For local governments, cost savings have become an increasingly important priority. During the COVID-19 pandemic, spend significantly increased as governments disbursed more money securing urgent supplies such as personal protective equipment (PPE), and paying out higher levels of unemployment benefits. At the same time, the exponential rise of individuals working from home have decreased the revenue generated through road tolls and local wage taxes. All of this has meant that local governments have fewer funds available that they need to stretch farther.
Today, economic and supply chain pressures have only compounded these issues. Across the country, many local governments have mandates to cut costs by at least 15 percent to balance their budgets. In these situations, pressure is often high to reduce funding aid programs — such as unemployment assistance —to quickly reduce spend. If governments cannot cut sufficient costs, they are often forced to reduce the size of their own workforce.
Unfortunately, neither of these options is a viable choice. The importance of personnel and programs to government operations underscores the need to ensure procurement and spend are optimized. By looking for cost savings and potential efficiency opportunities in procurement and spend first, governments can be sure they are providing the highest level of support possible to their local communities.
Take Stock of Current Spend
As a first step, local governments should review current spend through analysis and benchmarking. In doing so, they should look to understand where their spend is focused and whether their prices align with what others are paying for the same products and services. Then, governments should rank all categories of spend to see if their spending priorities align with their budget.
Although the process is intensive, taking the time to perform this detailed analysis can create both transparency and uncover cost savings procurement initiative opportunities.
Optimizing Spend Across Categories
Following initial analysis, the next step is to find optimizations within current spend categories. Most local governments have the opportunity to save 20-30 percent across various spend categories because they have not yet taken steps to ensure they are obtaining the best supplier contract terms possible.
One way that governments can achieve cost savings is by participating in reverse auctions. Reverse auctions are completely transparent and allow governments to share categories and quantities of products they are interested in purchasing with a group of potential suppliers. Through an online, real-time pricing event, suppliers can submit initial offers and, over the course of a live bidding period, adjust their bids to maintain a competitive position in relation to other suppliers. At the conclusion of the time allotted for the auction, government procurement teams have direct vision on the final supplier ranking by competitive price and then determine who they would like to choose. These auctions create an environment that maximizes both competitive pricing, efficiencies, and potential cost savings.
The Value of Good Data
Furthermore, when optimizing long-term strategies, the practice of regularly compiling and reviewing data on procurement and spend is critical. While it may require an initial investment to put the proper processes and technologies in place to capture and compile spend data, doing so can have significant benefits.
For example, this data allows local governments to continually review and understand their spend category-by-category and plan accordingly — this way, in the event of another supply shortage, the government is able to quickly understand exactly how much was spent on the item in question over the past several years, and where funds might be adjustable to provide a cushion to secure these more expensive supplies. This software enablement can also provide more transparency and anti-corruption solutions too.
Finding the Right Partner
While this all might seem labor intensive and time consuming to a local government with an already stretched thin workforce and budget, you don’t need to go it alone. Finding the right partner to help implement additional cost savings is key. Whether you’re looking for someone to perform spend analysis, advise on spend targets, run a reverse auction or all of the above — a specialized partner who can function as an extension of your own procurement team can provide this support to save both time and money.
The bottom line: spend is necessary. However, for most governments, it’s possible to improve their spend strategy by ensuring they are spending the right amount with the right vendors and optimizing their purchasing power. This way, governments are able to focus on what really matters: creating value for their local communities.
The author, Scott Patterson, is Chief Operating Officer at EasiBuy.
