a

GAO

United States Government Accountability Office

Report to the Committee on 

Governmental Affairs, U.S. Senate, and 

the Committee on Government Reform, 

House of Representatives

September 2004 BEST PRACTICES

Using Spend Analysis 

to Help Agencies Take 

a More Strategic 

Approach to 

Procurement

GAO-04-870
www.gao.gov/cgi-bin/getrpt?GAO-04-870.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact David Cooper 

at (202) 512-4841 or cooperd@gao.gov. 

Highlights of GAO-04-870, a report to the 

Committee on Governmental Affairs, 

U.S. Senate, and the Committee on 

Government Reform, House of 

Representatives 

September 2004

BEST PRACTICES

Using Spend Analysis to Help Agencies 

Take a More Strategic Approach to 

Procurement 

Taking a strategic approach to procurement involves a range of activities—

from using spend analysis to taking an enterprisewide approach to buying 

goods and services. Three of the five surveyed agencies have begun to use 

spend analysis to obtain knowledge and improve their spending for goods 

and services. Veterans Affairs’ success in using spend analysis and a 

strategic approach to pharmaceutical procurement helped save $394 million 

in 2003. Currently, agency teams are organizing medical-equipment and 

supplies purchase data to develop national contracts to save an estimated 

$82 million a year. Spend analysis is being used by HHS to support strategic 

sourcing of office-related equipment and supplies through discount 

agreements with major vendors that could save an estimated $9.5 million per 

year. Agriculture used a 2001 spend analysis to negotiate a discount 

agreement for office supplies that yielded savings of $1.8 million to date and 

is identifying more such opportunities. Agriculture is also modernizing its 

acquisition system to develop automated data-mining, spend analysis, and 

reporting capabilities to support future opportunities. The departments of 

Justice and Transportation have not yet used spend analyses to support a 

more strategic approach to procurement. 

Veterans Affairs, HHS, and Agriculture have made good progress using 

spend analysis to improve their procurements, and they have adopted some 

elements of a strategic approach. Implementing spend analysis is challenging 

and can take time, and the agencies have not yet adopted the full range of 

private sector best practices. (See table.) Fully adopting the supporting 

structure, process, and role changes that companies institute would enable 

these agencies to move away from a fragmented procurement process and 

determine how effective they are in using spend analysis to achieve 

significant savings. 

Automation: Data automatically compiled.

 Extraction: Essential data culled from accounts payable and other internal systems.

 Supplemental information: Additional data sought from other internal and 

external sources.

 Analysis and strategic goals: Using standard reporting and analytical tools, data 

analyzed on a continual basis to support decisions on strategic-sourcing and procurement 

management in areas such as cost cutting, streamlining operations, and reducing the 

number of suppliers. Scope generally covers an organization's entire spending.

 Organization: Review data to ensure accuracy and completeness; organize data into 

logical, comprehensive commodity and supplier categories.

1

2

3

4

5

Source: GAO analysis.

Spend Analysis: Key Processes

“Spend analysis” is a tool that 

provides knowledge about who are 

the buyers, who are the suppliers, 

how much is being spent for what 

goods and services, and where are 

the opportunities to leverage 

buying power. Private sector 

companies are using spend analysis 

as a foundation for employing a 

strategic approach to procurement. 

Recognizing the potential in 

government purchasing, GAO 

examined if the departments of 

Agriculture, Health and Human 

Services (HHS), Justice, 

Transportation, and Veterans 

Affairs are using spend analysis to 

take a strategic approach. GAO 

assessed (1) if agencies use spend 

analysis to obtain knowledge to 

improve procurement of goods and 

services and (2) how agencies’ 

practices compare to leading 

companies best practices. 

This report includes 

recommendations to help Veterans 

Affairs, Agriculture, and HHS adopt 

the full range of spend analysis best

practices. This report also includes 

recommendations intended to help 

Justice and Transportation step up 

the process of gaining knowledge 

of their spending to take a more 

strategic approach to procurement. 

GAO received written and oral 

comments on a draft of this report. 

The agencies generally agreed with 

GAO’s findings and 

recommendations. 
Page i GAO-04-870 Best Practices 

Letter 1

Scope and Methodology 2 

Results in Brief 3 

Background 5 

Agencies Have Begun Analyzing Spending Trends to Improve 

Knowledge and Procurement 10 

Agencies Have Not Adopted Full Range of Spend Analysis Best 

Practices and Lack Some Supporting Structure, Processes, and 

Roles 21 

Conclusions 24 

Recommendations for Executive Action 24 

Agency Comments and Our Evaluation 26 

Appendix I GAO Analyses of Agencies’ Spend Analysis 

Practices 29 

Appendix II Comments from the Department of Veterans 

Affairs 33 

Appendix III Comments from the Department of Health & 

Human Services 34 

Appendix IV Comments from the Department of Agriculture 35 

Appendix V Comments from the Department of Justice 37 

Tables 

Table 1: Veterans Affairs Spend Analysis Practices 30 

Table 2: Health and Human Services Spend Analysis Practices 31 

Table 3: Agriculture Spend Analysis Practices 32 

Contents 
Page ii GAO-04-870 Best Practices 

Figure 

Figure 1: Broad Principles and Practices of Leading Companies’ 

Strategic Approach 6 

Abbreviations 

DOD Department of Defense 

FPDS Federal Procurement Data System 

GSA General Services Administration 

HHS Health and Human Services 

IT information technology 

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Page 1 GAO-04-870 Best Practices 

September 16, 2004 

The Honorable Susan M. Collins 

Chairman 

The Honorable Joseph I. Lieberman 

Ranking Minority Member 

Committee on Governmental Affairs 

United States Senate 

The Honorable Tom Davis 

Chairman 

The Honorable Henry A. Waxman 

Ranking Minority Member 

Committee on Government Reform 

House of Representatives 

Taking a strategic approach to procurement involves a range of 

activities—from using “spend analysis” to develop a better picture of what 

an agency is spending on goods and services, to taking an enterprisewide 

approach for procuring goods and services, to developing new ways of 

doing business. Our prior work has shown that such an approach could 

help agencies leverage their buying power, reduce costs, and better 

manage suppliers of goods and services, as leading private sector 

companies have discovered on adopting these activities. One survey of 

147 companies in 22 industries indicated that such an approach produced 

savings of more than $13 billion in 2000.1

Spend analysis is a tool that provides companies knowledge about how 

much is being spent for what goods and services, who are the buyers, and 

who are the suppliers, thereby identifying opportunities to leverage 

buying, save money, and improve performance. To obtain these answers, 

companies use a number of practices involving automating, extracting, 

supplementing, organizing, and analyzing procurement data. Companies 

establish automated systems to extract and compile internal financial data 

covering everything they buy; supplement that data with information from 

external sources; organize this data into complete and consistent 

categories of products, services, and suppliers; and have the data 

 1

 A.T. Kearney, Inc., Assessment of Excellence in Procurement 2002 (Chicago, Ill.: 2002). 

United States Government Accountability Office

Washington, DC 20548 
Page 2 GAO-04-870 Best Practices 

continually analyzed. Companies then leverage this data to institute a 

series of structural, process, and role changes aimed at moving away from 

a fragmented procurement process to a more efficient and effective 

corporate process in which managers make decisions on a companywide 

basis. 

We have already issued several reports examining the benefits of using a 

strategic approach to procurement and spend analysis at the Department 

of Defense.2

 Recognizing the potential that similar use might offer in 

civilian areas of government purchasing, on the initiative of the 

Comptroller General, we reviewed the activities of five federal agencies—

the departments of Agriculture, Health and Human Services (HHS), 

Justice, Transportation, and Veterans Affairs—whose goods and services 

spending totaled almost $37.2 billion in 2003.3

 Specifically, we assessed 

(1) if these agencies are using spend analysis to obtain knowledge to 

improve procurement of goods and services and (2) how these agencies’ 

spend analysis practices compare to leading companies’ best practices, 

including whether agencies have in place the supporting structure, 

processes, and roles to effectively use the results of spend analysis. We are 

addressing this report to you because of your jurisdiction over the 

efficiency, economy, and effectiveness of all agencies and departments of 

the government. 

To conduct this work, we obtained information from the five agencies 

about how they used spend analysis in support of a more cost effective 

approach to procurement. We interviewed senior procurement 

management officials at departmental headquarters to obtain information 

and views about any agencywide spend analysis efforts and how such 

efforts compared to leading companies’ best practices identified in our 

recent work.4

 We reviewed internal memorandums and other documents 

related to ongoing or proposed agency procurement reforms that 

 2

 GAO, Best Practices: Taking a Strategic Approach Could Improve DOD’s Acquisition of 

Services, GAO-02-230 (Washington, D.C.: Jan. 18, 2002); Best Practices: Improved 

Knowledge of DOD Service Contracts Could Reveal Significant Savings, GAO-03-661

(Washington, D.C.: June 9, 2003); and Contract Management: High-Level Attention Needed 

to Transform DOD Services Acquisition, GAO-03-935 (Washington, D.C.: Sept. 10, 2003). 

