It’s no secret that during the pandemic local governments saw spend soar as they struggled to keep up with the swift demand for personal protective equipment (PPE) and to pay out higher levels of unemployment benefits. In lockstep with the spend increases, government revenue coffers shrunk due to significant decreases in road tolls and local wage taxes with more individuals working from home. When you add up the numbers, the simple truth is that state and local governments have less money to stretch farther to meet constituent needs.
To make matters worse, the dynamics of our modern economy have only exacerbated the issue. Across the country, new spend cap mandates in place are asking some governments to cut costs by up to 15% in order to achieve a balanced budget. This is forcing a lot of officials to evaluate cutting spend on vital programs that provide much needed aid, such as unemployment assistance and welfare benefits. If governments are unable to meet budget requirements, they often must enact labor reduction cuts to reduce spend.
Taking into consideration that neither of these are truly viable options, governments are instead placing more scrutiny on optimizing procurement spend. By addressing procurement first, governments across the country can realize immediate efficiencies and cost savings that can be enacted without having to cut into social programs and enacting job cuts to support communities.
The first recommended step is to benchmark. This exercise helps governments to understand exactly where spend is focused and whether they are paying a fair price for goods and services in comparison to what others are paying. Next step is to rank spend categories to determine whether spending priorities align with budgets. This process is intensive yes, however taking the necessary time to perform this detailed analysis creates transparency and has the potential to uncover cost savings opportunities.
Following this initial analysis, governments should then target optimization opportunities covering their current spend categories. Our research has shown that most local governments have the opportunity to save approximately 20 – 30% across various spend categories mostly because they have not yet taken the needed steps to ensure they are receiving a fair and equitable price for the goods and services they purchase. One way that governments can accelerate cost savings is through participation in a reverse auction. Reverse auctions are events that allow governments to share categories and quantities of goods and services they are interested in purchasing with a group of potential Suppliers. Then, in a real-time auctioning event, governments can watch Suppliers bid on their contracts and adjust their bids to maintain a competitive position in relation to other participating suppliers. At the end of the reverse auction, governments can then select a Supplier via a competitive price ranking system, understanding that cost is a main driver but at times not the only consideration in final selection.
When optimizing government spend, what becomes critical is the ability to compile and review data. This may require a technology investment to ensure the proper processes and procedures are in place, but it’s a small price to pay for a window into data intelligence that can profoundly impact the ability to achieve true cost savings and efficiencies. It also positions governments to be better prepared for future supply chain hiccups by providing them the ability to quickly understand historical spend and identify future adjustable categories for re-allocation of funds to more important initiatives.
EasiBuy COO Scott Patterson recently contributed an article to Government Technology Insider discussing government procurement and how to achieve true and sustainable cost savings through technology, analysis, and benchmarking. His article, “To Achieve Cost Savings, Procurement and Spend Analysis are Key” was recently published and is an excellent read for any government procurement official seeking to realize a more efficient and streamlined approach to purchasing strategies.
How can we help? For more information on spend analysis, benchmarking, reverse auctions, and achieving cost procurement cost savings and efficiencies please click here and we will be in touch!