Spend analysis strategy supports Minnesota’s ‘Drive to Excellence’
Similar to other state governments throughout our nation, Minnesota buys a wealth of products and services. For instance, the state spends millions of dollars every year on personal computers alone. However, consolidated information about these computers was virtually nonexistent, without details about the types, configurations, quantities and prices of computers purchased as well as the suppliers used.
A similar lack of information accompanied thousands of other goods and services that were purchased annually by the state at a total cost of well over $1 billion. This information was stored in systems that were frustratingly fragmented and simply did not provide the level of detail needed for developing key strategies. By accessing integrated information, purchasing managers can formulate strategies such as setting commodity standards, reducing multiple-award contracts, negotiating volume-based discounts and monitoring agencies’ off-contract spending.
Minnesota officials thus sought a way to track purchases and spending, based on various criteria.
‘Drive to Excellence’ prompts reforms
In April 2005, Minnesota Gov. Tim Pawlenty issued an executive order under his “Drive to Excellence” government reform initiative, which created a comprehensive vision for improved state purchasing practices. This multifaceted program delivered major benefits through well-defined interagency roles and relationships, extensive collaboration across agencies, agreement on commodity standards, intensified negotiations, enterprisewide contracts and the adoption of best practices in statutes and policies.
A major goal of Pawlenty’s initiative was to dramatically improve the state’s spending data, such as what products and services the state was buying and from which suppliers. To achieve this goal, officials evaluated the benefits of a spend analysis solution, which would extract, cleanse, classify, enrich and integrate different data from existing systems. The proposed solution would allow state purchasers to pursue strategic procurement opportunities and target savings in key commodity and service areas.
In turn, the state’s Department of Administration Materials Management Division released a request for proposal that outlined requirements of the spend analysis solution. After a thorough evaluation process, officials selected TotalSpend, a Web-based system developed by Procuri Inc., to improve spend visibility, consolidate purchases and suppliers and reduce costs.
TotalSpend integrates and classifies spending information based on internationally recognized standards. The system supplements state data with third-party vendor-related details such as parent/subsidiary relationships between businesses, as well as diversity program information. Purchasers receive a portal to this consolidated information and the tools to analyze data.
As a result, spend analysis has been implemented for Minnesota state agency purchases and will be rolled out to the 44-state Minnesota Multi-State Contracting Alliance for Pharmacy (MMCAP).
Spend analysis did not replace existing automated purchasing systems, nor is it an alternative to future Enterprise Resource Planning implementations in Minnesota. Instead, TotalSpend provides a means for purchasing professionals to share experience and insights—information that is not usually found within a system’s database. Procurement managers can rely on this integrated purchasing intelligence to analyze the “who, what, when, where and how” of purchases to initiate specific strategies.
Reaping the benefits
The Drive to Excellence spend analysis initiative has been highly successful. Easier access to better data has led to improved procurement decision-making. As a result, the state’s sourcing efforts have become smarter, more strategic procurement processes.
Although not solely attributable to spend analysis, the documented successes over the past two years demonstrate a strong record of service improvements. The public in general also has benefited directly because spend analysis allows state personnel to accurately respond to public information requests that previously would have been unanswerable.
Minnesota’s spend analysis system has opened a door to an unprecedented quantity and quality of relevant sourcing data. The challenge faced by procurement officials lies in using the data creatively and effectively to drive even further efficiencies and savings in products and services purchased.
Overall, the state’s complete Drive to Excellence sourcing initiatives have saved in excess of $100 million. The resulting stream of cleansed data has been used to create strategic sourcing initiatives involving computers, cell phones, office supplies and IT professional services, among others. In one recent example of cost reduction directly linked to the spend analysis system, a contract vendor agreed to absorb a pending increase in the state’s contract fee after seeing the system’s ability to police any off-contract purchasing.
Professional endorsements
After only one year of implementing spend analysis, the state of Minnesota’s Department of Administration Materials Management Division received the prestigious Cronin Award for Procurement Excellence. The annual awards program, created by the National Association of State Procurement Officials (NASPO), recognizes outstanding public procurement initiatives and promotes the adoption of these ideas and practices throughout the states. Minnestota was commended for integrating essential data within procurement operations.
Throughout the state of Minnesota, procurement personnel are extremely proud of NASPO’s recognition, which included the following comments:
“We’ve all struggled with limitations on statewide procurement data—finally a state has comprehensively tackled and solved the problem. How does one achieve data-based decisions in procurement with imperfect knowledge of expenditures and reporting systems that often are accounting-driven? While the specific technology solution may vary between states, this project provides a unique framework for developing meaningful expenditure information by mining data from disparate, existing systems. The use of MMCAP to demonstrate and migrate the potential nationally also was innovative. Minnesota’s system obviously will improve service by providing access to useful reporting information based on actual data, not just painstakingly developed estimates. It took little imagination to conclude that the Minnesota system has huge potential to generate substantial cost savings by making the state more able to target candidate expenditures strategically.”
“Minnesota’s spend analysis system is innovative and fills a significant void that exists in many states,” added Patricia Meagher, chair, American Bar Association’s Section of Public Contract Law. “Effective procurement reform initiatives are dependent on a complete, accurate picture of a state’s procurement expenditures. Rarely is there a consolidated system capable of providing information that is meaningful to strategic sourcing and other procurement improvement initiatives. Minnesota should be applauded.”
What’s next for spend analysis?
Various projects are currently under way to promote the Drive to Excellence and spend analysis initiatives. For instance, state purchasers have embarked on a systematic implementation plan that continues to gain staff support and expand use of the spend analysis tool over time.
Because procurement managers did not have access to meaningful data in the past, learning processes and cultural changes have accompanied the transition to data-driven decision-making. Hands-on use of the spend analysis tool has not yet been extended to other state agencies. However, their procurement staff members have been oriented to the new data source and can request information from the spend analysis system for their own use.
With a charge to expand state use of enterprisewide professional/technical contracts, spend analysis is helping identify key opportunities for combining consulting contracts. Currently, the state is researching past spend data, categorizing areas of service and analyzing geographic needs related to occupational health services. In addition, information derived from the system is in use to facilitate negotiations between the University of Minnesota and executive branch agencies regarding contract terms and conditions that will be acceptable across the enterprise.
State purchasers anticipate ever-expanding use of the spend analysis tool. While cost savings help illustrate the benefit of spend analysis, the real value is its ability to extract, cleanse, classify, enrich and integrate data from many sources to enable effective and efficient procurement decisions.
About the author
Kent Allin is the state of Minnesota’s chief procurement officer and director of the Materials Management Division for the Minnesota Department of Administration. Alllin has worked for the state in a number of departments, including human rights, finance and administration, in both appointed and civil-service roles. He was the project director for Minnesota’s Commission on Reform and Efficiency and its statewide systems project. In 2004, Allin received the McLaughlin Award from National Correctional Industries Association and also served in a temporary capacity as the state’s administration commissioner.
Editor’s Note: Procuri Inc. was acquired by Ariba Inc. in December 2007. Based in Sunnyvale, Calif., Ariba has added Procuri’s TotalSpend system to its wide range of spend management solutions. For more information, visit http://www.ariba.com.