3

 Fiscal year 2003 data for contract actions (about $30.2 billion) and purchase card 

spending (about $7 billion), Federal Procurement Data System and the Federal Aviation 

Administration. 

4 GAO-02-230 and GAO-03-661. 

Scope and 

Methodology 
Page 3 GAO-04-870 Best Practices 

leveraged buying power, cut costs, and achieved other performance 

benefits. For background on the agencies’ contract and purchase card 

spending on goods and services, we used summary fiscal year 2003 

Federal Procurement Data System (FPDS) data from the General Services 

Administration (GSA).5

 Because we used FPDS data for information 

purposes and not to support our findings, we did not verify the data.6

 We 

also did not verify the accuracy of any strategic procurement costs savings 

reported to us by the agencies. We conducted our work in accordance 

with generally accepted government auditing standards between 

December 2003 and June 2004. 

Three of the five agencies we studied have begun to conduct spend 

analyses and used the results to better manage procurements. Veterans 

Affairs, HHS, and Agriculture launched or expanded their efforts in the last 

2 years, with noteworthy results. Veterans Affairs, for example, used an 

automated spend analysis of pharmaceutical procurement and a strategic 

approach to help save $394 million in 2003. Currently, agency commodity 

teams are beginning a manual review of medical equipment and supplies 

procurement data to identify high-cost, high-technology items such as 

magnetic resonance imaging and ultrasound equipment for national 

contracting that could save $82 million a year. A recent HHS spend 

analysis for office-related products was used to award agencywide 

discount agreements with three vendors that will save an estimated 

$9.5 million a year on thousands of office and custodial supplies and 

computer monitors, scanners, and other peripherals. An Agriculture spend 

analysis of products and services purchased in fiscal year 2000 led the 

department to negotiate an agreement for office supplies with one major 

vendor that has so far yielded savings of $1.8 million. 

 5

 Fiscal year 2003 is the last year for which complete governmentwide data is available. 

FPDS is the federal government’s central database on contracting and purchase card 

transactions. Additionally, we obtained summary fiscal year 2003 contract action data from 

the Federal Aviation Administration, which is not required to report their procurement 

activities to the FPDS. 

6

 The current system contains known errors, as discussed in GAO, Reliability of Federal 

Procurement Data, GAO-04-295R (Washington, D.C.: Dec. 30, 2003). Although we have not 

fully assessed the extent of reporting errors, we have found sufficient problems to warrant 

concern about the current reliability of FPDS information. As we understand the design of 

an ongoing modernization of that system through FPDS-Next Generation, many of the 

sources of the errors in the current FPDS should be eliminated. In the short term, as the 

transition to FPDS-Next Generation occurs, we have made recommendations to improve 

data reliability. 

Results in Brief 
Page 4 GAO-04-870 Best Practices 

At the time of our review, the departments of Justice and Transportation, 

by contrast, had not begun to collect the data needed for a strategic 

approach to procurement. Both agencies are engaged in ongoing efforts to 

improve procurements or cut operating costs, and top leadership is 

committed to using spend analysis to change the way goods and services 

are purchased. One obstacle to using spend analysis cited by both 

agencies was the lack of comprehensive and reliable spending data, 

although since our review they report stepping up efforts to use currently 

available data and evaluate business intelligence software to overcome 

those obstacles. 

Veterans Affairs, HHS, and Agriculture have taken some positive steps in 

the use of spend analysis to improve procurements, but to fully optimize 

the potential the technique offers, they will need to adopt the full range of 

private sector best practices for automating, extracting, supplementing, 

organizing, and analyzing data on all their procurement spending. 

Although successful in the pharmaceutical area, Veterans Affairs has made 

slow progress in improving other medical supplies and services 

procurements. HHS had no plans for an automated spend analysis system 

for compiling the necessary data on an ongoing basis, although 

headquarters officials told us in June that they intend to propose such a 

system. Agriculture’s automated spend analysis system, to be completed 

by 2006, will be a centralized tool shared by constituent agencies that may 

or may not elect to use it to chart their own strategic procurement paths. 

This report includes recommendations intended to help Veterans Affairs, 

Agriculture, and HHS adopt the full range of spend analysis best practices 

and to help Justice and Transportation step up the process of gaining 

knowledge of their spending to support a more strategic approach to 

acquiring goods and services. In written and oral comments on a draft of 

this report from Veterans Affairs, Agriculture, Justice, and Transportation, 

the agencies generally agreed with our findings and recommendations. 

Health and Human Services had no comments. The written comments we 

received are reproduced in appendixes II through V. 
Page 5 GAO-04-870 Best Practices 

Our past work studying how leading private-sector companies have 

reengineered their approach to procurement offers federal agencies both 

valuable insights and a general framework that could serve to guide their 

efforts.7

 While each of the companies we studied is a leader in its 

respective market, each was also not immune to market or stockholder 

pressures to improve performance or to challenges from senior corporate 

leadership to improve the manner in which the company acquired goods 

and services. In turn, these companies adopted a strategic approach to 

leverage their buying power, reduce costs, better manage their suppliers, 

and improve the quality of goods and services acquired. 

As shown in figure 1, we identified broad principles and practices that 

were critical to carrying out the companies’ strategic approach 

successfully. Taking a strategic approach involves a range of activities 

from developing a better picture of what the company is spending on 

procurement to taking an enterprisewide approach to procuring goods and 

services and developing new ways of doing business. 

 7

 Between 2000 and 2003, we studied procurement best practices of eleven companies—

Bausch & Lomb; Brunswick Corporation; ChevronTexaco; Delta Air Lines; Dell; Dun & 

Bradstreet Corporation; Electronic Data Systems Corporation; Exxon Mobil Corporation; 

Hasbro, Inc.; International Business Machines; and Merrill Lynch & Co., Inc. Our past work 

focused on how the companies used best practices to improve procurement of services 

where costs were increasing faster than for procurement of goods. However, the 

companies told us that they followed the same practices to procure goods. See GAO-02-230

and GAO-03-661. 

Background 
Page 6 GAO-04-870 Best Practices 

Figure 1: Broad Principles and Practices of Leading Companies’ Strategic 

Approach 

Pursuing such an approach in the private sector clearly pays off. Studies 

have reported significant cost savings for some companies of 10 to 20 

percent of their total procurement costs. And the leading commercial 

companies we studied reported savings and anticipated savings in the 

billions of dollars. 

Conducting a spend analysis to obtain improved knowledge on 

procurement spending is a critical component of an effective strategic 

approach. A spend analysis permits company executives to review how 

much their company has spent each year, what was bought, from whom it 

was bought, and who was purchasing it. The analysis identifies where 

numerous suppliers are providing similar goods and services—often at 

varying prices—and where purchasing costs can be reduced and 

performance improved by better leveraging buying power and reducing 

the number of suppliers to meet the company’s needs. 

Commitment...Secure up-front commitment from top leaders

 Recognize and communicate the urgency to change procurement spending practices

 Provide clear and strong executive leadership, including goals and targets

Knowledge...Obtain improved knowledge on procurement spending

Change...Create supporting structure, processes, and roles

Develop information system—i.e., a spend analysis system—to identify how much 

is being spent with which supplier for what goods or services

Analyze the data to identify opportunities to reduce costs, improve service levels,

and provide better management of suppliers

Create or identify organizations responsible for coordinating or managing purchases

Establish proactive business relationships among end users, purchasing units, 

and other stakeholders

Implement more integrated team-based sourcing processes

Create commodity/service experts

Support...Enable success through sustained leadership, communication, and metrics

 Obtain sustained support from senior leadership to facilitate change

 Establish clear lines of communication among all affected parties

 Demonstrate value and credibility of new processes through the use of metrics

Source: GAO analysis.
Page 7 GAO-04-870 Best Practices 

Spend analysis is an important driver of strategic planning and execution, 

and it allows for the creation of lower-cost consolidated contracts at the 

local, regional, or global level. At the same time, as part of a strategic 

procurement effort, spend analysis allows companies to monitor trends in 

small and minority-owned business supplier participation to address the 

proper balance between small and minority business utilization and 

equally important corporate financial savings goals for strategic sourcing. 

Setting up a spend analysis program can be challenging, according to our 

prior research. Companies have had problems accumulating sufficient 

data from internal financial systems that do not capture all of what a 

company buys or are being used by different parts of the company but are 

not connected. Because simplified data may not exist or be available, 

companies have frequently been unsure who their buyers are and have had 

to contend with databases that include listings of items and suppliers that 

in reality are identical to each other but which are all stored under 

different names. Companies have also found that existing databases have 

not captured anywhere nearly enough details on the goods and services 

for which vendors are being paid. 

