Best Practices: Improved Knowledge of DOD Service Contracts Could Reveal Significant Savings
Published: 2003-06-09T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: The leading commercial companies GAO studied reported achieving and expecting to achieve billions of dollars in savings by developing companywide 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.

section_title: Letter
paragraphs: 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. 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. 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  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. 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.
subsections: section_title: Background
paragraphs: 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. 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 government- owned 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).
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. 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. 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.  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  commodity 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  establishes savings goals that DOD should achieve by employing  commercial best practices and effective management. 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.
subsections: section_title: Private Sector’s Use of Spend Analysis Bolsters Strategic Approach
paragraphs: 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. 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).
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  effective spend analysis processes—are routinely delivering a 3 percent  to 7 percent savings from their procurement costs. 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. 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.
section_title: Leading Companies Have Developed Formal Spend Analysis Programs to Improve Services Procurement
paragraphs: 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. The processes involve automating, extracting, supplementing,  organizing, and analyzing data.
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  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.
subsections: section_title: Company Profile
paragraphs: 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.
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”. 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  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. 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  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.
section_title: Company Profile
paragraphs: 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.
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 strategic- sourcing 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.
ChevronTexaco uses spend analysis to document and report direct savings  that result from negotiated price reductions, volume discounts, and  leveraged discounts. 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.
section_title: Company Profile
paragraphs: 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  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’  risk 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.
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.
section_title: Company Profile
paragraphs: Spend analysis has been a key element in Delta’s transformation of its  more than $7 billion 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  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  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 on- line reverse auction 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.
section_title: Company Profile
paragraphs: 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. Every month, the system extracts accounts  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.
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 diversely- owned 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.
section_title: DOD Launches a Pilot Spend Analysis with an Eye toward Developing a More Strategic Approach
paragraphs: 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. 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.)
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  research and development) in excess of $25,000, a limitation due to the  agency’s self-imposed 90-day time frame for completing the spend  analysis. 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. 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  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.
subsections: section_title: Spend Analysis Could Guide Development of a Strategic Approach to Meet DOD’s Diverse Needs
paragraphs: As we reported last year, 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. This is an approach often taken by the  companies we studied. Those constraints must be considered in the  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. 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 systems could affect spend analysis and services- 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. 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.  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 “one- stop shop.”
DOD is also likely to face resistance to giving up decentralized buying  authority, cultural barriers, and other impediments to implementing broad- based management reforms. 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- 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 acquisition- staffing 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.
section_title: Conclusions
paragraphs: 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    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  approach to contracting for services and for identifying and achieving  substantial savings in the future.
section_title: Recommendations for Executive Action
paragraphs: 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    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.
section_title: Agency Comments
paragraphs: 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  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, 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 cross- functional 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  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.
section_title: Scope and Methodology
paragraphs: 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;    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  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.
section_title: Appendix: Comments from the Department of Defense