … This is not about budget trimming or cutting, it’s about looking at how we can fix government and make it work for the people. Together we must take the significant steps needed to reinvent, reorganize and redesign government to restore credibility and rebuild our economy.”

This, in turn, led to creating the Spending and Government Efficiency (SAGE) Commission, which was to redesign the “inefficient and outdated state government structure and operations by doing a comprehensive review of every agency of state government and recommending structural and operational changes.”

The results of this sort of political imperative – once it gets translated by the consultants and professionals – includes a new paradigm for procurement called spend management.

Spend management is meant to represent a holistic view of the activities involved in the “source-to-settle” process across the entire organization. This process includes spend analysis, sourcing, procurement, receiving, payment settlement and management of accounts payable and general ledger accounts. Now this paradigm is not new – it’s been used by the private sector, by large corporations with many operating divisions, for years. It’s only new in the public sector.

Spend management is:

  • An enterprise wide view of procurement;
  • Standardized systems and tools to support analysis across all state entities;
  • A centralized authority for all aspects of procurement, all the processes;
  • E-commerce on an enterprise level; and
  • Programs for continuous improvement and innovation.

Success in spend management is dependent on high levels of expertise in change management, procurement processes and systems, and on high levels of political support over a protracted period of time.

Procurement cube-anomics

Procurement cube-anomics is basically spend management on steroids. Here’s what it looks like in the state of Georgia. Their spend management concept uses a “spend cube” with three dimensions: the type of spend, across the various agencies, by supplier. All the rest is detail.

This is the first statistical system fully equipped to examine the purchases of Georgia’s 86 agencies and 35 academic institutions. Spend management analytics helps the state identify maverick spending and statewide contract opportunities. The spend cube combines data typically tracked by three disparate accounting systems and analyzes the data from virtually every imaginable angle – buyer, supplier, category or cost. Thanks to this transformational tool, the state of Georgia reaps the financial benefits of having more than $3.5 billion in spend under management.

Once our teenager learned the algorithm, he was able to solve the Rubik’s cube puzzle in 45 seconds. We challenge governments everywhere to give the cube method and other spend management approaches a try and see how quickly they can rack up the savings.

 

SIDEBAR

This article is an extract from a keynote speech, “Searching for New Savings,” given by Michael Asner at New York’s 12th Annual State Purchasing Forum in May. For a complete copy of the speech, see: www.rfpmentor.com/cms_pdfs/KeynoteMay182010NY.doc

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