Despite the challenges, companies that developed formal, centralized 

spend analysis programs have found that they have been able to conduct 

effective and ongoing spend analysis through the use of five key processes, 

involving automating, extracting, supplementing, organizing, and analyzing 

data. 
Page 8 GAO-04-870 Best Practices 

Building the foundation for a thorough spend analysis involves creating an 

automated information system for compiling spending data. The system 

routinely extracts vendor payment and related procurement data from 

financial and other information systems within the company. The data are 

then automatically compiled into a central data warehouse or a 

spreadsheet application, which is continually updated. Most of the 

automated spend analysis systems currently in use were developed inhouse, although some companies have hired third-party companies for 

expertise and technology. 

The data are primarily extracted from vendor accounts payable financial 

systems and reviewed for completeness. Accounts payable data can be 

voluminous and very detailed. Companies process large numbers of 

vendor invoices for payment each year, and each of those must be 

examined by their spend analysis systems. When necessary, the accounts 

payable data are supplemented with other sources, such as purchase card 

data obtained from external bank-card vendors’ systems or other 

information, such as suppliers’ financial status and performance 

information. Companies must obtain as much information as possible from 

both internal and external sources to gain a complete understanding of 

their spending. 

For spend analysis to be effective, data files must be accurate, complete, 

and consistent. The data are subjected to an extensive review for accuracy 

and consistency, and steps are taken to standardize the data in the same 

Automation: Data automatically compiled.

 Extraction: Essential data culled from accounts payable and other internal systems.

 Supplemental information: Additional data sought from other internal and 

external sources.

 Analysis and strategic goals: Using standard reporting and analytical tools, data 

analyzed on a continual basis to support decisions on strategic-sourcing and procurement 

management in areas such as cost cutting, streamlining operations, and reducing the 

number of suppliers. Scope generally covers an organization's entire spending.

 Organization: Review data to ensure accuracy and completeness; organize data into 

logical, comprehensive commodity and supplier categories.

1

2

3

4

5

Source: GAO analysis.

Spend Analysis: Key Processes
Page 9 GAO-04-870 Best Practices 

format, which involves the creation of uniform purchasing codes. The data 

are typically organized into comprehensive categories of suppliers and 

commodities that cover all of the organization’s purchases.8

In tandem with building a spend analysis foundation, commodity 

managers or cross-functional commodity teams are established to access 

and analyze the information on an ongoing basis, using standard reporting 

and analytical tools.9

 Each team is responsible for one or more 

commodities, which may also include responsibility for a number of subcategories. Once the spending data has been organized and reviewed, 

companies use the data as the foundation for a variety of ongoing strategic 

decisions and efforts. 

Our past work also shows how federal agencies, in particular DOD, might 

apply these private sector best practices to obtain lower prices from 

suppliers and improve procurement effectiveness. For example, we 

noted that although DOD’s spending on services contracts approaches 

$100 billion annually, its management of services procurement has been 

inefficient and ineffective.10 To achieve the potential for billions of dollars 

in savings, we recommended that DOD take a more strategic approach to 

services contracting that includes adopting the spend analysis best 

practices of leading companies. In response, in 2004 the agency started 

developing a spend analysis system that will pull purchasing data from 

disparate databases for analysis by newly organized DOD-wide commodity 

teams. DOD expects that users of this spend analysis system will be able 

to identify procurement trends, buying patterns, and opportunities for 

strategic sourcing, which will result in cost savings and quality 

improvements. 

 8

 A commodity is a category of products or services segmented by commonality of 

materials or service type. The term does not imply an expendable or noncomplex item. 

This grouping will allow volume and technical leveraging of organizational spending and 

the establishing of a network of commodity experts. 

9

 Companies use commodity teams to make sure they have the right mix of knowledge, 

technical expertise, and credibility. The teams can vary in size but generally include 

representatives from a company’s procurement unit, internal clients or users of the product 

or service, and the budget or finance office. The teams analyze spending data, define 

internal needs and requirements, and conduct market research. This approach has helped 

companies to define their needs better and to identify, select, and manage suppliers and, in 

turn, helped ensure that users’ needs were met at the lowest total costs to the companies. 

10 GAO-02-230, GAO-03-661, and GAO-03-935. 
Page 10 GAO-04-870 Best Practices 

The government purchase card program offers yet another arena for the 

use of spend analysis. Through the purchase card program, agency 

personnel can acquire the routine goods and services they need directly 

from vendors as long as the purchase is $2,500 or less. From 1994 to 2003, 

the use of such cards exploded from $1 billion to $16 billion, but we found 

that agencies generally were not taking advantage of opportunities to 

negotiate discounts with major vendors.11 We therefore recommended 

several actions—including conducting spend analysis using available data 

and gathering additional information where feasible—that would 

ultimately help agencies to achieve $300 million annually in potential 

savings. 

Three of the five agencies we reviewed—Veterans Affairs, HHS, and 

Agriculture—have each conducted spend analyses, either by using their 

own resources or by hiring consultants to do the work. Each agency is 

beginning to use spend analysis to obtain knowledge and to plan and carry 

out changes in agencywide procurement processes intended to leverage 

buying power, eliminate redundant and duplicative acquisition activity, 

and reduce purchasing costs for goods and services. The departments of 

Justice and Transportation have not begun to collect the data needed for 

using spend analysis nor taken steps that would be part of a strategic 

approach to procurement. 

 11 GAO, Contract Management: Agencies Can Achieve Significant Savings on 

Purchase Card Buys, GAO-04-430 (Washington, D.C.: Mar. 12, 2004) and Purchase Cards: 

Increased Management Oversight and Control Could Save Hundreds of Millions of 

Dollars, GAO-04-717T (Washington, D.C.: Apr. 28, 2004). 

Agencies Have Begun 

Analyzing Spending 

Trends to Improve 

Knowledge and 

Procurement 
Page 11 GAO-04-870 Best Practices 

For several years, Veterans Affairs has had significant success using spend 

analysis on an ongoing basis to take a more strategic approach to 

pharmaceutical procurement. Reflecting national trends, Veterans Affairs’ 

pharmacy procurement costs have risen significantly in recent years, 

consuming an increasing percentage of the department’s health care 

budget. The $2.1 billion the agency spent on such items in 2000 were 

primarily for prescription drugs and their dispensing, but also included 

some supplies and over-the-counter drugs. To mitigate this increase in 

pharmacy procurement costs, the agency created a pharmacy benefits 

management strategic health group in 1995 that analyzes pharmaceutical 

spending trends across all medical facilities and employs various 

procurement arrangements for purchasing prescription drugs at 

substantial discounts.12 According to the agency, the pharmaceutical 

procurement standardization program led to savings of $394 million in 

fiscal year 2003 alone. 

 12 GAO, VA and DOD Health Care: Factors Contributing to Reduced Pharmacy Costs and 

Continuing Challenges, GAO-02-969T (Washington, D.C.: July 22, 2002) and DOD and VA 

Pharmacy: Progress and Remaining Challenges in Jointly Buying and Mailing Out 

Drugs, GAO-01-588 (May 25, 2001). 

Department of Veterans Affairs

Agency Profile

Mission Highlights: To restore the capability of those who suffered harm during 

their military service; to ensure a smooth transition as veterans return to civilian life 

in their communities. Operates a health care system to provide about 3.8 million 

veterans health care through 163 hospitals and more than 800 outpatient clinics 

nationwide. 

Organizations: Veterans Health Administration, Veterans Benefits Administration, 

and National Cemetery Administration.

Spending: In fiscal year 2003, contract spending on goods and services totaled 

$8.5 billion. Purchase card spending accounted for another $5 billion, which 

includes about $3.1 billion under the agency's prime vendor program.

Department of Veterans Affairs

Agency Profile

Mission Highlights: To restore the capability of those who suffered harm during 

their military service; to ensure a smooth transition as veterans return to civilian life 

in their communities. Operates a health care system to provide about 3.8 million 

veterans health care through 163 hospitals and more than 800 outpatient clinics 

nationwide. 

Organizations: Veterans Health Administration, Veterans Benefits Administration, 

and National Cemetery Administration.

Spending: In fiscal year 2003, contract spending on goods and services totaled 

$8.5 billion. Purchase card spending accounted for another $5 billion, which 

includes about $3.1 billion under the agency's prime vendor program.

Sources: GAO and FPDS.
Page 12 GAO-04-870 Best Practices 

Veterans Affairs has also made progress in the areas of medical and 

prosthetics supplies and equipment. In fiscal year 2001, the agency 

purchased about $500 million in medical-surgical supplies and $1.1 billion 

in medical equipment and prosthetics. For example, VA created a national 

prosthetics spend database that extracts procurement data from all 

medical facilities’ systems and organizes data on purchased items into 

commodity categories, such as wheelchairs and aids for the blind. The 

agency’s prosthetics strategic health group also formed a number of 

commodity teams with stakeholders from across the medical facilities and 

health care regions to use spend analysis to identify commonly used items 

that can be purchased at substantial discounts under a national contract.13

The prosthetics group also uses spend analysis to monitor medical facility 

compliance with the national contracts and to ensure potential savings are 

realized. As of June 2004, the group’s spend analysis and strategic-sourcing 

efforts have resulted in 23 national contracts and accumulated more than 

$57 million in cost avoidance. 

