Report to the Subcommittee on 

Readiness and Management Support, 

Committee on Armed Services, 

U.S. Senate 

United States General Accounting Office 

GAO 

June 2003 BEST PRACTICES 

Improved Knowledge 

of DOD Service 

Contracts Could 

Reveal Significant 

Savings 

GAO-03-661 
The leading commercial companies GAO studied reported achieving and 

expecting to achieve billions of dollars in savings by developing companywde 

spend analysis programs and service-contracting strategies. Spend analysis 

answers basic questions about how much is being spent for what services, who 

are the suppliers, and where are the opportunities for leveraged buying to save 

money and improve performance. To obtain these answers, companies extract 

internal financial data, supplement this data with external data, organize the 

data into categories of services and suppliers, and have the data analyzed by 

managers or cross-functional teams to plan and schedule what services will be 

bought on a company wide basis. The results of spend analysis are also used for 

broader strategic purposes—to develop reports for top management, to track 

financial and other benefits achieved by the company, and to further improve 

and centralize corporate procurement processes. 

DOD is in the early stages of a spend analysis pilot. Although DOD is moving in 

the right direction, it has not yet adopted best practices to the same extent as the 

companies we studied. Whether DOD can adopt these practices depends on its 

ability to make long-term changes necessary to implement a more strategic 

approach to contracting. DOD also cites a number of challenges, such as its 

large and complex need for a range of services, the fragmentation of spending 

data across multiple information systems, and contracting goals for small 

businesses that may constrain its ability to consolidate smaller requirements into 

larger contracts. Challenges such as these are difficult and deep-rooted, but 

companies also faced them. For DOD to change management practices for the 

contracting of services will require sustained executive leadership at DOD as 

well as the involvement and support of Congress. 

Companies’ Reported 2001 Procurement Spending and Savings 

Company 2001 procurement spend Procurement cost savings 

IBM $42.4 billion 

Focuses on delivering competitive 

advantage year after year; reported saving 

hundreds of millions of dollars since 1994. 

ChevronTexaco $16 billion-$18 billion 

Targeted savings of $300 million a year by 

2003. After 2005, targeted savings of $1.3 

billion a year. 

Bausch & Lomb $900 million 

Saved a reported $20 million a year from 

1998 to 2001; reduced suppliers from 

20,000 to 13,500. 

Delta Air Lines $7 billion (approximate) 

Reported saving over $200 million in 

procurement costs since 2000. 

Dell $26 billion 

Set goal to save 20% from its general 

procurement budget of $3 billion to $4 

billion. 

Source: GAO analysis. 

Department of Defense (DOD) 

spending on service contracts 

approaches $100 billion annually, 

but DOD’s management of services 

procurement is inefficient and 

ineffective and the dollars are not 

always well spent. Recent 

legislation requires DOD to 

improve procurement practices to 

achieve savings. 

Many private companies changed 

management practices based on 

analyzing spending patterns and 

coordinating procurement in order 

to achieve major savings. This 

report evaluates five companies’ 

best practices and their conduct 

and use of “spend analysis” and the 

extent that DOD can pursue similar 

practices. 

To achieve savings, DOD should 

adopt the spend analysis best 

practices of leading companies. 

DOD’s approach should provide for 

an agencywide view of service 

contract spending and promote 

collaboration to leverage buying 

power across multiple 

organizations. DOD should also 

submit a plan and a schedule to 

Congress for timely changes in 

management structure and servicecontracting business processes. 

DOD concurred with the 

recommendation to adopt spend 

analysis best practices but not with 

submitting a plan for management 

and business process changes. 

www.gao.gov/cgi-bin/getrpt?GAO-03-661.

To view the full report, including the scope 

and methodology, click on the link above. 

For more information, contact David Cooper 

(202) 512-4125, CooperD@gao.gov. 

Highlights of GAO-03-661, a report to 

Subcommittee on Readiness and 

Management Support, Committee on 

Armed Services, U.S. Senate 

June 2003

BEST PRACTICES 

Improved Knowledge of DOD Service 

Contracts Could Reveal Significant 

Savings 
Page i GAO-03-661 Best Practices 

Letter 1

Results in Brief 3

Background 4

Leading Companies Have Developed Formal Spend Analysis 

Programs to Improve Services Procurement 11

DOD Launches a Pilot Spend Analysis with an Eye toward 

Developing a More Strategic Approach 30

Conclusions 37

Recommendations for Executive Action 38

Agency Comments 38

Scope and Methodology 40

Appendix Comments from the Department of Defense 43 

Tables 

Table 1: Leading Companies We Studied and Their Reliance on 

Buying Services 8

Table 2: Companies’ Reported 2001 Procurement Spending and 

Savings 10

Table 3: Comparison of DOD’s Spend Analysis with Leading 

Company Practices 31

Figure 

Figure 1: DOD Contract Dollars for Goods and Services 5

Abbreviations 

DOD Department of Defense 

IBM International Business Machines 

Contents 

This is a work of the U.S. Government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. It may contain copyrighted graphics, images or other materials. 

Permission from the copyright holder may be necessary should you wish to reproduce 

copyrighted materials separately from GAO’s product. 
Page 1 GAO-03-661 Best Practices 

June 9, 2003 

The Honorable John Ensign 

Chairman 

The Honorable Daniel K. Akaka 

Ranking Minority Member 

Subcommittee on Readiness and Management Support 

Committee on Armed Services 

United States Senate 

The Department of Defense (DOD) faces critical challenges in deciding 

how best to obtain the services it needs to achieve its mission. Within the 

federal government, DOD is the dominant buyer of services in terms of 

contracting dollars spent, accounting for $79 billion in 2001, more than 

half the $140 billion spent by the entire federal government.1

 DOD spends 

more on services than it does on supplies and equipment, and that 

spending is increasing year after year. In spite of this, our work as well as 

that of DOD’s Office of Inspector General has found that DOD’s spending 

on services is not well managed—the current process is decentralized, 

insufficiently rigorous, and unreliable. Although DOD is taking actions to 

address these problems, it has a long way to go. 

Like the federal government, private companies increasingly rely on 

services and also struggle with methods to better manage their purchasing. 

Last year we reported that to reduce costs, improve productivity, and 

more effectively procure services, many companies have adopted a 

strategic approach—centralizing and reorganizing their operations to get 

the best value for the company as a whole—that is based on the 

implementation of a variety of best practices.2

 These range from learning 

much more about their service spending to buying services on an 

enterprisewide rather than business unit basis. Pursuing such an approach 

 1

 DOD-reported data for service contracting dollars, Defense Contract Action Data System. 

Governmentwide-reported 2001 data for service contracting dollars, Federal Procurement 

Data System. Excludes contracts valued at $25,000 or less. Fiscal year 2001 is the last year 

for which complete governmentwide data is available. For related information for 1997 

through 2001, see U.S. General Accounting Office, Federal Procurement: Spending and 

Workforce Trends, GAO-03-443 (Washington, D.C.: Apr. 30, 2003). 

2

 U.S. General Accounting Office, Best Practices: Taking a Strategic Approach Could 

Improve DOD’s Acquisition of Services, GAO-02-230 (Washington, D.C.: Jan. 18, 2002). 

United States General Accounting Office

Washington, DC 20548 
Page 2 GAO-03-661 Best Practices 

clearly pays off. One recent survey of 147 companies in 22 industries 

indicated a strategic approach to procurement had resulted in savings of 

more than $13 billion in one year.3

 The very same practices employed by 

the private sector could serve as a foundation for improving the 

acquisition of services in DOD. 

When adopting a strategic, best-practices approach for changing 

procurement business processes, companies begin with a “spend analysis” 

to examine purchasing patterns to see who is buying what from whom. By 

arming themselves with this knowledge, companies can leverage their 

buying power, reduce purchasing costs, and better manage their suppliers. 

In essence, spend analysis is the road map to procurement cost-savings 

and performance improvements. 

To follow up on our earlier work, you asked us to further evaluate (1) the 

best practices of leading companies as they relate to conducting and using 

spend analysis, and (2) the extent to which DOD can pursue similar 

practices. 

To conduct this work, we reviewed the spend analysis practices of 

five leading companies that take a strategic approach to managing services 

acquisitions: International Business Machines (IBM), ChevronTexaco, 

Bausch & Lomb, Delta Air Lines, and Dell Computer. They reported a 

combined spending for goods and services between $92 billion and 

$94 billion in 2001. We selected these companies for review on the basis of 

extensive research and because they have been recognized by their peers 

for highly effective procurement and spend analysis processes. However, 

we did not verify the accuracy of the procurement costs and benefits 

reported to us by the companies. More information is presented in our 

Scope and Methodology section beginning on page 40 of this report. 

 3

 A.T. Kearney, Inc., Assessment of Excellence in Procurement 2002 (Chicago, Ill.: 2002). 
Page 3 GAO-03-661 Best Practices 

The leading commercial companies we studied report achieving—and 

expecting to achieve—billions of dollars in savings by developing 

companywide spend analysis programs and services contracting 

strategies. These companies’ spend analysis programs answer some basic 

questions—how much is being spent for what services, who are the 

suppliers, and where are the opportunities for leveraged buying to save 

money and improve performance. To obtain the answers, these companies 

extract internal financial data, supplement that data with external data, 

organize the data into categories of services and suppliers, and analyze 

it. To obtain this information quickly, spend analysis programs use 

automated systems that consolidate accounts payable data, and 

supplement it when necessary with purchase card data and additional 

information on suppliers’ status and services purchased. Once organized, 

the data are analyzed by managers or cross-functional teams to plan, 

prioritize, and centrally source what services will be bought from what 

specific suppliers. At this stage, spend analysis helps companies make the 

proper adjustments to achieve expected savings. Spend analysis is also 

used to develop reports for top management to establish quarterly and 

annual savings goals, to track financial and other benefits achieved, and to 

reorganize corporate procurement processes under a more centrally led 

management structure. 

