With the IRS Saving So Much From Vendor Management, Maybe They’ll Pass On the Savings…Not!

Image by Barbeefish via Toonpool

Even though the IRS and EPA have perhaps the most maligned reputations among government departments and agencies in the business community, it’s great to see the IRS focused on saving money through better vendor management. To wit, the above-linked story reports that “The Internal Revenue Service looked at its operations from a new angle and found ways to save millions of dollars each year by using a vendor management office…The VMO improved the agency’s ability to monitor and manage its IT purchasing, allowing officials to get rid of redundant IT licenses and overlapping services, to learn the rhythms of the market and to use that new understanding to put themselves in control of pricing.”
The savings numbers are very, very significant. The program apparently launched in 2008 and by fiscal year 2010, had accumulated “$61.6 million in savings, and it followed up that year with $58.7 million saved in 2011.” The IRS’ VMO is also focused on risk reduction as much as driving to lower costs through eliminating unnecessary licenses and services and supplier rationalization, among other programs. What were some of the specific initiatives the IRS VMO undertook? Consider the following three examples from the article (there are more in the full piece):

  • Smart contracting — “Aligning more expensive contracts to the vendors’ fiscal years, instead of the government’s fiscal year. With the change, agency officials weren’t under pressure to sign a bunch of contracts quickly before Oct. 1. Officials can now spend more time evaluating expiring contracts to suit their needs. In addition, it shifted the negotiating leverage from the contractor to the IRS.”
  • Demand analysis and management — “Working with various divisions of the IRS to learn what technologies employees were using and how much they used them. The VMO got rid of the unnecessary products.”
  • Spend and budget analysis: “Studying monthly invoices for large labor services, telecommunications and maintenance to find where budgets allocations exceeded what was actually needed. The VMO then re-prioritized money at a corporate level to match current needs.”

In short, the IRS’ VMO has played a key role in reducing costs in an environment where traditional strategic sourcing initiatives are often marred by the complex Federal Acquisition Regulation (FAR) rules. Should other agencies and departments follow the IRS lead in vendor management? Absolutely. Moreover, we’d be excited to see the IRS look beyond IT spend in these efforts as well.

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Obsessed with how companies manage, spend and save money, Jason writes about procurement, trade and supply chain issues @ Spend Matters. He has significant first hand experience developing and marketing technology and services products, has advised numerous companies on sourcing and related techniques as well as M&A pursuits.  In previous lives before tech, he was a management consultant and merchant banking analyst.