The agency is just beginning to develop a spend analysis tool for medical 

and surgical supplies and high-technology medical equipment. Specifically, 

it is working with a contractor to create uniform medical-product names 

for an agencywide spend analysis system. When the system is fully 

operational in fiscal year 2006, it will automatically extract medical 

supplies and equipment procurement data into a central data warehouse, 

organized by common categories of products. Until this system is fully 

operational, this year the agency decided to form several cross-functional 

commodity teams to pursue new national contracts on 45 categories of 

high-technology, high-cost medical equipment and supplies (such as 

magnetic resonance imaging and ultrasound equipment). 

 13 According to Veterans Affairs, national contracts are used to leverage the agency’s 

buying power on health care commodities identified as high usage. The agency develops 

the requirements for national contracts with clinician customer input and openly competes 

the requirements. The agency’s national contracts are generally firm, fixed-price 

requirements-type contracts, with a base year and four 1-year option periods. Veterans 

Affairs exercises options after market research reveals that the prices are fair and 

reasonable and the award is in the best interest of the government. 
Page 13 GAO-04-870 Best Practices 

Since 2003, HHS has been obtaining spend analysis and procurement 

consolidation advice from outside consultants to help reduce the 

department’s operating costs and redirect the savings to programs. Like 

other agencies, procurement activities in HHS were operating under a 

decentralized environment of independent, transaction-oriented buying 

processes, with limited visibility over the agency’s total procurement 

spending. 

For example, HHS has conducted a spend analysis of commonly 

contracted products. In its first phase, $100 million in yearly spending for 

thousands of office-related products such as custodial supplies, office 

supplies, office furniture, office equipment (such as photocopiers and 

facsimile machines), and peripheral information technology products 

(such as computer monitors and scanners) was analyzed to identify 

opportunities for significant savings to purchase card buyers through 

agencywide discount agreements.14 Between May and July 2004, HHS 

awarded the first agreements to three vendors for the office supplies, 

custodial products, and peripheral items.15 HHS estimates the potential 

 14 Although HHS intends to market the discount agreements to agency cardholders for 

small purchase card buys, HHS divisions with larger-dollar orders will also be able to buy 

the same discounted items through the agencywide agreements. However, the agreements 

are not mandatory sources of supply for either purchase card holders or other agency buys. 

15 HHS anticipates awarding two more agreements in August 2004 for the office furniture 

and equipment categories. 

Department of Health and Human Services 

Agency Profile

Mission Highlights: HHS is the United States government's principal agency for 

protecting the health and welfare of all Americans. 

Organizations: National Institutes of Health, Administration for Children and 

Families, Food and Drug Administration, Centers for Medicare and Medicaid 

Services, Centers for Disease Control and Prevention, and Indian Health Service, to 

name a few.

Spending: In fiscal year 2003, contract spending for goods and services totaled 

$6.7 billion; purchase card spending accounted for another $392 million. 

Department of Health and Human Services 

Agency Profile

Mission Highlights: HHS is the United States government's principal agency for 

protecting the health and welfare of all Americans. 

Organizations: National Institutes of Health, Administration for Children and 

Families, Food and Drug Administration, Centers for Medicare and Medicaid 

Services, Centers for Disease Control and Prevention, and Indian Health Service, to 

name a few.

Spending: In fiscal year 2003, contract spending for goods and services totaled 

$6.7 billion; purchase card spending accounted for another $392 million. 

Sources: GAO and FPDS.
Page 14 GAO-04-870 Best Practices 

savings from these discount agreements range from 7 percent to 

54 percent and could yield at least $9.5 million in annual savings for the 

department on just the office supplies, office equipment, and information 

technology peripherals. Later this year, the agency will work with its 

consultant to do a new round of spend analysis to identify potential 

categories and savings opportunities in the next phase of the strategicsourcing initiative for products. 

In a second initiative, HHS procurement headquarters hired a consultant in 

August 2003 to support a newly organized agencywide group of 100 senior 

procurement and other key managers to work on consolidation of services 

acquisitions.16 One of the contractor’s key tasks was to conduct a spend 

analysis of almost $4.9 billion in fiscal year 2002 HHS contract actions17 to 

identify high-volume or high-dollar common services for consolidation. 

Twenty-four categories—such as security guards and patrol services and 

office administrative services—were subsequently identified for possible 

consolidation—totaling almost $1.7 billion in value. 

The consultant’s plan included steps to organize and segment HHS 

contract workload and spend data into categories of services and 

suppliers. This step was intended to help the services acquisition 

consolidation working group identify opportunities across divisions to 

reduce the number of suppliers where competition for new agencywide 

contracts is practical. However, according to the working group’s project 

officer, in view of small business and contract-bundling requirements and 

the long lead times needed to obtain division consensus on new contract 

arrangements, the working group decided instead to pursue alternative 

consolidation strategies in the near-term. 

As a result, HHS headquarters officials expect the working group to 

finalize criteria and a timeline for selecting existing division service 

 16 HHS hired the consultant to provide spend analysis services and procedural, technical, 

and briefing support to and collaboration with the agencywide workgroup to help 

implement various phases of the services acquisitions consolidation initiative. Workgroup 

members include representatives from the Office of the Secretary and all HHS divisions, 

such as the National Institutes of Health, Centers for Disease Control and Prevention, and 

the Food and Drug Administration. 

17 For the spend analyses, HHS furnished the contractor fiscal year 2002 data files extracted 

from the Departmental Contract Information System. The contractor analyzed contract 

actions in excess of $25,000 for research and development, information technology, 

architectural and engineering, construction, and other services. 
Page 15 GAO-04-870 Best Practices 

contracts that would be listed in an HHS-wide database that other division 

purchasers might use before initiating their own new, stand-alone 

contracts. Potential contract categories include temporary services, 

information technology services, focus groups, and conference 

management and support. 

Agriculture is currently using the results of a consultant’s October 2001 

spend analysis as updated with more recent spending data to obtain 

favorable prices on small purchase card buys through agencywide 

discount agreements with major vendors. The contractor analyzed almost 

$2.1 billion in fiscal year 2000 spending data from across the agency, 

organizing the agency’s spending in terms of commodities and suppliers to 

identify high-volume, high-dollar areas that could yield significant savings 

and other benefits and also identifying 24 commodities for the agency’s 

more detailed review.18 

 18 For the spend analysis, Agriculture furnished the consultant fiscal year 2000 data files 

extracted from FPDS and the agency’s Purchase Card Management System. The contractor 

analyzed about 473,000 contract transactions totaling about $1.6 billion and 2.3 million 

purchase card buys totaling $467 million. The contractor organized the spend data into 

52 commodity categories of products and services, such as agricultural machinery, 

construction services, fleet maintenance, telecom equipment, and office supplies and 

paper. 

Department of Agriculture

Agency Profile

Mission Highlights: To support agriculture production by ensuring a safe, affordable, 

and accessible food supply; caring for agricultural, forest, and range lands; supporting 

sound development of rural communities; expanding global markets for agricultural 

and forest products and services; and working to reduce hunger in America and 

throughout the world. 

Organizations: Forest Service, Food and Nutrition Service, Farm Service, Rural 

Housing Service, and Rural Development Service, to name a few. 

Spending: In fiscal year 2003, contract spending on goods and services totaled $4.3 

billion. Purchase card spending accounted for another $572 million.

Department of Agriculture

Agency Profile

Mission Highlights: To support agriculture production by ensuring a safe, affordable, 

and accessible food supply; caring for agricultural, forest, and range lands; supporting 

sound development of rural communities; expanding global markets for agricultural 

and forest products and services; and working to reduce hunger in America and 

throughout the world. 

Organizations: Forest Service, Food and Nutrition Service, Farm Service, Rural 

Housing Service, and Rural Development Service, to name a few. 

Spending: In fiscal year 2003, contract spending on goods and services totaled $4.3 

billion. Purchase card spending accounted for another $572 million.

Sources: GAO and FPDS.
Page 16 GAO-04-870 Best Practices 

In 2003, Agriculture’s procurement management division began to use this 

spend analysis, competitively awarding an agencywide discount 

agreement with a national office supply vendor that yielded savings of 

$1.8 million to the agency’s purchase card holders—a price 10 percent less 

then the vendor’s Federal Supply Schedule contract prices.19 To receive the 

discounts, registered agency purchasers must use the national office 

supply vendor’s electronic catalog and ordering system. 

Building on this experience, Agriculture recently began to use the 

consultant’s spend analysis to improve its purchase card buying power in 

additional commodity areas. A temporary “electronic marketplace” 

subcommittee was organized in January 2004, including representatives 

from across the agency. According to the co-chair, this subcommittee is 

using the consultant’s spend analysis and updating it with more recent 

data on spending with major vendors to help negotiate more favorable 

prices based on the agency’s dollar volume. By October, the subcommittee 

plans to implement at least three agencywide discount agreements 

comparable to the 2003 agreement. 