In response to recent legislation requiring management and cost-saving 

improvements in service contracts, DOD is in the beginning stages of a 

spend analysis pilot. DOD leadership agrees that viewing spending from a 

DOD-wide perspective will help identify large-scale savings opportunities 

and other efficiencies over the current decentralized procurement 

environment. Although moving in the right direction, DOD has not yet 

adopted private sector best practices to the same extent as the companies 

we reviewed. Whether DOD can adopt these practices depends on the 

ability to make long-term changes that are necessary when organizations 

decide to implement a more strategic approach to service contracts. DOD 

also cites a number of challenges that may hamper adoption of these 

practices. These include the size and complexity of DOD’s need for 

services, the fragmentation of the services’ spending data across multiple 

financial and procurement systems, and socioeconomic goals for 

contracting with small and diversely owned businesses. Contract 

management challenges such as these are difficult and deep-rooted and 

will require sustained executive leadership at DOD as well as the 

Congress’s continued involvement and support. 

This report includes recommendations intended to help DOD adopt spend 

analysis best practices and to use the resulting information to implement a 

Results in Brief 
Page 4 GAO-03-661 Best Practices 

more strategic approach to planning and managing the acquisition of 

services. 

DOD commented on a draft of this report. DOD concurred with the 

recommendation to adopt the spend analysis processes employed by 

leading companies—and now intends to automate the process of data 

collection and analysis to make it repeatable, rather than a one-time effort. 

However, DOD did not concur with the recommendation to develop a plan 

to institute changes in management structure and services contracting 

business processes and to do so as part of its 2005 budget submission. In 

response to the portion of DOD’s comment that such a timeframe would 

be premature, we modified the recommendation to allow more time for 

DOD to complete the spend analysis pilot and use the results to develop a 

plan. The DOD comments can be found in appendix I. 

DOD is historically the federal government’s largest purchaser of services. 

Between 2001 and 2002, DOD’s reported spending for services contracting 

jumped almost 18 percent to about $93 billion.4

 In addition to the sizeable 

sum of dollars involved, DOD contracts for a wide and complex range of 

services, such as professional, administrative, and management support; 

construction, repair, and maintenance; information technology services; 

research and development; medical services; operation of governmentowned facilities; and transportation, travel, and relocation. In each of the 

past five years, DOD has spent more on services than it has on supply and 

equipment goods (that includes contracting for ships, aircraft, and other 

military items) (see figure 1). 

 4

 GAO analysis of data extracted from the Defense Contract Action Data System, adjusted 

to represent constant fiscal year 2002 dollars. Includes actions categorized as research, 

development, test, and evaluation activities, and excludes actions $25,000 or less and 

purchase card use. 

Background 
Page 5 GAO-03-661 Best Practices 

Figure 1: DOD Contract Dollars for Goods and Services 

Note: Data extracted from the Defense Contract Action Data System for 1998–2002. Figure is in 

constant 2002 dollars and includes actions categorized as research, development, test, and 

evaluation activities. Figure excludes actions of $25,000 or less and purchase card spending. 
Page 6 GAO-03-661 Best Practices 

Despite this huge investment in buying services, our work—and the work 

of the DOD Inspector General—has found that DOD’s spending on 

services is inefficient and not being managed effectively. In fact, we have 

identified overall DOD contract management as a high-risk area, most 

recently in our Performance and Accountability Series issued this past 

January.5

 Responsibility for acquiring services is spread among individual 

military commands, weapon system program offices, or functional units 

in various defense organizations, with limited visibility or control at the 

DOD or military-department level. Too often, requirements are not clearly 

defined; competition is not adequately pursued; rigorous price analyses 

are not performed; and contractors’ performance is not sufficiently 

overseen.6

 Information systems that provide reliable data and are capable 

of being used as management tools are lacking, and DOD has established 

few enterprisewide contracting-related performance metrics. Further, 

DOD lacks a strategic plan to identify and prioritize future service 

contracting-related efforts for better management. 

Seeking longer-term remedies to bring about sorely needed reform, the 

Congress has passed legislation to direct DOD to adopt best practices used 

by leading companies and to achieve significant savings through improved 

management approaches for services contracts. The National Defense 

Authorization Act for Fiscal Year 2002 directs DOD to improve its 

management structure and oversight process for acquisition of services.7

One of the law’s aims is to prompt DOD to undertake a comprehensive 

spend analysis of its services contracts. This analysis is intended to 

provide DOD the basis for expanding its use of cross-functional 

commodity8

 teams to leverage its buying power, improve the performance 

of its services contractors, organize its supplier base, and ensure that its 

dollars are well spent. Moreover, expecting that DOD could achieve 

significant savings without any reduction in services, the legislation also 

 5

 U.S. General Accounting Office, Major Management Challenges and Program Risks: 

Department of Defense, GAO-03-98 (Washington, D.C.: Jan. 2003). 

6

 Although DOD is taking actions to address these issues, most of these actions are in the 

early stages of implementation. It is uncertain whether the corrective actions can be fully 

and successfully implemented in the near term. See GAO-03-98. 

7

 Sec. 801, Pub. L. No. 107-107, Dec. 28, 2001. 

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 non-complex item. 

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

the establishing of a network of commodity experts. 
Page 7 GAO-03-661 Best Practices 

establishes savings goals that DOD should achieve by employing 

commercial best practices and effective management.9

 In addition, 

Congress reduced the amounts appropriated to DOD in fiscal years 2002 

and 2003 by a total of $2.5 billion to reflect savings from business process 

reforms in the procurement of services.10

Increasingly, private sector companies have been purchasing a wide range 

of services from outside suppliers at a cost rising at an average of 

3.5 percent a year.11 The leading companies we interviewed—IBM, 

ChevronTexaco, Bausch & Lomb, Delta Air Lines, and Dell—reported 

between $92 billion and $94 billion in combined annual procurement 

spending for goods and services in 2001, and they use a large part of their 

purchasing dollars to buy services (see table 1). 

 9

 Section 802 of the 2002 Authorization Act established savings goals of 3 percent in 

fiscal year 2002, 4 percent in fiscal year 2003, 5 percent in fiscal year 2004, and 10 percent 

in fiscal year 2011. The following year, because DOD had been unable to develop a method 

for measuring savings achieved through the improved management of services contracts, 

these goals were modified to instead focus on increasing the number of services contracts 

that are competitive- and performance-based. Bob Stump National Defense Authorization 

Act for Fiscal Year 2003, Sec. 805, Pub. L. No. 107-314, Dec. 2, 2002. 

10 Sec. 8123, Pub. L. No. 107-117, Jan. 10, 2002, and Sec. 8100, Pub. L. No. 107-248, 

Oct. 23, 2002. 

11 Elance, Inc. and CAPS Research, “Narrative Summary: Defining and Determining the 

‘Services Spend’ in Today’s Services Economy” (Tempe, Ariz.: Aug. 2002) 

http://www.capsresearch.org/benchmarking/spreports.htm (downloaded Feb. 25, 2003). 

Private Sector’s Use of 

Spend Analysis Bolsters 

Strategic Approach 
Page 8 GAO-03-661 Best Practices 

Table 1: Leading Companies We Studied and Their Reliance on Buying Services 

Company Function 

Reported 2001 

procurement 

(in billions) Reliance on buying services 

IBM A global leader in business services and 

computer hardware and software; 2002 revenue 

of $81.2 billion. 

$42.4 IBM’s diversification from strictly computer 

hardware and software manufacturing to a 

broader business model of consulting, 

information technology, and financing 

services has expanded its procurement 

scope to include services as well as 

material goods needed for production. 

About 52 percent of IBM’s annual spending 

is for general services procurement 

including complementary workforce, 

advertising, telecommunications, and 

facilities management. 

ChevronTexaco A leader in the oil and gas industry, with 2001 

sales and operating revenues of $104.4 billion. 

Involved in exploration and production, refining, 

marketing and transportation, chemical 

manufacturing and sales, and power generation. 

$16 - $18 An estimated 60 percent of 

ChevronTexaco’s annual spending pays for 

contracted services that support the 

company’s worldwide oil and gas 

extraction, refining, and distribution; 

construction and maintenance of facilities 

(such as retail gas stations); and corporate 

operations, including consulting and 

professional services. 

Bausch & Lomb A global vision care manufacturer of contact 

lenses, lens care products, surgical equipment, 

and pharmaceuticals, netting more than 

$1.7 billion in 2001 sales revenue. 

$0.9 About half of Bausch & Lomb’s $535 million 

in purchases from U.S. suppliers was for 

various services to support marketing and 

advertising, corporate business operations, 

and research, development, and 

engineering activities. In 2001, Bausch & 

Lomb’s largest spending category was 

management, business, professional, and 

administrative services. 

Delta Air Lines A leader in air transportation for passengers and 

freight throughout the United States and around 

the world; 2001 revenue was $13.9 billion. 

$7 (approximate) About 60 percent of Delta’s annual 

procurement spending is accounted for by 

service suppliers. Delta contracts with 

private vendors to perform various 

functions, including fueling and cleaning 

planes and handling baggage. 

Dell A worldwide manufacturer of home and business 

computer systems and servers and provider of 

computer support services, with net 2001 sales 

revenue of $31.9 billion. 

