Spend analysis can outfox a tricky economy
The year 2009 has proven to be an interesting and tricky one for public procurement. In many ways, the recessionary economy has changed our day-to-day buying activities. Our departments are dealing with dramatic cuts in their budgets but are often expected to provide the same high service levels. Departments and agencies look to purchasing to help them meet their needs and objectives while attempting to stay within drastically reduced budgets. It’s a difficult task that can be accomplished by using best purchasing practices plus some creative buying techniques and tools.
In Johnson County, Kan., an urban county with more than 500,000 people, citizens have come to expect outstanding services for their tax dollars. Services in Johnson County run the gamut from emergency medical and ambulance services to airports and mental health services to a multi-location library system, a county museum and a full-service sheriff’s department. Purchasing plays a major role to ensure high service level standards are met.
The Johnson County Purchasing Division is employing a number of tools — some old and some new — to reduce the impact of the economic downturn. We continue to enhance and improve our purchasing card program and urge its use as our primary means of “procure to pay” to secure large transactional savings. We have recently implemented the use of electronic reverse auction bidding for additional savings. We use online bid notifications to reach the broadest supplier base and online auctions for surplus property to gain the best return. We continue to emphasize the use of cooperative contracts — local, regional and national — and we have just begun outsourcing some of our inbound freight.
Among the tools in the purchasing toolkit, however, none is more important or useful than NIGP Commodity Codes, which help us to understand our county’s spending patterns and trends and to analyze how those trends impact purchasing. NIGP Codes are not new to Johnson County. We have been using the NIGP Commodity Codes extensively and effectively since we implemented Oracle Financials several years ago. We have placed much more emphasis on the value of the codes in the last few years, however, and particularly in 2009 because of the economy. We need to know how much we are spending and where we are spending it to assure our departments and manage-ment that we are making good procurement decisions.
The codes are highly conducive to spend-and-volume analysis and are, therefore, invaluable to our sourcing strategy. Our county has 4,200 employees and more than 40 diverse departments and agencies. We have multiple agencies with the same or similar procurement needs. For instance, medical supplies are used by our medical emergency services, by our public health department and by our mental health department. Several departments such as wastewater, public works and facilities have requirements for staff uniforms, and multiple departments have the same or similar needs for cleaning chemicals and products. These and other examples demonstrate how diverse departments can have similar needs.
Unless there is a good way to track and consolidate these similar requirements, it can be difficult to capture the true entity volumes. NIGP Codes provide the mechanism to track usage county-wide and to consolidate the individual departmental volumes to ascertain when a term contract is called for. By analyzing the needs of dissimilar user departments for similar needs, we can seek competitive bids using the full county volume and, in most cases, obtain the best pricing available due to higher quantities.
Combining departmental volumes for spend analysis is good practice even in the best of economic climates. In our current restricted budget conditions, it becomes almost essential. It is due diligence on the part of purchasing to identify like purchases in various departments and agencies and to take action on those combined volumes to obtain the best possible prices. The NIGP Commodity Codes allow an entity to accomplish this goal easily and effectively.
Johnson County requires the selection of a Commodity Code to enter a requisition. Our Oracle system will not allow a requisition to be approved to a purchase order without an NIGP Commodity Code.
The five-digit codes are the optimal codes for our use. They provide the desired level of detail to accurately track spend, without burdening users with too many numbers from which to choose. We have successfully customized our system to eliminate those codes that do not fit our business needs. This reduces the number of codes that our departmental users must review to select the correct code for their requisition. It makes the process much easier for them. The NIGP Commodity Codes work very well with our Oracle financial system, and together they make spend analysis and strategic sourcing highly efficient and effective. NIGP Codes represent one of the most powerful weapons in our procurement arsenal.
About the author
John M. Mahin, CPPO, CPPB, is Purchasing Manager, Johnson County, Kan. Email him at [email protected]. This article is based on the runner-up of the 2009 NIGP Code Essay Contest, sponsored by Periscope Holdings, the custodian and marketer of the NIGP Code on behalf of NIGP.
