Supply Chain Efficiency Could Save Fed $500 billion

Oct. 12, 2010
The U.S. federal government could save over $500 billion by 2020 by applying supply chain best practices used in the private sector, according to a new economic report released this week by the Technology CEO Council (TCC).

The research findings and recommendations in the TCC report, “One Trillion Reasons,” were shared with the Administration’s economic team by the Council’s members, chaired by IBM CEO Samuel Palmisano, and submitted to National Commission on Fiscal Responsibility and Reform that is considering proposals to reduce the federal deficit.

By harnessing proven applications of technology to reduce waste, decrease duplication and attack fraud and abuse, the TCC urges the U.S. to foster greater innovation in areas ranging from health care, to education and energy. Improved supply chain management alone could represent $500 billion in savings over the next ten years. That’s about how much The Federal government spends on goods and every year.

The problem is, these goods and services are procured largely within agencies and departments with independent procurement processes. The opportunity is not in the purchasing process, but in supplier management.

The TCC report notes that Motorola integrated its disparate supply chains at the end of 2004, bringing the entities that support $40 billion in annual sales under one leadership team. By consolidating sites from 25 to 17, reducing headcount, leveraging its aggregate procurement scale, increasing supplier accountability, and reducing poor quality, Motorola saved an estimated $1.2 billion annually.

Streamlining supply chains can work in public sector settings, as well, the report’s authors suggest. For example the United Kingdom’s largest central and civil government department, the Department for Work and Pensions (DWP), delivers services directly to more than 25 million citizens and pays out more than $180 billion in benefits every year. DWP needed to revamp its entire document supply chain to make information clearer and more easily accessible to UK citizens. Using Lean Six Sigma processes and tools, DWP transformed a fragmented supply chain for all of its core print and related requirements, making all business print and marketing materials, stationery and reprographics available to DWP staff through a single point of contact via the Government e-procurement exchange. The modernization will result in substantial savings for DWP, in line with the UK Government’s Efficiency Review targets.

Similarly, the US Postal Service cut its supply chain costs by 20% ($2.5B) through a supply chain transformation effort. The Department of Defense is applying Lean Six Sigma to extract costs from its supply chain as well.

“In our companies’ experiences,” the report concludes, “process improvements alone can improve efficiencies by 10-20%. If the Federal government could achieve similar improvements in supply chain performance, it could save more than $500 billion over the next ten years.”