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Accenture Federal Services: Cut complexity, cut costs

Addressing Federal Product and Service Proliferation

Overview

Caught between competing pressures to improve efficiency and expand services, on the one hand, and budgetary constraints that continue to tighten, on the other, federal agencies are looking for creative ways to find a balance between those objectives. Agencies typically pay a lot of attention to sweeping new programs and initiatives that offer the promise of improved efficiency, greater scope of service, and/or significant cost savings, but they may overlook opportunities simply to improve processes and procedures already in place.

One measure that can ease budget pressures without requiring programmatic changes is complexity management, an in-depth analysis of purchasing practices that generates fact-based, tangible insights that help optimize operations and achieve greater cost savings without jeopardizing agency programs. Complexity management is not the same as “strategic sourcing” – it's another mechanism for rationalizing purchase categories, items, and contracted services.

Background

The White House has made cost-cutting and efficiencies central to its policy-making; in November 2011, the Office of Management and Budget issued Executive Order 13589, directing agencies to pursue “efficient spending.” An area singled out for attention was printing expenses.

One large federal agency brought in Accenture to analyze its procurement practices in the area of printers and the supplies needed for them. Its annual spend on this category of office goods was more than $22 million. Accenture analyzed its procurement data and discovered the agency was using 275 printer suppliers, 76 suppliers for paper, and almost 400 suppliers for toner; price differences between vendors frequently were more than 10 percent.

By normalizing prices – purchasing products and supplies from significantly reduced vendor lists, reducing pricing variation across vendors, requiring vendors to commit to maintaining needed inventory levels, etc. – the agency will save 18 to 22 percent on its costs, with additional savings available if the agency shifted more of their spending to re-manufactured toner cartridges or purchased lower-weight paper. The agency is now undertaking a similar analysis for a much larger budget category, IT hardware and telecommunications equipment, with an annual spend of more than $100 million. Accenture's experiences have shown the agency can expect savings of between 10 and 15 percent by normalizing prices, 8 to 12 percent through strategic sourcing, and another 5 to 7 percent by consolidating the items it purchases.

Analysis

Whether it's office supplies, IT hardware, vehicles, janitorial items, contract labor, or myriad other kinds of supplies and services, agencies and companies alike lose sight of the true cost of procuring an unnecessarily complex and fragmented set of items and services. A single small-dollar purchase may not seem critical, but multiplied hundreds or thousands of times across an organization magnifies its significance, while the added complexity of filling these small-quantity orders adds to vendor costs, driving up the prices they charge. Addressing complexity can save from 5 to 12 percent on top of traditional strategic sourcing programs.

Recommendations

We follow a four-step process which utilizes a proprietary Accenture analytical tool. This allows us to quickly analyze thousands of individual items to develop targeted recommendations that address complexity and accelerate cost reductions while meeting agency needs.

  • Step 1: Quantify current complexity: This includes analyzing item and service attributes and identifying the additional costs resulting from overly complex and fragmented purchases. We also look into pricing variations across items and services.

  • Step 2: Identify rationalization opportunities: In essence, we work with the agency to understand their needs and investigate how to best align their needs with their purchasing behavior. We recommend a consolidated list of items and services (and the associated business case) that addresses those needs.

  • Step 3: Implement changes: This typically includes vendor negotiations (normalizing pricing) and updating catalogs to reflect fewer items. We also work to balance cost and vendor base objectives, such as maintaining small business set-asides, vendor diversity programs, and other policy requirements.

  • Step 4: Track improvements: We assist clients in deploying the governance process, including the necessary dashboards and compliance metrics to track complexity and quantify benefits.