$26 Although the bulk of Dell’s $26 billion 

procurement spending goes toward 

purchasing materials and component parts 

to manufacture its computer hardware 

products, between $3 billion and $4 billion 

per year is spent on general services. The 

services include consulting, facility 

management, financial operations, training, 

logistics, marketing, installation and future 

product support, and travel. 

Source: GAO analysis. 

Note: GAO analyzed information from IBM, ChevronTexaco, Bausch & Lomb, Delta Air Lines, and 

Dell. Reported 2001 procurement for goods and services. 
Page 9 GAO-03-661 Best Practices 

As service acquisition costs have increased, companies have sought to 

reduce them by taking a strategic approach, starting with the use of spend 

analysis processes to provide the necessary data. A strategic approach 

pulls together participants from a variety of places within an organization 

who recommend changes to a company’s personnel, processes, structure, 

and culture that can constrain rising acquisition costs. These changes 

(often referred to as “strategic sourcing”) can include adjustments to 

procurement and other processes such as instituting enterprisewide 

purchasing of specific services; reshaping a decentralized process to 

follow a more center-led, strategic approach; and increasing the 

involvement of the corporate procurement organization, including 

working across business units to help identify service needs, select 

providers, and manage contractor performance. 

A critical component of an effective strategic approach is a comprehensive 

spend analysis program. An initial spend analysis permits company 

executives to review the total dollars spent by a company each year to see 

how much is spent, what was bought, from whom it was bought, and who 

is purchasing it. This analysis thus identifies where numerous suppliers 

are providing similar services—and at varying prices—and where 

purchasing costs can be reduced and performance improved by better 

leveraging buying power with the right number of suppliers to meet the 

company’s needs. 

Overall, spend analysis permits companies to define the magnitude 

and characteristics of their spending, track emerging market spending, 

understand their internal clients and supply chain, and monitor spending 

with diverse suppliers for socioeconomic business goals. 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 sourcing effort, spend 

analysis allows companies to monitor trends in small and minority-owned 

business supplier participation in order to address the proper balance with 

equally important corporate supplier diversity goals. 

Studies have reported significant cost savings in the private sector, with 

some companies achieving reported savings of 10 percent to 20 percent of 

their total procurement costs through the use of a strategic approach to 

buying goods and services. A recent Purchasing Magazine poll finds that 

companies employing procurement best practices—including employing 
Page 10 GAO-03-661 Best Practices 

effective spend analysis processes—are routinely delivering a 3 percent 

to 7 percent savings from their procurement costs.12 Research by 

A.T. Kearney, Inc., suggests that, if all companies using procurement 

best practices to some extent matched the savings rates of the leading 

companies, total savings could reach as much as 41 percent more than 

the $13.5 billion achieved in 2000.13 The leading commercial companies we 

studied report achieving and expecting to achieve billions of dollars in 

savings by developing companywide spend analysis programs and services 

contracting strategies, as shown in table 2. 

Table 2: Companies’ Reported 2001 Procurement Spending and Savings 

Company 

2001 procurement 

spend Procurement cost savings 

IBM $42.4 billion Focuses on delivering competitive 

advantage year after year; reported 

saving hundreds of millions of dollars 

since 1994. 

ChevronTexaco $16 billion-$18 billion Reported targeted savings of 

$300 million a year by 2003. After 2005, 

targeted savings of $1.3 billion a year. 

Bausch & Lomb $900 million Saved a reported $20 million a year from 

1998 to 2001; reduced suppliers from 

20,000 to 13,500. 

Delta Air Lines $7 billion (approximate) Reported saving more than $200 million 

in procurement costs since 2000. 

Dell $26 billion Set goal to save 20% from its general 

procurement budget of $3 billion to 

$4 billion. 

Source: GAO analysis. 

Note: GAO analyzed information from IBM, ChevronTexaco, Bausch & Lomb, Delta Air Lines, and 

Dell. 

 12 Anne Millen Porter, “Spend a Little, Save a Lot!”, Purchasing Magazine, Apr. 4, 2002. 

13 A.T. Kearney, Inc., Assessment of Excellence in Procurement 2002. 
Page 11 GAO-03-661 Best Practices 

Although the financial and other results of spend analysis clearly are 

worth the effort, initially setting up these programs can be challenging, 

according to research organizations and our interviews with company 

executives. Companies have experienced 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 also found that existing databases have 

not captured anywhere near enough details on the services for which 

vendors are being paid. 

Despite these challenges, companies that developed formal, centralized 

spend analysis programs found that they have been able to resolve their 

problems over time and go on to engage in effective spend analysis on 

a continuous basis through the use of five key processes, according to our 

review of research organizations’ findings and interviews with company 

executives.14 The processes involve automating, extracting, supplementing, 

organizing, and analyzing data. 

 14 Research organizations’ studies on effective spend analysis processes we reviewed 

included Aberdeen Group (Boston, Mass.), AMR Research (Boston, Mass.), RAND (Santa 

Monica, Calif.), and The Yankee Group (Boston, Mass.). 

Leading Companies 

Have Developed 

Formal Spend 

Analysis Programs to 

Improve Services 

Procurement 
Page 12 GAO-03-661 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 in 

house, although some companies have hired third-party companies for 

expertise and technology. 

The data are primarily extracted from 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 more detailed 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 services contracts. 

Data files must be accurate, complete, and consistent. The data are 

subjected to an extensive review for accuracy and consistency, and steps 

are then taken to standardize the data in the same 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. Simultaneously, commodity managers, 

councils, or teams are established to access and analyze the information 

on a ongoing basis, using standard reporting and analytical tools. Each 

group is responsible for one or more commodities, which may also include 

responsibility for a number of sub-categories. Once the spending data have 

been organized and reviewed, companies use the data as the foundation 

for a variety of ongoing strategic efforts. 

The following company profiles illustrate significant aspects of the spend 

analysis and strategic-sourcing processes. Each profile begins with a 

description of the savings targets the company has set, achieved, and 

expects to achieve in the future. This is followed by a discussion of the 

difficulties the company experienced before implementing spend analysis; 

the components of its spend analysis system—including how it extracts, 

supplements, organizes, and analyzes its data; an example drawn from 
Page 13 GAO-03-661 Best Practices 

company practice of a successful application of spend analysis; and how 

the company expects to keep improving its system over time. 

Despite the uniformity of this framework, these companies are not 

identical in the manner that they implement spend analysis or strategic 

sourcing. Some have more mature systems than do others, while some 

have strengths or creativity demonstrated in specific aspects of the 

process. Each, however, has been cited by procurement and industry 

specialists as a role model for procurement and spend analysis, and our 

interviews and subsequent analysis have borne that out. 
Page 14 GAO-03-661 Best Practices 

Note: IBM is a registered trademark and used by permission of the International Business 

Machines Corporation. 

Year after year, IBM’s global procurement organization focuses on 

delivering a sustained competitive advantage across its entire portfolio 

of purchases, which totaled $42 billion in 2001. IBM’s procurement 

transformation began in 1994 and continues to evolve. As a result, IBM 

reports having achieved significant efficiencies and globally leveraged its 

spending through strategic sourcing to reduce the number of suppliers and 

save hundreds of millions of dollars. 

In the beginning of its transformation, IBM lacked sufficient knowledge on 

what it was spending across the enterprise. Company buyers were calling 

the same items and suppliers by different names and being charged 

different prices for the same product or service. The company had 

disparate accounts payable systems, and the procurement organization 

was unable to gather easily a consolidated view of spending with IBM 

suppliers. Aggregated data were unavailable, and the linkage between 

procurement and accounts payable was inadequate for leveraging the 

company’s buying power. To launch a comprehensive spend analysis, 

IBM had to address four major challenges: (1) linking its disjointed legacy 

systems, (2) investing in a single-enterprise resource-planning system, 

(3) establishing uniform naming conventions for suppliers, goods, and 

services, and (4) creating a single procurement management system to 

support a global process. 

Company Profile 
Page 15 GAO-03-661 Best Practices 

To address these challenges, IBM developed an extensive “end-to-end” 

procurement system, which includes a paperless process for requisitions 

and purchase orders, electronic linkages to suppliers, a worldwide 

accounts payable system that receives and processes all suppliers’ 

invoices, and a centralized spend analysis program built around an 

automated business data warehouse for efficiently extracting accounts 

payable and other enterprise spending data in a common format. Initially, 

IBM’s data management system did not support aggregating all of the 

accounts payable and other data to support management decision making. 

Recognizing this situation, IBM quickly responded by implementing a 

centralized global business data warehouse to facilitate decision making 

based on accounts payable and other data covering the entirety of 

IBM’s purchases. 

IBM’s global procurement organization has used spend analysis to 

establish a substantial level of control by the company’s 31 “commodity 

councils”.15 The councils analyze the spending data in order to meet the 

needs of IBM groups worldwide and to enter into deals with suppliers by 

leveraging IBM’s total buying power to gain proper volume discounts. 

Before 1995, IBM’s decentralized buyers controlled only 45 percent of the 

company’s purchasing; centralized councils now control almost 

100 percent. Although IBM business units initially found it difficult to give 

up decentralized control over buying to the global procurement 

organization, IBM’s global procurement organization used spend analysis 

presentations to demonstrate the savings that were possible and to 

achieve buy-in to the new purchasing process while being responsive to 

business units’ needs. 