In the future, Agriculture plans to provide automated and repeatable spend 

analysis, data-mining, and reporting capabilities that identify opportunities 

for savings through negotiated volume discounts. These will be available 

through electronic catalogs as part of a redesign and modernization of its 

agencywide acquisition system, an effort that will be complete in about 

two years.20 Agriculture began this effort upon recognizing that the current 

multisystem environment does not provide an integrated, streamlined, or 

consistent approach to procurement and does not effectively support the 

agencywide goal for electronic commerce between agency purchasers and 

suppliers. 

To develop its spend analysis capabilities, Agriculture will create a 

centrally maintained data warehouse to be shared by agency procurement 

and financial management organizations. This warehouse will extract and 

capture all Agriculture procurement data, to be supplemented with 

 19 Under the Schedules program, the GSA negotiates to obtain discounted prices on a wide 

range of commercial goods and services on its contracts with multiple vendors. 

20 Since 2002, Agriculture has carried out a cross-agency effort, with contractor technical 

and program management support, to develop, test, and phase-in the enterprise Integrated 

Acquisition System to replace more than 40 different procurement systems in use across 

eleven agencies and administrative offices. Agriculture plans to have the replacement 

system fully operational by October 2006. 
Page 17 GAO-04-870 Best Practices 

business intelligence and organizational data from internal and external 

financial and corporate sources.21 Once the warehouse is in place, it will 

allow for comprehensive spend analysis and reporting on procurement in 

real time, on issues such as the opportunities to be pursued for 

agencywide discount agreements with major suppliers for specific 

commodities and the extent of small business utilization. 

The departments of Justice and Transportation have not used spend 

analyses yet to focus management attention on changing the way they 

purchase goods and services to foster a more strategic approach. One of 

the obstacles to using spend analysis cited by both was the lack of 

comprehensive, detailed, and reliable spending data. Nevertheless, future 

use of spend analysis could become an important tool in their efforts to 

streamline their administrative functions or improve procurement 

performance. 

 21 When fully operational, the data warehouse will automatically extract procurement data 

for all contract actions processed via the Integrated Acquisition System and extract 

procurement data on all purchase card buys captured in the agency’s purchase card 

management system. 

Department of Justice

Agency Profile

Mission Highlights: Enforcing laws in the public interest 

and protecting the public from terrorist and criminal activity. 

Organizations: Federal Bureau of Investigations, Office of 

Justice Programs, Federal Bureau of Prisons, Drug 

Enforcement Administration, U.S. Marshal Service, and 

Bureau of Alcohol, Tobacco, Firearms, and Explosives.

Spending: In fiscal year 2003, contract spending on goods 

and services totaled $4 billion. Purchase card spending 

accounted for another $588 million. 

Department of Justice

Agency Profile

Mission Highlights: Enforcing laws in the public interest 

and protecting the public from terrorist and criminal activity. 

Organizations: Federal Bureau of Investigations, Office of 

Justice Programs, Federal Bureau of Prisons, Drug 

Enforcement Administration, U.S. Marshal Service, and 

Bureau of Alcohol, Tobacco, Firearms, and Explosives.

Spending: In fiscal year 2003, contract spending on goods 

and services totaled $4 billion. Purchase card spending 

accounted for another $588 million. 

Department of Transportation

Agency Profile

Mission Highlights: To ensure a fast, safe, accessible, and 

convenient transportation system that meets vital national 

interests and enhances the quality of life of the American 

people, today and into the future. 

Organizations: Federal Aviation Administration, Federal 

Highway Administration, Federal Transit Administration. 

Spending: In fiscal year 2003, contract spending on goods 

and services totaled $6.7 billion. Purchase card spending 

accounted for another $442 million.

Department of Transportation

Agency Profile

Mission Highlights: To ensure a fast, safe, accessible, and 

convenient transportation system that meets vital national 

interests and enhances the quality of life of the American 

people, today and into the future. 

Organizations: Federal Aviation Administration, Federal 

Highway Administration, Federal Transit Administration. 

Spending: In fiscal year 2003, contract spending on goods 

and services totaled $6.7 billion. Purchase card spending 

accounted for another $442 million.

Sources: GAO, FPDS, and Federal Aviation Administration.
Page 18 GAO-04-870 Best Practices 

Spend analysis could be useful in assisting the Department of Justice to 

implement its November 2001 strategic plan, which established 

streamlining, eliminating, or consolidating duplicative functions as key 

elements of supporting the agency’s new counterterrorism mission. In 

February 2004, high-level discussions were begun to plan cross-cutting 

initiatives to eliminate duplication and cut overall agency operating costs, 

so that funding can then be redirected to other critical tasks. The agency 

also formed a core group of financial and management executives 

responsible for overseeing the streamlining and efficiency initiatives. 

Officials told us that it is too early to say if the new core group’s efforts 

would include analysis of Justice’s spending trends or considering broadbased structure, process, and role changes to support a more strategic 

approach to procurement, although some agency officials are familiar with 

the concepts. Officials said that some Justice components had made 

incremental progress in consolidating and leveraging certain categories of 

spending, such as litigation support services, jail detention space services, 

and prison system medical supplies. Officials also told us that the agency 

will similarly look into pursuing a comprehensive approach to buying 

Web-based training services, jail guard services, and employee household 

relocation services. 

In the near term, Justice officials questioned the agency’s ability to analyze 

spending trends effectively, even though the officials agreed that such an 

analysis could benefit the agency. Lack of a single acquisition and financial 

management system makes it difficult to collect accurate and complete 

spending data and identify opportunities for coordinated purchasing, the 

officials said. Although the agency is trying to establish a single system, it 

is not likely to be in place until 2009.22

Before the single system can be put in place, we discussed with these 

officials the prospects for using existing contract and purchase card data 

that the agency feeds into the FPDS, in the same way that Agriculture and 

HHS have used such data to support their spend analysis efforts. Justice 

officials expressed interest in potentially using FPDS data for this purpose. 

 22 In 2002, the agency launched a unified financial management system program to replace 

six major accounting systems now in use with one agencywide system. Plans for the new 

system include integration of financial and acquisition management, assure access to 

timely information, and speed up business process and decision making. Justice hired a 

contractor in March 2004 to provide software for the new system and plans to replace 

legacy systems between fiscal years 2005 and 2009. 

Department of Justice 
Page 19 GAO-04-870 Best Practices 

According to the procurement executive, for financial audit purposes, 

Justice has been analyzing purchase card data and had already obtained 

better insight into what goods and services were being bought across the 

agency and opportunities to leverage buying power in return for lower 

prices from vendors.23 Given that Justice has almost $5 billion in annual 

procurements, agency officials acknowledged that their streamlining and 

efficiency efforts could be substantially aided by the expanded use of 

spend analysis to consider taking a more strategic approach to 

procurement. 

In commenting on a draft of this report, the agency reports that it is 

working to identify additional opportunities for purchase card savings 

through current discount agreements and has begun analyzing FPDS data 

to identify savings opportunities. We commend the agency for expanding 

purchase card spending analyses, which is also responsive to previous 

recommendations aimed at achieving agency savings through the purchase 

card program.24 Moreover, by taking the promising first step to analyze 

FPDS data on contract spending for goods and services—which accounted 

for another $4 billion in 2003—we believe that Justice will be able to 

identify many more opportunities for leveraging buying power and achieve 

even more significant savings in the future. 

Transportation’s senior procurement officials told us that they plan to use 

spend analysis to support ongoing implementation of strategic 

procurement practices across the agency. According to these officials, 

such support should be facilitated by the favorable experience 

Transportation has already gained from similar cross-cutting strategic 

procurement planning to modernize information systems and standardize 

computer equipment as part of a fiscal year 2007 office relocation of 

agency headquarters. Under the agency’s chief information officers’ 

council, commodity councils are being formed to help the agency move to 

 23 In fiscal year 2003, Justice had 12,842 purchase cardholders that accounted for over 

$588 million in small purchases of goods and services for $2,500 or less. For more 

information, see GAO-04-430. 

24 GAO-04-430. 

Department of Transportation 
Page 20 GAO-04-870 Best Practices 

a common operating environment and leverage buying power for 

information technology goods and services.25

According to these officials, the agency currently has no spend analysis 

capability, but a first step was taken this year through the agency’s 

procurement performance management program that could help drive the 

adoption of a more strategic approach to buying goods and services.26

A general analysis was conducted of fiscal year 2003 FPDS data for 

$1.6 billion in agency contracts, sorted by the categories of research and 

development, other services, and products.27 A more in-depth agencywide 

analysis has yet to be achieved, however. Officials told us more detailed 

analysis of spending trends—for example, by high-dollar, high-volume 

commodity and vendor categories—was inhibited by workload constraints 

and their concerns about the accuracy of FPDS data and the lack of more 

specific product and service information. Nevertheless, they indicated that 

in the future, spend analysis could become an important tool in the 

agency’s procurement performance management program. Specifically, in 

commenting on a draft of this report, the senior procurement executive 

indicated that agency leadership supports additional funding in fiscal year 

2005 to enhance spend analysis capabilities. He also told us the agency is 

evaluating software options for a future agencywide spend analysis system 

as part of the ongoing financial information system modernization. 

