Supply Management in the Public Sector: Improvements Required

Aberdeen Group

The U.S. federal, state, and local governments constitute the single largest buying entity in the world. However, the government lags private sector firms in employing strategies and technology to streamline procurement operations and better control supply costs and performance. In fact, continued reports from the General Accounting Office (GAO) suggest that the federal government alone is wasting billions of tax dollars owing to underleveraged spend and underperforming procurement and supply management operations.

Aberdeen Group and Government Computer News’ examination of supply management procedures, experiences, and intentions of more than 250 federal, state, county, local, and defense agencies confirmed that, after 10 years of procurement and contracting reform, government procurement operations could still benefit more from further streamlining procurement policies and procedures, as well as more aggressive adoption of supply management automation. Put simply, in the public sector, bureaucracy is getting in the way of sound and efficient procurement and supply management practices .

The study, a survey using GCN recipients who specify or buy systems and enterprise software paired with Aberdeen 's research methodology, revealed that satisfying procurement regulations is the primary driver of supply management strategies in the public sector . Unlike in the private sector, where cost reductions are top of mind for supply management professionals, fewer than half of public sector managers cited reducing prices paid for goods and services as a key goal of their procurement operations. Even fewer were concerned with reducing employment cost of procurement operations.

Not surprisingly, government agencies reported significantly longer purchasing cycles than are common among private sector firms. Public sector organizations also have higher procurement operating costs. Chief procurement challenges cited by government managers included creating, managing, and controlling compliance to the terms and conditions of supplier contracts.

These are issues that government agencies must reconcile quickly. Faced with declining tax revenues in recent years, most agencies — particularly those at state and local levels — are facing new mandates to improve procurement and better manage their spending. As a result, these agencies must understand and develop strategies and adopt technologies to rationalize procurement procedures and enhance spend visibility and control. The strategies, processes, and systems for creating and managing supplier relationships are generally defined as supply management.

Borrowing heavily from supply management practices employed in the private sector, federal civilian and defense agencies have led the charge in streamlining procurement procedures and deploying technology solutions to automate key source-to-pay activities. State and local entities lagged in adoption of supply management discipline.

Effectively managing the total cost of ownership of supply relations — and delivering the best value for every tax dollar earned — will require government agencies to emulate total cost management (TCM) strategies employed by private sector firms, overhaul complex procurement regulations, and create incentives for cost savings.

This report assesses existing supply management challenges, strategies, and policies among government agencies today and examines the penetration and application (and future buying intentions) of source-to-pay automation in the public sector. The study also provides a framework for improving supply management operations in the public sector

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