IBM’s spend analysis approach also supplements information from internal 

accounts payable with business intelligence data on suppliers’ businesses 

and market status from an outside party. This information is part of the 

spend analysis process used to create up-to-date profiles on IBM’s top 

suppliers. IBM spend analysis also integrates external information on 

average prices paid in the market in order to measure the company’s 

strategic-sourcing performance in achieving a competitive advantage 

 15 Since 1994, commodity councils have been a central feature of the single procurement 

management system established by IBM. The term commodity council describes a 

cross-functional sourcing group charged with formulating a centralized purchasing strategy 

and establishing centralized contracts for enterprisewide requirements for a selected 

commodity grouping. Following the council’s sourcing actions, decentralized units then 

execute tactical ordering against those pre-established business agreements. 
Page 16 GAO-03-661 Best Practices 

through its procurement processes. IBM works with third-party 

consultants to obtain credible market intelligence in order to determine 

the “best in class” price for a given commodity and whether or not IBM is 

obtaining the lowest market prices from its suppliers. 

IBM’s global procurement organization created uniform purchasing 

codes and upgraded data entry processes for accounts payable in order 

to organize the spend analysis categories of products and services 

commodities that could be leveraged for strategic-sourcing purposes. 

For example, IBM’s procurement data, which include related accounts 

payable data, are organized under 31 broad categories that correspond 

with the commodity councils. Each category encompasses a number of 

subcommodities that cover the company’s production-related services and 

general procurement.16 For example, one high-level services procurement 

grouping is temporary technical services—a multi-billion dollar annual 

spending category for IBM—which includes eight sub-commodities, such 

temporary services as programmers, systems engineers, technical writing, 

and systems help-desk support. 

Currently, the councils use spend analysis to support their negotiations 

with suppliers and to work with internal business units in order to bring 

the best value to bear. For example, the technical services commodity 

council relied on spend analysis to carry out a strategic-sourcing effort. 

The council’s analysis revealed that the company was spending billions 

annually for temporary technical services, that its hiring process was 

taking 10 days on average, and that multiple suppliers were sending in 

candidate resumes. As a result of the council’s effort, a centralized 

Web-based hiring system was developed internally for sourcing external 

technical services. Requesters can go online and select candidates from a 

database, conduct interviews, and submit requisitions, while reducing the 

process of hiring to less than 3 days. Costs were reduced by a reported 

$40 million in 2001 as a result of the commodity council’s prenegotiating 

various skill payment rates with two-thirds fewer suppliers. 

In summary, IBM has implemented a number of strategic enhancements 

to its global purchasing approach. Ongoing enhancements, including 

 16 “Production” procurement covers components parts, materials, and other items bought 

by a company to directly support the manufacturing of its own products. “General” 

procurement covers products and services bought by a company for other business 

operation purposes that are indirectly related to its manufacturing operation, but directly 

related to services provided to internal and external customers. 
Page 17 GAO-03-661 Best Practices 

corporate spend analysis capabilities, will focus on deeper integration of 

the procurement process into the company’s supply chain management 

aimed towards a new level of global buying effectiveness. IBM is making 

changes to exploit greater electronic procurement capabilities and to 

consolidate purchase order processing and procurement support services 

in centralized locations around the world. Such changes are intended to 

remove administrative workload from the commodity councils, allowing 

them to focus on management of suppliers, internal customers, and 

IBM costs. 
Page 18 GAO-03-661 Best Practices 

Note: ChevronTexaco’s word mark is used by permission. 

ChevronTexaco’s phased approach to the strategic sourcing of its 

entire procurement spending is expected to result in savings of at 

least $300 million a year by 2003 and $1.3 billion a year after 2005. 

The company’s annual spending on procurement is currently between 

$16 billion and $18 billion. The company’s procurement savings goals, 

established after the two historically decentralized companies merged 

in 2001, are based on spend analysis. 

Before the merger, each separate company had difficulty understanding 

its own spending practices. Chevron had a limited number of personnel 

working on the task—its purchasing unit had only a few analysts who 

laboriously collected, reviewed, and organized all the accounts payable 

data after issuing data calls to various business units. The information 

collected was consolidated in large spreadsheet binders, but these did not 

capture all company spending or details on suppliers’ diversity of interest 

to corporate leaders. Chevron lacked the data to negotiate effectively with 

suppliers, who knew more about what was being spent and what business 

they had with Chevron. Texaco also had difficulty understanding its 

supplier base and what it was buying because its accounts payable data 

were stored in 14 systems, suppliers’ names were not standardized in 

those systems, and not enough details were captured on the goods or 

services for which vendors were being paid. 

Company Profile 
Page 19 GAO-03-661 Best Practices 

Once the companies merged, ChevronTexaco adopted, as its global 

procurement focus, the development of accurate, detailed information on 

spending. ChevronTexaco’s spend analysis system now automatically 

extracts accounts payable data on most purchased goods and services 

from these systems. For greater precision, ChevronTexaco supplements 

the accounts payable data with external information and internal expertise 

to obtain more detailed insight into the products and services being 

bought and the vendors that supply them. The data are organized into 

three dozen broad categories, including 250 products and services, which 

cover most of the company’s annual spending. 

ChevronTexaco’s global procurement leadership and several decision 

support staff (who work with a few dozen cross-functional commodity 

teams) analyze the spending data. These teams link the procurement 

organization, strategic-sourcing processes, and business units by 

collaboratively using the spending data to identify, plan, and recommend 

sourcing projects for goods and services, including capital projects. For 

example, three consulting and professional services commodity teams 

are responsible for analyzing data related to spending for temporary 

accounting staff, financial and information technology management, and 

legal and technical services. 

An initial commodity team analysis of the consulting and professional 

services’ spending data showed close to $600 million spent on consulting 

services and many subcategories that needed to be identified. Further 

spend analysis showed that the company was using 1,600 suppliers, 

that buying was highly fragmented with little standardization, and that 

consultant contracting was not sufficiently competitive. The spend 

analysis identified five consulting services’ supply markets for separate 

consideration—financial, information technology, general management, 

legal, and technical. The team discovered that most of the five were ripe 

for competition, that some were reducing staff and seeking larger client 

bases, and that some were laying off employees and going through a 

slump. After taking into account internal business unit readiness for 

supplier consolidation, the team finally recommended separate strategicsourcing projects in information technology, legal, and general 

management consulting. ChevronTexaco estimates net savings to be 

between 8 percent and 10 percent of the company’s total spending on 

those 3 consulting and professional services’ subcategories. 
Page 20 GAO-03-661 Best Practices 

ChevronTexaco uses spend analysis to document and report direct savings 

that result from negotiated price reductions, volume discounts, and 

leveraged discounts.17 Spend analysis supports ChevronTexaco’s active 

supplier diversity program by permitting strategic-sourcing teams to track 

the company’s spending with small and diversely-owned businesses and 

identify opportunities to attract competitive offers from such suppliers. 

Analysis of the spending data has also been used to meet a wide range of 

the company’s strategic goals, including identifying the right stakeholders 

for participation in a global procurement organization coordinating key 

business areas. To win support, procurement executives used spend 

analysis to promote internally the need for procurement reengineering to 

help business units reduce costs without sacrificing operations, safety, and 

services. Spend analysis also underpins the development of performance 

measures used throughout the company’s standardized procurement 

processes. 

ChevronTexaco plans further improvements to its spend analysis system. 

The company is investing in a third party’s suite of electronic procurement 

applications. One of the applications is an automated spend analysis tool 

that will more quickly extract even more detailed data from the company’s 

financial system. 

 17 Volume discounts are gained in return for purchasing more units from individual 

suppliers. Leveraged discounts are gained in return for buying more than one type of 

product or service from a single supplier. 
Page 21 GAO-03-661 Best Practices 

Note: Bausch & Lomb’s logo is used by permission. 

Bausch & Lomb’s strategic sourcing effort saved the company a 

reported $20 million a year from 1998 through 2001, and is anticipated 

to save an additional $11 million in each year through 2005. These 

savings were generated through a one-third reduction in the number of 

Bausch & Lomb’s suppliers from 20,000 to 13,500 and negotiation of 

discounts on the volume of business with the remaining suppliers. 

In 1997, Bausch & Lomb was having difficulty coordinating information 

from multiple internal information systems as it attempted to understand 

what it was spending. To overcome this problem, the company contracted 

with a consultant during the first 2 years of its effort to create and 

automate master vendor files through a central database and directly 

provide spend analysis support. Bausch & Lomb’s spend analysis—which 

focused on developing a comprehensive database and targeting categories 

with the most suppliers and the most spending—became the foundation of 

its strategic sourcing effort. 

To perform its spend analysis, Bausch & Lomb extracted accounts 

payable data from more than 50 internal systems and sent the data to the 

consultant to review and correct the records to eliminate duplication and 

identify “families” of suppliers connected through corporate ownership 

that could be used to negotiate better terms. The consultant also used its 

technology tool to compile and automate the analysis of Bausch & Lomb’s 

spending data. Spending data were standardized by using two publicly 

Company Profile 
Page 22 GAO-03-661 Best Practices 

available classification systems, allowing for comparisons to be made 

between vendor identifiers and the affiliated commodity codes. These 

internally available data were supplemented with other information from 

the consultant’s business intelligence database that addressed suppliers’ 

risk18 and status as minority or women-owned businesses and with 

purchase card expenditure data. 

Bausch & Lomb then organized the data into 50 broad categories of 

products and services, each of which was subdivided into 4 to 12 

commodities. Responsibility for the categories was divided among several 

headquarters commodity managers—including those specializing in 

information technology, pharmaceuticals, and business processes. The 

commodity managers analyzed the spending data and sought input from 

business units to develop strategic sourcing strategies and business plans 

for each of the commodities to combine the company’s total buying power 

and rationalize the supplier base. The commodity managers now oversee 

the corporate procurement of specific goods and services across all the 

business units. 