 25 According to the deputy senior procurement executive director, the agency’s 

architectural review board was expected to approve a charter and an enterprisewide 

information technology procurement business process to guide the commodity councils’ 

activities. 

26 Since 1995, Transportation procurement activities have implemented this program as a 

major initiative to improve procurement performance. This program assists procurement 

managers in targeting areas for improvement based on the results of specified metrics 

chosen for their importance to the administration, agency management, or agency 

customers. 

27 The general analysis did not include data for the Federal Aviation Administration or 

organizations transferred to the Department of Homeland Security (Coast Guard and 

Transportation Security Agency). Transportation’s analysis used fiscal year 2003 FPDS data 

for contract actions in excess of $25,000. Dollars analyzed totaled $1.6 billion and were 

sorted by research and development (6 percent), other services (84 percent), and products 

(10 percent). Transportation did not analyze vendor or individual product and service 

details available in the FPDS records. 
Page 21 GAO-04-870 Best Practices 

Veterans Affairs, HHS, and Agriculture have made good progress using 

spend analysis to improve their procurements, and they have adopted 

some elements of a strategic approach. Like the private sector’s 

experience which indicates that implementing spend analysis can be 

challenging and take time, these three agencies have not had a lot of time 

to adopt the full range of private sector best practices with regard to 

automating, extracting, supplementing, organizing, and analyzing data that 

covers all of their procurement spending. Also, to one degree or another, 

they have not created the type of supporting structure, processes, and 

roles leading companies institute to make the best use of the knowledge 

gained and foster a more strategic approach to buying goods and services. 

The extent to which agencies can do both will determine their success in 

achieving substantial savings and performance improvements. Private 

sector experience suggests that agencies that start with effective spend 

analysis programs will be better able to institute the changes needed to 

move into a more coordinated, leveraged purchasing environment. 

Veterans Affairs has earned a world-class reputation for highly costeffective pharmaceutical procurement practices, which include spend 

analysis as well as supporting structure, processes, and roles. (See 

appendix I, table 1.) Its progress in making similar improvements in its 

procurements of other medical supplies and equipment has been slower, 

however, and its efforts related to clinical care or facilities support 

services are in their very early stages. 

A March 2004 inspector general’s audit report, for example, noted that the 

agency’s efforts to reform medical supplies and equipment purchasing 

practices since 2002 have not yet translated into significant national 

contracting results and medical purchasing cost savings. The audit 

recommended increasing efforts to pursue aggressively more national 

contracts that, if implemented, could achieve about $82 million per year in 

savings. 

A spend analysis tool that would examine Veterans Affairs’ medical 

supplies and equipment spending trends will not, in fact, be ready before 

2006, when best practices—such as automated compilation of purchase 

data, extracted from facilities’ procurement and vendor payment systems 

and supplemented and organized—will be put in place for use by 

established commodity teams. 

The agency is also beginning to focus on taking a more strategic approach 

to acquiring services for veterans medical facilities from contract 

providers. In May 2004, the Secretary announced that Veterans Affairs 

Agencies Have Not 

Adopted Full Range of 

Spend Analysis Best 

Practices and Lack 

Some Supporting 

Structure, Processes, 

and Roles 
Page 22 GAO-04-870 Best Practices 

must more effectively purchase contract health care services for veterans 

(such as skilled nursing and laboratory services) by leveraging its 

purchasing power as a national healthcare system. The Secretary directed 

that a national clinical-contracting strategy be drafted by November 2004 

that would identify high-value, competitively priced purchasing options for 

obtaining medical services from contract providers throughout the 

country. In addition, in commenting on a draft of this report, the agency 

stated its intent to pursue national contracts for non-clinical services as 

well. Facilities now contract locally for a wide variety of support services, 

such as facilities maintenance, housekeeping, and food service.28

According to the agency, both efforts will use spend analysis as 

appropriate. However, we believe it will be difficult for the agency to 

accomplish this objective since the new spend analysis tool, expected in 

2006, will only capture data on medical supplies and equipment spending 

trends. 

HHS asked its division heads to begin planning for departmentwide 

consolidation of procurement activities in April 2003. Although 

headquarters managers had worked with consultants to conduct spend 

analyses to improve their knowledge of overlapping and duplicative 

procurement spending, they had no plan to develop an automated tool to 

repeat the process and only a small number of consolidated procurement 

actions were expected to result. (See appendix I, table 2.) 

In June 2004, however, HHS procurement managers told us that an 

agencywide working group was going to propose obtaining commercial 

software to develop an automated spend analysis system to compile the 

necessary data and generate standardized reports. As result, they believe 

that HHS’ spend analysis efforts could make use of an automation tool in 

the future to enable the process to be repeated consistently, obtain data 

from HHS sources such as financial management systems, and analyze 

data on a continual basis. The proposal was intended to augment ongoing 

plans for an HHS-wide standard electronic procurement system to be 

phased in over the next year or so. According to these officials, details on 

the proposed system’s spend analysis capabilities are forthcoming, 

pending approval and funding to implement it. 

 28 For more information on opportunities to improve Veterans Affairs’ purchasing 

practices and increase savings, see GAO, Contract Management: Further Efforts Needed 

to Sustain VA’s Progress in Purchasing Medical Products and Services, GAO-04-718

(Washington, D.C.: June 22, 2004). 
Page 23 GAO-04-870 Best Practices 

Agriculture’s current spend analysis efforts are also not automated, 

include no financial management data such as vendor accounts payable 

systems, and do not analyze data on a continual basis. (See app. I, table 3.) 

The agency does have plans to have an agencywide spend analysis system 

in place by 2006, but the system will be a centralized tool shared by 

component organizations that may or may not choose to chart their own 

strategic procurement paths. 

A temporary subcommittee in the meantime is reviewing some 

agencywide spending data to identify a few categories of high-dollar 

purchase card vendors for use in negotiating discount agreements. 

However, a senior procurement policy official told us that a large-scale 

strategic approach to buying goods and services may be neither feasible or 

advisable, given the agency’s highly diverse missions and decentralized 

operations. When it comes to changing the buying culture across the 

agency, the agency wants to use spend analysis to create attractively 

priced discount agreements with a few vendors that agency purchasers 

will be encouraged, not mandated, to use. Although he indicated that 

Agriculture may establish a few agencywide commodity councils in the 

future to pursue more areas for consolidated buying, he did not anticipate 

creating new structure, processes, and roles within the agency. 

Aside from their spend analysis activities, the three agencies have not 

consistently created the type of supporting structure, processes, and roles 

leading companies institute to foster a more strategic approach to buying 

goods and services. While Veterans Affairs has used the best practice of 

establishing commodity teams that coordinate buying strategies for 

pharmaceutical, prosthetics, and more recently high-cost, high-technology 

medical equipment and supply items, the same practice has not been used 

to coordinate buying strategies for services. Outside of forming single, 

cross-agency working groups to leverage a few categories of supplies 

commonly bought by purchase cardholders, Agriculture and HHS have not 

fully embraced viewing procurement as an agencywide process for 

streamlining acquisitions, saving money, and increasing the quality of 

purchased goods and services when compared to the current 

decentralized environment of independent, stand-alone contract actions. 

Agriculture and HHS have not adopted the best practice of using crossfunctional commodity teams to establish a network of technical experts to 

support volume and technical leveraging of agency spending. 
Page 24 GAO-04-870 Best Practices 

When the government faces enormous fiscal pressures and a growing 

budget deficit, agencies’ transformations of their business processes is 

more important than ever if the agencies are to get the most from every 

dollar spent. Leading companies that have successfully used spend 

analysis as a foundation for their procurement activities set an example 

for how the federal government can more effectively leverage its buying 

power. 

Federal agencies such as the Departments of Veterans Affairs, HHS, and 

Agriculture can achieve significant benefits using spend analysis best 

practices to support a more strategic approach to buying goods and 

services. Like leading companies, agencies that establish an effective 

spend analysis program can then achieve a total-spending perspective 

across the agency; make the business case for collaboration in joint 

purchasing rather than fragmented purchasing, create supporting 

structure, processes, and roles to assign accountability and exercise 

oversight; identify potentially hundreds of millions of dollars in 

procurement savings opportunities by leveraging buying power; and 

identify opportunities to achieve other procurement process efficiencies 

such as reducing duplication in purchasing, supporting small and minorityowned business utilization, and improving supplier performance. In 

contrast, agencies such as the departments of Justice and Transportation, 

which have yet to make extensive use of spend analysis and may well miss 

out on the opportunity to achieve savings to the same extent possible as 

other agencies. 