For example, when the business process commodity manager applied 

spend analysis to Bausch & Lomb’s use of temporary personnel services, 

the outcomes included the opportunity to reduce the number of suppliers, 

lower costs, and achieve other streamlining benefits. Business units had 

been using purchase orders to obtain temporary services, and the spend 

analysis revealed that although 60 suppliers were being used, one national 

company was the top temporary services provider. This knowledge 

enabled Bausch & Lomb to negotiate a 17 percent reduction with that 

company for temporary services by consolidating the supplier base from 

60 companies to 1. The remaining temporary services company agreed to 

this reduced rate because it was guaranteed a greater volume of individual 

purchase orders and because Bausch & Lomb’s business units were 

required to use that preferred company unless they had a need that it 

could not meet. Bausch & Lomb’s ongoing spend analysis of this 

$13 million commodity also enables it to monitor business unit compliance 

with the contract to use the preferred company and achievement of 

savings targets. 

 18 Managing supplier risk is important to companies to avoid supply chain disruptions and 

performance problems that could jeopardize business operations. A number of financial 

measures are used to assess risk of a supplier, including business experience, financial 

condition, ability to pay bills, suits, liens, and judgments. 
Page 23 GAO-03-661 Best Practices 

Bausch & Lomb’s procurement organization now performs and regularly 

updates the spend analysis with support from the consultant. Each year, 

Bausch & Lomb refreshes its spend analysis data with new supplier 

information obtained from the consultant. The annual spend analysis 

examines how much its divisions are spending on specific commodities to 

determine its potential bargaining power with its suppliers and to review 

the risks of existing suppliers. Its commodity managers identify which 

strategic sourcing projects to tackle based on the dollar amount spent, the 

number of suppliers, the potential cost savings, and opportunity to 

consolidate suppliers. The company’s annual updating of the spending 

data gives enough information to focus strategic efforts in the right 

direction. To enhance their spend analysis, Bausch & Lomb is also 

working with its consultant to start extracting more detailed data from its 

general ledger systems. 
Page 24 GAO-03-661 Best Practices 

Note: Delta Air Lines’ logo is used by permission. 

Spend analysis has been a key element in Delta’s transformation of its 

more than $7 billion19 procurement operation and its adoption of a 

strategic sourcing process. Since 2000, the company’s reported payback 

has been rapid—more than $200 million saved through strategic sourcing 

projects and other supply-chain management transformation efforts. 

Almost 3 years ago, Delta’s supply chain management organization faced 

challenges in its ability to aggregate purchasing data due to the presence 

of multiple legacy systems and a lack of data integrity. In July 2000, those 

legacy systems were replaced with a new core financial system, which was 

also useful when the supply chain management organization decided to 

launch its current spend analysis program. 

Delta’s spend analysis program is based on the automated extraction of 

accounts payable records from its core financial system. The extracted 

data are placed in a data warehouse and then compiled in an integrated, 

off-the-shelf software tool (accessible through the company’s intranet) 

that is used to develop spend analysis reports. All company managers and 

supply chain management staff can access the company’s spend analysis 

reporting tool. The internal financial data are supplemented with 

 19 Figure is Delta Air Lines’ reported procurement spending in calendar year 2001. 

Company Profile 
Page 25 GAO-03-661 Best Practices 

purchase card spending data, totaling about $75 million per year, from 

the company’s bank card vendor. In addition, Delta worked with a 

third party to validate the information received from small, minority, and 

woman-owned businesses in order that supplier diversity information 

was accurately coded in its core financial system. 

Delta organized its spending data to correspond with its six broad 

purchasing areas: fuel and airport services, corporate operations (such as 

finance and human resources), technical operations (such as aircraft 

maintenance), marketing and in-flight services, corporate real estate, and 

fleet planning and acquisitions. Those 6 purchasing areas are responsible 

for purchasing goods and services in more than 270 commodities, such as 

consultants, legal, and temporary services. Delta’s supply chain 

management organization worked with a team to create the commodity 

codes following a review of the goods and services the company buys. 

These codes have made it possible to organize accounts payable and other 

data by commodity to support the company’s initial spend analysis, a key 

part of the first two steps in its strategic-sourcing process. 

Beginning in September 2000, Delta’s supply chain management 

organization took steps to realize the value that a transformation could 

bring. Key elements of this transformation included the implementation of 

a strategic sourcing process; establishment of cross-functional teams; and 

expansion of the supply chain management organization’s scope of 

involvement in company spending. Commodity teams began analyzing the 

spending data to obtain an upfront understanding of the supplier base, the 

company’s buying power, and the estimated savings from consolidated 

buying. In mid-2002, commodity teams across Delta’s purchasing areas 

were actively managing 58 cost-saving projects developed through spend 

analysis and reported operating savings of $82.2 million from projects 

already completed that year. Delta’s supply chain management 

organization also uses spend analysis to track and report the company’s 

spending with small business and minority- and women-owned businesses 

in order to measure the outcome of the teams’ strategic-sourcing projects 

in terms of the company’s supplier diversity goals. 

An example of Delta’s successful outcomes with spend analysis is its 

information technology commodity team’s strategic sourcing effort in 

2001. The team’s analysis revealed the company was using more than 

60 different information technology contract services suppliers and 

purchasing approximately $16 million in external services. The requisition 

processes varied within each of the business units; limited formal metrics 
Page 26 GAO-03-661 Best Practices 

were in place for managing supplier performance; and the existing 

contracts’ pricing structures did not facilitate cost reduction efforts. 

An external industry analysis indicated that Delta could benefit by 

bidding information technology contract services given that the supplier 

market was hard hit by the downturn in the economy and that a surplus of 

high quality information technology service suppliers existed. Using this 

knowledge, the commodity team, which included representatives from the 

company’s human resources and technology business units, developed a 

new consolidated-proposal request for external services and used an online reverse auction20 to complete the sourcing effort. The new contracts 

resulted in reported annual savings of $3 million and reduced the 

number of suppliers from 60 to 6 companies—3 of which qualified as 

diverse-owned businesses. 

Despite Delta’s accomplishments in spend analysis, challenges 

remain in obtaining reliable and complete data, and its supply chain 

management organization is working to improve financial system data 

integrity and automated reporting to provide the information needed for 

real-time business decisions. Last year a team was formed to improve the 

quality of information on suppliers, commodity codes, and buyers. 

Recommendations on process improvements will be made in 2003, 

followed by an effort to clean up Delta’s purchase order and contract files. 

A related team is working to improve the availability of automated 

reporting from Delta’s off-the-shelf spend analysis reporting tool. The 

company expects increased accuracy in its spending information will 

provide greater visibility into buying patterns and enhance strategic 

sourcing decision making and results. 

 20 According to industry sources on electronic commerce applications, reverse auctioning 

is where suppliers bid, online and in real time, for product and service contracts as defined 

by detailed request for quotes. Each supplier can see the competing bids as they are made, 

but bidders are kept unidentified. Through a prequalification process, all issues are 

generally settled between the procuring organization and potential suppliers before the 

time of the bidding event. The buying organization may not necessarily choose the lowest 

bidder, but rather may use reverse auctioning as a negotiating tool. FreeMarkets, Inc., The 

Strategic Need for Real-Time Competitive Bidding in the Public Sector Procurement 

Process (Pittsburgh, Pa.: 2002). 
Page 27 GAO-03-661 Best Practices 

Note: The Dell logo is a trademark and used by permission of the Dell Computer Corporation. 

Dell’s earlier success in using spend analysis and strategic sourcing 

in its manufacturing procurement operations prompted the company to 

establish a new procurement savings goal of 20 percent from the $3 billion 

to $4 billion it spends in purchasing of nonmanufacturing services 

and products. 

Before 2000, Dell’s spend analysis and strategic-sourcing focused only 

on production procurement to support its manufacturing operations. The 

company had no spend analysis program to track general procurement of 

goods and services needed to support the company’s nonmanufacturing 

operations. However, once the company decided that general procurement 

merited the same strategic approach as production procurement, the 

procurement organization quickly developed a second spend analysis 

program. 

Since 2000, Dell’s procurement and finance organizations have worked 

together on its internally developed spend analysis system, which provides 

automated on-line reporting and cost analysis of the company’s general 

procurement purchasing.21 Every month, the system extracts accounts 

 21 Since 1992, Dell has used a different automated system that it developed to extract and 

automate production procurement spend analysis to support strategic sourcing of direct 

materials for manufacturing. 

Company Profile 
Page 28 GAO-03-661 Best Practices 

payable records from one of the company’s two financial systems for 

consolidation into the data warehouse used for spend analysis. The 

consolidated spend analysis reports are supplemented with supplier 

diversity, business intelligence, and purchase card information obtained 

from external sources. For example, Dell obtains business intelligence 

information from an outside party about its suppliers’ financial health and 

utilizes that independent information to determine percent of revenue 

based on sales to Dell. The company also obtains detailed vendor data for 

purchases obtained under the corporate purchase card program. However, 

the supplemental business intelligence and purchase card information 

must be separately analyzed vendor by vendor, item by item, and 

compared with the consolidated reports from the accounts payable 

information. 

The need to organize the accounts payable and purchase card data for 

spend-analysis and strategic-sourcing purposes required the procurement 

organization to identify 15 high-level categories, each encompassing many 

products and services commodities. This involved research with business 

units familiar with Dell’s vendors in order to “tag” each vendor according 

to the commodity being supplied. Consulting is one example of a high level 

category, and it encompasses consultant services such as information 

technology, electronic commerce, financial, legal, and Dell technology. 

New suppliers are similarly tagged to keep the spend analysis system 

updated. One current limitation to Dell’s tagging methodology is that some 

vendors do not fit neatly under a single commodity. Dell’s system 

organizes purchase data for those vendors under a miscellaneous 

category, and the staff regularly analyze the data to later sort spending 

with those suppliers into the appropriate commodity. 

Dell’s procurement organization has four senior managers who are 

responsible for several commodity teams in the areas of marketing and 

communications, corporate services, and operations. In these teams, 

commodity managers partner with the primary business owners to manage 

strategic sourcing and other procurement activities in specific spending 

areas. Each commodity team uses spend analysis to identify, prioritize, 

and leverage the company’s combined buying power with suppliers in 

order to reduce costs and improve supplier performance. 
Page 29 GAO-03-661 Best Practices 

As an example of a successful outcome using spend analysis, one of 

the senior managers worked with the customer services team on a 

strategic-sourcing project to staff support call centers and provide 

certified technicians and related on-site services for Dell computer 

hardware repair. The spend analysis revealed that Dell’s business units 

were spending more than $200 million annually on an ad-hoc basis with 8 

suppliers for the same services. The team discovered that it was difficult 

to manage eight suppliers and expensive to have each provide the entire 

scope of services on a worldwide basis. The new sourcing strategy cut the 

number to four suppliers and provided a volume price discount, 

efficiencies in supplier management, and capacity to support Dell’s 

growing sales in the U.S. and overseas. Dell required two of those 

suppliers to provide a global array of services and two to work only in 

the U.S. In taking this action, Dell also successfully met its supplier 

diversity objectives by awarding two of the new contracts to diverselyowned companies. 

Dell procurement officials plan continued improvements to the spend 

analysis program, such as automating the production of analytic reports 

and generating reports that focus on detecting corporate relationships 

among suppliers. Enhanced analysis and reporting of relationships can be 

used to leverage Dell’s buying power for additional savings with related 

suppliers. 
Page 30 GAO-03-661 Best Practices 

DOD is in the very early stages of setting up a spend analysis program. The 

agency’s leaders have made a commitment to improve how DOD acquires 

services and to adopt best commercial practices. Although these are the 

right first steps, the agency has yet to emulate the best practices of spend 

analysis to the same extent as the private sector. DOD also has not yet 

pursued more strategic approaches like reorganizing its procurement 

processes under a more centrally led management structure. 

DOD’s initial actions include issuing new policy in May 2002—in response 

to our work and the 2002 national defense authorization legislation—to 

elevate major purchases of services to the same level of importance as 

the purchase of major weapon systems. In February 2003, the Deputy 

Secretary of Defense tasked a new team to complete, by September 2003, 

a pilot spend analysis of services acquisition data across DOD and to 

determine if larger scale efficiencies and savings could be achieved over 

its current decentralized procurement environment.22 DOD requested 

proposals from interested vendors with commercial spend analysis 

experience to provide contract support to the DOD team. Pilot projects 

associated with the spend analysis will be completed by September 2004. 

Information we obtained during preproposal discussions with prospective 

vendors suggest that the DOD pilot project may not engage the full range 

of spend analysis best practices as have the private sector companies we 

interviewed. (See table 3.) 

 22 DOD’s Spend Analysis Integrated Process Team is led by the Defense Procurement and 

Acquisition Policy office (in the Under Secretary of Defense for Acquisition, Technology, 

and Logistics organization) and includes senior representatives from each of the military 

departments, the Comptroller’s and General Counsel’s offices, and offices responsible for 

defense logistics, missile defense, and small business issues. 

DOD Launches a Pilot 

Spend Analysis with 

an Eye toward 

Developing a More 

Strategic Approach 
Page 31 GAO-03-661 Best Practices 

Table 3: Comparison of DOD’s Spend Analysis with Leading Company Practices 

Spend analysis 

process Leading company practice DOD practice 

Automation Data automatically compiled to 

expedite and repeat the spend 

analysis process. 

DOD furnishes the data to the vendor, which may employ 

commercially available automation tools to compile the data to 

expedite the spend analysis. However, this is a one-time 

requirement. The vendor will not develop an automation tool to 

consistently repeat the spend analysis process. 

Extraction Essential data extracted from 

accounts payable and other internal 

systems. 

DOD wants the pilot spend analysis to cover all its acquisition of 

services “as best possible”. DOD will furnish only data extracted 

from two databases for services contract actions, but is excluding 

analysis of research and development services, and the databases 

do not include contracts for $25,000 or less. DOD acknowledges 

this data may be insufficient, but also says that data that could be 

derived from better sources such as accounts payable or other 

internal systems may be neither available nor feasible to 

incorporate within the project’s time frame. 

Supplemental 

information 

Additional data sought from internal 

and external sources, such as 

supplier performance and purchase 

card data. 

The vendor may ask for DOD’s help in getting supplemental data 

for the spend analysis from DOD, other government agencies, and 

commercial sources, such as purchase card and logistics data. 

While DOD will help, it cannot guarantee it can provide the data 

requested. 

Organization Ensure accuracy and completeness 

of data; organize data into logical, 

comprehensive categories of 

commodities and suppliers. 

The vendor will cleanse and validate data DOD has furnished 

based on its spend analysis experience and knowledge. DOD 

allows the vendor’s discretionary use of external databases to 

help organize the spend analysis database. The vendor may 

also propose classification systems to organize categories of 

commodities and suppliers, to meet DOD’s requirement to identify 

the top ten service categories to target for strategic sourcing. 

Analysis and strategic 

goals 

Using standard reporting and 

analytical tools, data analyzed on a 

continual basis to support decisions in 

strategic sourcing and procurement 

management to help cut costs, 

streamline operations, reduce number 

of suppliers, achieve supplier 

diversity, etc. Scope generally covers 

entire procurement spending. 

Within 60 days of contract award, the vendor must provide the key 

metrics for reviewing DOD’s spend analysis database. Within 

90 days, the vendor must analyze DOD’s spend data, identify the 

top ten services contract areas with the largest dollar savings, and 

prepare business cases and strategic sourcing strategies for the 

top ten services in light of DOD’s requirements to fulfill 

socioeconomic and establish savings goals. In the second phase, 

the vendor may have to supply special analyses to support the 

DOD team’s review of the ten business cases and development of 

strategic sourcing procurement strategies for at least five pilot 

service categories. 

Source: GAO analysis of DOD information. 

Although DOD does seek to include basic elements of the key private 

sector spend analysis best practices in the prospective pilot, its efforts fall 

short of the private sector standard. Its efforts at automation involve only 

a one-time requirement, not the repeatable process found in private 

companies. Efforts to extract data are restricted to those taken from two 

centrally available databases on services contract actions (excluding 
Page 32 GAO-03-661 Best Practices 

research and development23) in excess of $25,000, a limitation due to the 

agency’s self-imposed 90-day time frame for completing the spend 

analysis.24 Although superior data—obtained by the vendor from other 

internal and external sources with DOD’s help—may be used to 

supplement what has been extracted, DOD cannot guarantee that it will be 

able to provide what the vendor may request.25 The scope of the pilot is 

also relatively limited, compared to the more expansive private sector 

programs. Ten service category business cases are being considered, and 

procurement savings strategies will be tested for at least five categories. If 

time permits, DOD’s pilot manager told us that more than five categories 

could be tested. 

While DOD expects to learn from this pilot spend analysis, only a small 

number of procurement actions will result from it. As DOD moves forward 

to adopt commercial best practices for service acquisitions on the basis of 

its pilot, the scope of its strategic approach may be limited to smaller 

organizational units, rather than a major more centralized reorganization 

of DOD’s procurement processes. To justify its “wait and see” approach 

with a pilot, DOD cites several factors that set it apart from commercial 

companies. These include its much larger and more complex services 

supplier base, decentralized acquisition environment with many 

procurement offices spread across the military services and defense 

agencies, and no single financial data system relative to procurements. 

According to DOD, it must also fulfill numerous socioeconomic goals for 

contracting with small and diversely-owned suppliers and has more 

regulatory and budgetary constraints around the acquisition process. In 

citing these factors in advance of the pilot, DOD is being cautious about 

viewing procurement as a strategic (i.e., DOD-wide) process that simplifies 

 23 In fiscal year 2002, DOD reported a total of 33,440 contract actions of more than 

$25,000 for research, development, test, and evaluation services, totaling about 

$26.9 billion. 

24 DOD will furnish the contractor a few dozen data field elements extracted from the 

Defense Contract Action Data System (for fiscal years 2000 through 2002) and the Federal 

Procurement Data System (for fiscal years 2001 and 2002). In fiscal year 2002, DOD 

reported more than 254,000 contract actions in excess of $25,000 for non-research and 

development services, totaling about $66 billion. 

25 A sizeable sum of DOD spending is through other procurement methods and not 

captured in the data DOD is furnishing to the spend analysis vendor on contract actions for 

more than $25,000. For example, in fiscal year 2002, DOD reported almost 5 million 

contract actions for goods and services of $25,000 or less, totaling about $9.8 billion. In 

fiscal year 2001, DOD purchase card spending for goods and services totaled $6.1 billion. 
Page 33 GAO-03-661 Best Practices 

acquisitions, saves money, and increases the quality of purchased services, 

compared to its current tactical process of numerous individual contract 

actions. 

Once the pilot spend analysis is complete, DOD faces the challenge 

of making the best use of the results. It needs to decide what long-term 

changes are required to bolster the current organizational structure and 

processes to foster a more strategic approach to acquiring services. 

The extent to which DOD makes these changes will determine its 

success in meeting congressional expectations for major management 

reform of—and substantial savings from—the procurement of services. 