To help ensure that the varying spend analysis efforts by Veterans Affairs, 

HHS, and Agriculture go further in emulating the best practices of leading 

companies and that these agencies have the supporting structure, 

processes, and roles in place to effectively use the results of spend 

analysis, we are making the following three recommendations: 

• To identify, track, and evaluate what clinical care and support services are 

being purchased by veterans’ medical facilities, the Secretary of Veterans 

Affairs should direct procurement headquarters officials to expand the 

planned development by 2006 of an automated medical supplies and 

equipment spend analysis system also to capture spending data on 

services. Such expansion should support automating, extracting, 

organizing, supplementing, and analyzing spending trends for clinical care 

and support services in the same way that improvements aimed at medical 

supplies and equipment are being made. The agency’s new spend analysis 

system needs to include healthcare-related services’ procurement data to 

Conclusions 

Recommendations for 

Executive Action 
Page 25 GAO-04-870 Best Practices 

improve decision makers’ knowledge and help them identify opportunities 

for leveraged buying, including the planned development of a national 

strategy to contract for services. 

• To address agency leadership’s direction to eliminate redundant 

management activities, the Secretary of Health and Human Services 

should direct headquarters’ procurement officials to identify additional 

steps needed to adopt a more strategic approach to acquiring goods and 

services. HHS headquarters’ procurement officials should also be directed 

to consider using current financial and procurement management 

information systems to extract the type of spending data on an automated 

and repeatable basis that the agency needs to identify opportunities to 

leverage its buying power, reduce costs, and provide better management 

and oversight of key suppliers. Such data would include what categories of 

goods and services are being acquired; how many suppliers are being used 

for specific categories; and how much HHS is spending on specific 

categories, in total and with each supplier. Their assessment should also 

address the creation of supporting structures, processes, and roles as 

necessary, such as the establishment of cross-functional commodity 

teams, to help obtain the necessary buy-ins across the agency’s divisions, 

eliminate duplication of effort, and improve the coordination and volume 

discounting of high-dollar, high-volume categories of goods, services, and 

suppliers on an ongoing basis. 

• While waiting until 2006 for the planned agencywide spend analysis 

system to come online, the Secretary of Agriculture should assess whether 

the agency’s temporary electronic marketplace subcommittee provides 

sufficient structure, processes, and roles for analyzing spending trends on 

an ongoing basis and supporting a more strategic approach to acquiring 

goods and services. Agriculture’s assessment should address expanding 

the subcommittee’s current narrow focus on leveraging the agency’s 

almost $600 million in purchase card buying power, to also yield discounts 

applicable to larger contract actions across the range of goods and 

services being acquired and whether the establishment of cross-functional 

commodity teams would help obtain the necessary buy-in across the 

agency’s diverse mission organizations and improve the coordination and 

acquisition of high-dollar, high-volume categories across a wide range of 

goods and services. 

In light of the significant potential for savings and performance 

improvements that the two agencies not using spend analysis could 

achieve, we recommend that the Attorney General of the United States and 

the Secretary of Transportation direct officials responsible for 

procurement and financial management and other appropriate 

stakeholders to step up the process of gaining knowledge of their spending 

to take a strategic approach to procurement, adopting the type of best 
Page 26 GAO-04-870 Best Practices 

practices employed by leading companies. Specifically, we are making the 

following two recommendations: 

• Justice and Transportation should assess using current financial or 

procurement information systems such as FPDS and purchase card data 

on an automated and repeatable basis to extract the type of spending data 

that the agencies need to identify opportunities to leverage the agencies’ 

buying power, reduce costs, and provide better management and oversight 

of suppliers. Such data would include what categories of goods and 

services are being acquired; how many suppliers are being used for 

specific categories; and how much the agency is spending on specific 

categories, in total and with each supplier. 

• Once an initial spend analysis can be completed to arm the agencies with 

the knowledge of such opportunities, Justice and Transportation should 

assess whether their current procurement structure, processes, and roles 

are adequate to support a more strategic approach to acquiring goods and 

services, for example whether cross-functional commodity teams would 

provide more effective, coordinated management of high-dollar, highvolume categories of goods, services, and suppliers on an ongoing basis. 

We received written comments on a draft of this report from the 

Departments of Veterans Affairs, Agriculture, and Justice, and we received 

oral comments from the Department of Transportation. The agencies 

generally agreed with our findings and recommendations. The Department 

of Health and Human Services had no comments, but provided technical 

comments, which we have incorporated where appropriate. The written 

comments are reproduced in appendixes II through V. 

The Department of Veterans Affairs concurred with our recommendation 

to expand the planned development of an automated spend analysis 

system to capture spending data on services as well as medical supplies 

and equipment data. At a later date, the agency plans to provide a more 

complete discussion of its efforts to include clinical and non-clinical 

services in its spend analysis. 

In general, the Department of Agriculture agreed with our 

recommendations. Commenting on one of the draft’s statements on the 

agency’s use of a consultant’s 2001 spend analysis to obtain more 

favorable prices, Agriculture indicated they did not solely rely on the 

consultant’s report but needed to perform additional analysis for the 

agencywide discount agreements. Further, Agriculture also commented 

that many other federal departments, through the use of existing purchase 

card data and other available data systems, can discern sufficient 

Agency Comments 

and Our Evaluation 
Page 27 GAO-04-870 Best Practices 

information to begin leveraging their spending to obtain reduced prices for 

commonly acquired services and supplies. We agree. 

While the Department of Justice generally agreed with the report’s findings 

and recommendations, the agency also clarified the status of spend 

analysis efforts. Specifically, the agency stated that data collection efforts 

have begun to conduct a spend analysis, focusing on purchase card 

spending trends and procurement actions based on reviews of agencywide 

data from a bankcard vendor and the FPDS. We revised the report where 

appropriate to incorporate information on these efforts. 

In oral comments, Transportation’s senior procurement executive told us 

that he agrees with our recommendations, but believed our report did not 

adequately capture the agency’s commitment to strategic procurement 

objectives and support for using spend analysis. In addition, this official 

informed us that the agency is expanding its spend analysis efforts. For 

example, his office recently reviewed purchase card spending data to 

identify volume discount opportunities and is now using the results to 

negotiate new discount agreements with several office product vendors. In 

addition, he told us that to facilitate future agencywide purchase card 

spend analyses, Transportation awarded a task order in June 2004 with 

one bank-card company that includes purchase-card audit software and 

enhanced data-mining capabilities. He also indicated that agency 

leadership supports fiscal year 2005 funding to enhance spend analysis 

capabilities and that software options for a new agencywide spend 

analysis system are now being evaluated as part of the ongoing financial 

and procurement management system modernization. We incorporated 

these comments where appropriate in the text. 

We are sending copies of this report to the Secretaries of Agriculture, 

Health and Human Services, Transportation, and Veterans Affairs; the 

Attorney General; the director of the Office of Management and Budget; 

and interested congressional committees. We will provide copies to others 

on request. This report will also be available at no charge on GAO’s Web 

site at http://www.gao.gov. 
Page 28 GAO-04-870 Best Practices 

If you have any questions about this report or need additional information, 

please call me at (202) 512-4841 (cooperd@gao.gov) or Carolyn Kirby at 

(202) 512-9843 (kirbyc@gao.gov). Other major contributors to this report 

are Cristina Chaplain, Timothy DiNapoli, Bob Swierczek, and Grant 

Turner. 

David E. Cooper 

Director 

Acquisition and Sourcing Management 
Appendix I: GAO Analyses of Agencies’ Spend 

Analysis Practices 

Page 29 GAO-04-870 Best Practices 

We obtained information about agencywide spend analysis efforts through 

interviews with Veterans Affairs, HHS, and Agriculture procurement 

headquarters officials and documents they provided to us. We reviewed 

this information and also discussed with agency officials how their efforts 

compared to leading companies’ best practices identified in our recent 

work.1

In analyzing agencies’ practices, we compared their efforts with the five 

key processes that companies adopt that enable them to conduct effective 

and ongoing spend analysis, which are: 

• Automation—data automatically compiled. 

• Extraction—essential data culled from accounts payable and other 

internal systems. 

• Supplemental information—additional data sought from other internal and 

external sources. 

• Organization—review data to ensure accuracy and completeness; organize 

data into logical, comprehensive commodity and supplier categories. 

• Analysis and strategic goals—using standard reporting and analytical 

tools, data analyzed on a continual basis to support decisions on strategicsourcing and procurement management in areas such as cost cutting, 

streamlining operations, and reducing the number of suppliers. Scope 

generally covers an organization’s entire spending. 

The following tables summarize our analysis of agencies’ spend analysis 

practices. 