As we reported last year,26 DOD’s size and complex service needs may lead 

it to pursue different approaches within the defense agencies, military 

departments, and individual commands. In this regard, private sector 

experience suggests that DOD must start with spend analysis to identify 

and prioritize specific contracted services and then follow through with 

organizational and process changes, such as the establishment of full-time 

dedicated cross-functional teams or commodity managers, to improve the 

coordination and management of key services. 

As DOD attempts to reengineer its approach to purchasing services, it 

faces challenges similar to those faced by private sector organizations. 

For example, DOD is subject to statutory and regulatory goals for 

contracting with small businesses and other socioeconomic categories, 

such as woman-owned small businesses and small disadvantaged 

businesses, that may constrain it from consolidating numerous smaller 

contracts into larger ones.27 This is an approach often taken by the 

companies we studied. Those constraints must be considered in the 

 26 GAO-02-230. 

27 Contracts that combine requirements to such an extent that they present a barrier to 

small businesses’ ability to compete are considered to be “bundled contracts.” The 

Small Business Reauthorization Act of 1997 defines contract bundling as “consolidating 

two or more procurement requirements for goods or services previously provided or 

performed under separate, smaller contracts into a solicitation for offers for a single 

contract that is unlikely to be suitable for award to a small business concern.” 

15 U.S.C. Section 632 (O) (2). For more information regarding measures and information 

that will be used to monitor agencies’ progress in eliminating unnecessary contract 

bundling and mitigating the effects of necessary bundling, see U.S. General Accounting 

Office, Small Business Contracting: Concerns about the Administration’s Plan to 

Address Contract Bundling Issues, GAO-03-559T (Washington, D.C.: Mar. 18, 2003). 

Spend Analysis Could 

Guide Development of a 

Strategic Approach to 

Meet DOD’s Diverse Needs 
Page 34 GAO-03-661 Best Practices 

business cases to be developed by the spend analysis vendor. The 

experience of private sector companies—which also are keenly aware of 

the importance of small and diversely-owned business participation as 

suppliers—may offer DOD valuable insights into addressing this challenge. 

Companies we studied use spend analysis to carefully and successfully 

balance supplier consolidation and cost-savings strategies with corporate 

supplier diversity goals of equally high priority. Companies’ commodity 

teams often include supplier diversity specialists, who propose concrete 

steps for considering small, minority-, and woman-owned businesses 

throughout the strategic-sourcing process.28 Like the companies, DOD can 

use spend analysis to understand its current level of supplier diversity on a 

commodity-by-commodity basis and to balance cost-saving strategies and 

socioeconomic goals. Spend analysis can also support DOD’s efforts to 

comply with small business requirements to review potential bundling of 

procurement requirements in order to determine if the bundling is 

necessary and justified. 

DOD cites its lack of a single financial data system relative to 

procurements as another challenge. Because of the pilot’s 90-day time 

frame for completing the initial spend analysis, DOD acknowledges that 

the data it will use may be less complete than what is used by business, 

but it cannot guarantee that it will be able to provide data from other 

sources that its vendor may request to perform the first DOD-wide spend 

analysis. DOD is instead asking the vendor to make a recommendation on 

the feasibility of using other DOD financial systems—such as systems used 

to process invoices and pay commercial vendors for goods and services 

bought by DOD organizations—that might be considered for use in 

the future. 

Although DOD will need to consider how existing problems in its 

financial management systems29 could affect spend analysis and services-

 28 Examples of concrete steps to improve supplier diversity outcomes during the strategic 

sourcing process are determining baseline spend with diverse suppliers; including diverse 

suppliers in requests for information and following up if initial response rate is low; 

developing selection criteria to enable inclusion of diverse suppliers; considering the use of 

regional or multiple requests for proposals; seeking creative solutions from suppliers such 

as partnerships; and encouraging and negotiating aggressively with diverse suppliers. 

29 For example, DOD continues to confront pervasive weaknesses in its financial 

management systems, hindering its ability to produce timely and accurate financial 

information needed to make sound business decisions and ensure accurate vendor 

payment for goods and services. See GAO-03-98. 
Page 35 GAO-03-661 Best Practices 

contracting initiatives, we believe a more businesslike approach is 

possible. The companies we interviewed faced similar challenges in 

accumulating accounts payable and other internal data that were highly 

fragmented across multiple financial and management systems and not 

easily accessible. However, the companies automated the extraction of 

accounts payable and other internal data and made the spend analysis 

process repeatable and more efficient.30 To see if DOD could engage in 

similar actions, we discussed this matter with DOD sources and others 

knowledgeable about DOD and commercial vendor payment systems.31

Based on these discussions, DOD’s systems could provide the type of 

accounts payable data that companies use and thus could be a data-rich 

source for DOD spend analysis. In fact, vendor payment data from 

multiple processing locations are already centrally collected by the 

Defense Manpower Data Center for auditing and other financial 

management purposes. Use of this data could reduce DOD’s need to 

extract and organize data for spend analysis efforts by providing a “onestop shop.” 

DOD is also likely to face resistance to giving up decentralized buying 

authority, cultural barriers, and other impediments to implementing broadbased management reforms.32 The companies we studied found several 

ingredients critical to overcoming such challenges. For example, senior 

management must provide continued support for common services 

acquisitions processes beyond the initial impetus, since the companies are 

engaging in long-term efforts. Second, communication has to be seen as 

vital in educating and keeping staff on board with changes. To achieve 

buy-in, companies used spend analysis to make a compelling case to 

business units that reengineering would enhance service delivery and 

reduce costs. Companies also involved the business units in a new center-

 30 Once companies consolidated spending data from various sources, the companies also 

subjected the data to an extensive review to make corrections and ensure that the data 

were sufficiently accurate, complete, and consistent for supporting informed strategic 

sourcing and procurement management decisions. 

31 The Defense Finance and Accounting Service operates about 14 systems at several sites 

to process invoices and disburse payments to vendors for goods and services sold to Army, 

Navy, Air Force, and other DOD organizations. 

32 Our reports have highlighted a number of underlying causes impeding past reform 

efforts at DOD. For example, cultural resistance to change and autonomous operations 

have hindered DOD’s ability to implement broad-based reforms because stakeholders were 

not able to put aside their particular military services’ or agencies’ interests to focus on 

DOD-wide approaches. See GAO-03-98. 
Page 36 GAO-03-661 Best Practices 

led approach by making extensive use of cross-functional commodity 

teams to make sure they had the right mix of knowledge, technical 

expertise, and credibility. 

To cut across traditional organizational boundaries that contributed to the 

fragmented approach to acquiring services, companies restructured their 

procurement organizations, assigning them greater responsibility and 

authority for strategic planning and oversight of the companies’ service 

spending. Also, companies extensively used metrics—based on spend 

analysis—to measure total savings and other financial and non-financial 

benefits, to set realistic goals for improvement, and to document results 

over time. DOD recently developed new management structures in 

response to the 2002 national defense authorization requirements to 

improve practices for the acquisition of services, but the changes are not 

as far-reaching as those adopted by companies we studied. For example, 

although the Under Secretary of Defense (Acquisition, Technology, and 

Logistics) and each of the military departments now has a process for 

reviewing particular large-dollar or sensitive acquisitions for adherence 

to competition and other contracting requirements, the reviews are 

piecemeal and focused on approving individual acquisitions rather than 

achieving a coordinated approach for managing services’ contracts. DOD 

could use spend analysis as a basis for tailoring how the new management 

structures can adopt the type of organizational tools and metrics employed 

in the private sector to foster an enterprisewide strategic approach that 

would meet DOD’s unique requirements. 

To implement best practices and manage services effectively, DOD must 

have the right skills and capabilities in its acquisition workforce. This is a 

challenge given decreased staffing levels, increased workloads, and the 

need for new skill sets. DOD is engaging in a long-term strategic planning 

effort to identify the competencies needed for its future workforce. 

Private sector experience indicates that taking a strategic, integrated, 

enterprisewide approach can also help DOD address its acquisition 

workforce challenges. In our study, companies’ efforts to reengineer their 

procurement operations have often been accompanied by acquisitionstaffing reductions. The experience has been that using spend analysis and 

coordinated sourcing processes allows for more efficient use of 

procurement personnel resources by streamlining the number of 

contracting tasks. Reducing duplication and fragmentation in contracting 

activities also helps free up limited acquisition workforce resources to 

perform more strategic business functions, such as acquiring and using 

knowledge of market conditions and industry trends to better manage 

fewer suppliers and contracts. 
Page 37 GAO-03-661 Best Practices 

While seemingly daunting, each of the challenges to be faced by DOD 

has been faced and overcome by the private sector companies. Careful 

observation and analysis of their practices will help the agency to adapt 

variations and even to create new approaches through which it will be 

able to reach its savings and strategic targets. 

Without effective spend analysis, organizations are limited in their ability 

to understand buying patterns; maximize purchasing power; carry out 

informed acquisition and contracting decisions; measure the impact of 

changes in purchasing costs and supplier diversity; and carry out other 

planning and management functions for the acquisition of services. 

Given that DOD’s spending on services’ contracts is approaching 

$100 billion annually, the potential benefits of overcoming the challenges 

and using best practices to establish an effective spend analysis program 

are significant and can 

• achieve a total-spending perspective across DOD, 

• make the business case for collaboration in joint purchasing rather than 

fragmented purchasing, 

• organize an effective management structure to assign accountability and 

exercise oversight, 

• identify potentially billions of dollars in procurement savings 

opportunities by leveraging buying power, and 

• identify opportunities to achieve other procurement efficiencies such as 

reducing duplication in purchasing, supporting supplier diversity, and 

improving supplier performance. 