 1 GAO-02-230 and GAO-03-661. 

Appendix I: GAO Analyses of Agencies’ 

Spend Analysis Practices 
Appendix I: GAO Analyses of Agencies’ Spend 

Analysis Practices 

Page 30 GAO-04-870 Best Practices 

Table 1: Veterans Affairs Spend Analysis Practices 

Spend Analysis Process Agency practice 

Automation Automated compilation of pharmaceutical and prosthetic and sensory aid purchase data into two 

central databases, which are updated continuously. Automated compilation of medical supply 

and equipment purchase data but not clinical care and support services into a central database 

will be available in 2006. 

Extraction Pharmaceutical and prosthetics spend analysis covers all veterans’ medical facilities purchases. 

Facilities’ pharmaceutical purchase and vendor payment data are extracted from centralized 

commercial distributors’ on-line ordering and delivery systems. Prosthetics data extracted from 

multiple medical facilities’ procurement and vendor payment systems. 

In 2006, standardized medical supply and equipment data will be extracted from facilities’ 

procurement and vendor payment systems. None will be extracted on facilities’ purchases for 

clinical care and support services. 

Supplemental Information Veterans Affairs obtains pharmaceutical sales and payment data from centralized commercial 

distributors’ on-line ordering and delivery systems. The agency’s chief logistics office analyzes 

weekly summaries of bankcard vendor’s transactions with the agency. The agency recently 

required purchase card program managers to consolidate quarterly reviews from the cardholders 

and analyze purchases. 

Organization Pharmaceutical and prosthetics spend analysis databases fall into logical comprehensive 

categories of commodities and suppliers. Veterans Affairs is organizing and standardizing 

procurement data on medical supplies and equipment purchases; a spend analysis database is 

planned for completion in 2006. In 2004, a naming standard will be developed for each hightechnology/high-cost medical product given a national contract. To track compliance with 

contracted products, a standard name will have to be used when buying. Veterans Affairs will not 

organize facilities’ clinical care and support services procurement data into logical, 

comprehensive categories of commodities and suppliers. 

Analysis and strategic goals Commodity teams are continually analyzing pharmaceutical and prosthetics spending data to 

make decisions in contracting and procurement management. In 2003, Veterans Affairs saved 

$394 million through discounted pharmaceutical national contracts. As of June 2004, prosthetics 

contract savings were more than $57 million. By 2006, standard reporting and analytical tools will 

be in place for medical supplies and equipment purchases, which new commodity teams will use 

to help reduce the number of suppliers, cut costs, streamline operations, and address the 

agency’s small business goals. Veterans Affair’s spend analysis system plan does not include 

purchased clinical care and support services, however. 

Source: GAO analysis of agency information. 
Appendix I: GAO Analyses of Agencies’ Spend 

Analysis Practices 

Page 31 GAO-04-870 Best Practices 

Table 2: Health and Human Services Spend Analysis Practices 

Spend Analysis Process Agency practice 

Automation HHS furnishes services procurement data to one consultant and products procurement data to a 

second. While both use commercially available automation tools to compile data for more rapid 

spend analyses, these are one-time or periodic requirements. No automation tool is available to 

allow HHS to consistently repeat the spend analysis process, but the agency may consider 

obtaining such a system. 

Extraction HHS wants its acquisition consolidation initiative to cover as many of its services buys as 

possible, and provided its spend analysis consultant services contract data from one 2002 

database. (Contracts for $25,000 or less were not included.) For its product-focused strategic 

sourcing initiative, HHS provided a consultant with data from 2002 on office supplies, office 

equipment, office furniture; peripheral information technology (IT) equipment, and custodial 

supplies. Furnished data was extracted from two contract databases, actions for $25,000 or less, 

and for more than $25,000. This year, the HHS consultant will receive 2003 purchase data for all 

other products, extracted from the same two databases, as well as data from HHS financial 

management sources, such as accounts payable systems. 

Supplemental Information To identify the top-selling office product suppliers, HHS provided the consultant data from the 

agency’s bankcard vendor on all purchase card transactions, as well as other information from 

prospective commodity suppliers on estimated sales to agency purchasers. This enhances 

awareness of the volume and scope of HHS purchasing. This year, the HHS consultant will 

receive 2003 purchase card data as well. HHS sought no additional spend analysis data for the 

services acquisition consolidation. 

Organization In 2003, both consultants cleansed and validated data that HHS furnished based on their spend 

analysis experience and supply market knowledge. The consultants used the federal product 

and service classification to organize categories of commodities and suppliers. This helped them 

identify and rank high-dollar, high-volume opportunities to target for office product strategicsourcing and services acquisition consolidation. In 2004, the consultant will analyze new data 

involving small and larger purchase card and contract buys. The data will be organized into 

logical, comprehensive categories of products and supplies to identify and rank top categories to 

target for additional strategic sourcing. 

Analysis and strategic goals HHS is not analyzing data on a continual basis. The agency had two consultants analyze data in 

2003 and will have one consultant do a second round of product-focused spend analysis in 

2004. HHS is using that analysis to support strategic sourcing decisions for national discount 

agreements with a few major suppliers for office supplies, office equipment, office furniture, IT 

peripherals, and custodial supplies. HHS will use the consultant’s spend analysis of services 

acquisitions to plan areas where existing contracts can be used by agency division purchasers to 

leverage buying power and reduce the need for new stand-alone contracts. As of June 2004, 

HHS is continuing its planning and anticipates shared implementation of at least some of the 

existing contracts in 2005. 

Source: GAO analysis of agency information. 
Appendix I: GAO Analyses of Agencies’ Spend 

Analysis Practices 

Page 32 GAO-04-870 Best Practices 

Table 3: Agriculture Spend Analysis Practices 

Spend Analysis Process Agency practice 

Automation In 2001, Agriculture furnished 2000 data to a spend analysis consultant, who used 

commercially available automation tools to compile the data to expedite the analysis to fulfill a 

one-time requirement. Agriculture plans to create an automated spend analysis tool to extract 

data from the single acquisition system to begin in October 2006. The data is expected to be 

compiled into a new shared data warehouse that will extract components’ procurement data as 

the new system goes on line. The warehouse is expected to contain business intelligence and 

data mining capability so that the spend analysis process can be repeated at the agency or 

component levels. 

Extraction Agriculture wanted the 2001 spend analysis to cover all products and services procurements 

other than the nonprocurement-related agricultural commodity purchases. To accomplish this, 

the agency extracted data from three databases—contract actions for $25,000 or less; contract 

actions of more than $25,000; and the purchase card management system. Spend analysis did 

not include financial management data such as accounts payable systems. 

Supplemental Information Agriculture’s purchase card management system obtains data from the bankcard vendor on all 

purchase card transactions with agency cardholders. The agency furnished 2000 purchase card 

data for the 2001 spend analysis. In 2004, Agriculture obtained up-to-date purchase card data 

on agency transactions with high-dollar, high-volume vendors from its bankcard vendor to 

supplement the 2001 spend analysis. 

Organization Agriculture’s spend analysis consultant cleansed and validated 2001 data the agency furnished, 

based on its spend analysis experience and supply market knowledge. The consultant used 

federal product and service classification to organize agency spending into 15 categories 

encompassing 52 more detailed subcategories. Information technology (IT) for example, 

included telecom equipment, IT equipment, office technology, and IT/telecom services. The 

spend analysis consultant also proposed a feasibility classification strategy that could be used 

for more detailed opportunity analyses of high-potential subcategories. 

Analysis and strategic goals Agriculture is not analyzing data on a continual basis. Following the completion of the initial 

spend analysis in October 2001, Agriculture used the results to support decisions for an 

agencywide office supply discount agreement with a major supplier. An agreement was 

awarded in 2003 so that Agriculture purchase cardholders could use the supplier’s Web-based 

catalog to obtain small purchases of a wide range of office supplies at reduced prices. In 2004, 

Agriculture created a temporary subcommittee of procurement managers to review the 2001 

spend analysis report and more recent purchase card data where available. The agency will 

identify a few more high-dollar, high-volume product subcategories where purchase card buying 

power can be leveraged through discount agreements with major suppliers. 

Source: GAO analysis of agency information. 
Appendix II: Comments from the Department 

of Veterans Affairs 

Page 33 GAO-04-870 Best Practices 

Appendix II: Comments from the Department 

of Veterans Affairs 
Appendix III: Comments from the Department 

of Health & Human Services 

Page 34 GAO-04-870 Best Practices 

Appendix III: Comments from the 

Department of Health & Human Services 
Appendix IV: Comments from the Department of Agriculture 

Page 35 GAO-04-870 Best Practices 

Appendix IV: Comments from the 

Department of Agriculture 
Appendix IV: Comments from the Department of Agriculture 

Page 36 GAO-04-870 Best Practices 
Appendix V: Comments from the Department 

of Justice 

Page 37 GAO-04-870 Best Practices 

Appendix V: Comments from the Department 

of Justice 
Appendix V: Comments from the Department 

of Justice 

Page 38 GAO-04-870 Best Practices (120306) 
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