With the federal government’s short- and long-term budget challenges, it is 

more important than ever that DOD effectively transform its business 

processes to ensure that it gets the most from every dollar spent. At the 

same time, DOD’s management challenges related to contracting for 

services will not be resolved overnight. Two common elements that 

pervade discussions of ways to address DOD’s challenges are the need for 

(1) sustained executive leadership and (2) a strategic, integrated, and 

enterprisewide approach. In addition, ensuring that these efforts achieve 

the intended results will require the Congress’s continued involvement and 

support. Such support has already been demonstrated through the 2002 

national defense authorization legislation requiring that DOD establish a 

management structure to enhance the acquisition of services and to collect 

data on the purchase of services. DOD could use this legislation—and its 

first spend analysis effort—as the means for taking a more strategic 

Conclusions 
Page 38 GAO-03-661 Best Practices 

approach to contracting for services and for identifying and achieving 

substantial savings in the future. 

To achieve significant improvements across the range of services DOD 

purchases, we recommend that the Secretary of Defense direct the Under 

Secretary of Defense for Acquisition, Technology, and Logistics to work 

with the military departments and other DOD organizations involved in the 

spend analysis pilot to adopt the effective processes employed by leading 

companies. Key elements of DOD’s approach should address 

• using technology to centrally automate the spend analysis process to make 

it repeatable, 

• using accounts payable and other internal financial and procurement data 

to gain a comprehensive and reliable view of spending, 

• supplementing internal data with external information such as purchase 

card expenditures and business intelligence to gain a more complete 

picture of DOD spending and to refine analysis, 

• reviewing purchase data for accuracy and consistency, organizing the data 

by commodity and supplier categories in order to identify opportunities to 

leverage buying power, 

• promoting enterprise collaboration aimed at gaining the best value, 

including the establishment of cross-functional teams to continue 

developing strategic-sourcing projects, and 

• presenting relevant spending reports to appropriate decision makers to 

establish strategic savings and performance goals, assign accountability, 

and measure results. 

To ensure that DOD moves forward in a timely manner on its commitment 

for taking a more strategic approach to the acquisition of services, we 

recommend that the Secretary of Defense direct the Under Secretary of 

Defense for Acquisition, Technology, and Logistics develop a plan and a 

schedule for accomplishing changes in management structure and 

business processes for contracting for services. The plan and schedule 

should be based on the results of the spend analysis pilot and should be 

submitted to the congressional defense committees for consultation and 

approval as part of the fiscal year 2006 budget submission and justification 

process. 

In commenting on a draft of this report, DOD agreed with our findings 

and conclusions that the commercial best practice of spend analysis is 

important to the design of a strategic approach to acquisitions and can be 

Recommendations for 

Executive Action 

Agency Comments 
Page 39 GAO-03-661 Best Practices 

used by DOD to achieve substantial savings comparable to those in the 

private sector. Moreover, DOD concurred with the recommendation to 

adopt the effective spend analysis processes employed by leading 

companies—and now intends to automate the process of data collection 

and analysis to make it repeatable, rather than a one-time effort. 

However, DOD did not concur with the recommendation to develop a 

plan as part of its 2005 budget submission process (i.e., early in 2004) 

to institute changes in management structure and business processes for 

contracting for services. Rather, DOD contends that ongoing initiatives—

including follow-on sourcing projects it anticipates developing after the 

current spend analysis—may make such changes unnecessary. In addition, 

DOD answers that developing a plan and schedule for making changes in 

management structure and business processes before completing the 

current spend analysis pilot (expected by September 2004) would 

be premature. 

As we have recognized since our first report on this matter,33 DOD’s size 

and complex service needs may lead it to pursue different approaches 

within the defense agencies, military departments, and individual 

commands. However, private sector experience suggests that DOD must 

follow through on its initial spend analysis pilot with organizational and 

process changes such as the establishment of full-time, dedicated crossfunctional teams or commodity managers to improve the coordination and 

management of key services. The extent to which DOD makes these 

changes will determine its success in meeting congressional expectations 

for major management reform of—and substantial savings from—the 

procurement of services. Moreover, for DOD to change management 

structure and business processes for services-contracting will require 

sustained leadership at DOD as well as the involvement and support of 

Congress. Thus, for purposes of accountability and transparency in 

support of such involvement and leadership, DOD needs to develop a plan 

for timely changes necessary to implement a more strategic approach to 

contracting. 

In response to DOD’s concern, we modified the recommendation to 

allow time for DOD to complete its current spend analysis pilot and use 

the results to develop a plan. Although we are encouraged by DOD’s 

commitment to undertake the pilot, we firmly believe that once the pilot is 

 33 GAO-02-230. 
Page 40 GAO-03-661 Best Practices 

complete, DOD needs to make long-term changes to bolster the current 

organizational structure and processes to foster a more strategic approach 

to acquiring services. 

The DOD comments can be found in appendix I. 

The Chairman and the Ranking Minority Member, Subcommittee on 

Readiness and Management Support, Senate Committee on Armed 

Services, requested that we develop a body of work that examines the 

practices of leading companies and identify best practices that could yield 

benefits to DOD in the acquisition of services. This engagement focused on 

(1) the best practices of leading companies as they relate to conducting 

and using spend analysis, and (2) the extent to which DOD can pursue 

similar practices. 

To conduct our best practices work, we conducted literature searches, 

reviewed studies related to spend analysis and best practices for services 

contracting prepared by research and consulting organizations, attended 

private sector seminars and conferences, and contacted experts in 

purchasing practices. On the basis of these discussions and analyses, we 

selected five leading companies that were recognized for their strategic 

approach to managing services acquisitions. We provided a standard 

agenda to each company prior to our interviews, and conducted interviews 

to determine the companies’ motivation for undertaking a procurement 

transformation; corporate strategic goals; the organization and role of the 

purchasing function; the key processes used for collecting, analyzing, and 

using spending data—including the use of technology—to be strategic in 

planning and managing services acquisitions; and performance metrics 

and accountability. 

We also asked each company to discuss in more detail a specific service 

buy that best exemplified the use of spend analysis for making strategic 

acquisition decisions. In addition, we discussed potential challenges and 

barriers to employing a spend analysis and subsequent strategic sourcing 

efforts. After our visits, we provided a summary of the information 

obtained to ensure that we had accurately recorded and understood the 

information each company provided. We provided each company a copy of 

our draft report for review and comment. The companies we visited were 

• Bausch & Lomb, Rochester, New York; 

• ChevronTexaco Corporation, San Ramon, California; 

• Dell Computer Corporation, Round Rock, Texas; 

Scope and 

Methodology 
Page 41 GAO-03-661 Best Practices 

• Delta Air Lines, Atlanta, Georgia; and 

• International Business Machines Corporation, Somers, New York. 

To assess current efforts underway by DOD to improve its enterprisewide 

knowledge of spending on services contracts, and how DOD can better 

emulate the best practices learned from these leading companies, we 

interviewed procurement policy and management officials in the Office of 

the Under Secretary of Defense (Acquisition, Technology, and Logistics) 

and the military departments. To assess the feasibility of using internal 

accounts payable data similar to the data used in leading companies’ 

spend analysis programs, we interviewed Defense Finance and Accounting 

Service officials knowledgeable about DOD systems used to process 

invoices and pay commercial vendors for goods and services supplied to 

military and other DOD organizations. We also reviewed policy 

memorandums, guidance, and other documents pertaining to ongoing and 

planned initiatives that affected service contracting. We discussed with 

these officials our assessment of the leading companies’ approaches and 

obtained their views on their approaches’ similarities and differences. In 

addition, we discussed potential challenges and barriers to employing the 

best practices approaches we identified. 

Our report summarizes the key elements the companies employed 

to conduct spend analysis as one part of their strategic sourcing 

initiatives—in particular as they relate to services acquisitions. We did 

not verify the accuracy of the procurement costs and benefits the 

companies reported receiving from their strategic approaches and spend 

analysis outcomes. Our report is not intended to describe or suggest that 

we evaluated or endorse all business practices of the companies. Nor is 

this report intended to suggest that all companies have followed exactly 

the same approach in achieving similar results. Also, we were limited in 

our ability to obtain and present some relevant data that companies 

considered proprietary in nature. 

We conducted our review from March 2002 to May 2003 in accordance 

with generally accepted government auditing standards. 

We are sending copies of this report to other interested congressional 

committees; the Secretary of Defense; the Deputy Secretary of Defense; 

the Secretaries of the Army, Navy, and Air Force; the Under Secretaries of 

Defense (Acquisition, Technology, and Logistics) and (Comptroller); the 

Director, Office of Management and Budget; and the Administrator, Office 

of Federal Procurement Policy. We will also provide copies to others on 
Page 42 GAO-03-661 Best Practices 

request. In addition, the report will be available at no charge on the 

GAO Web site at http://www.gao.gov. 

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

please call me at (202) 512-4841, or David Cooper at (202) 512-4125. Major 

contributors to this report were Lily Chin, Ralph Dawn, Carolyn Kirby, 

Nicole Shivers, Shannon Simpson, Cordell Smith, Bob Swierczek, 

Ralph White, and Dorothy Yee. 

Jack L. Brock, Jr. 

Managing Director 

Acquisition and Sourcing Management 
Appendix: Comments from the Department of 

Defense 

Page 43 GAO-03-661 Best Practices 

Appendix: Comments from the Department 

of Defense 
Appendix: Comments from the Department of 

Defense 

Page 44 GAO-03-661 Best Practices 
Appendix: Comments from the Department of 

Defense 

Page 45 GAO-03-661 Best Practices (120133) 
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