Sequester Meaning: Obama and Congress Can Learn From Procurement/Finance

The Washington Post recently ran an Op-Ed suggesting that sequester (i.e., forced budget cuts) may not be such a bad thing. The Post notes that while “Obama continues to complain the sequester does not represent a balanced approach to deficit reduction, and wants to replace some of the spending cuts with tax increases … the Simpson-Bowles Commission laid out what a ‘balanced’ approach should entail: $3 of spending cuts for every $1 dollar in tax increases. Well according to Sen. Rob Portman (R-Ohio), by that standard Congress and the president have nearly met that mark.”

In running the math, The Post notes that the actual ratio if you consider both spending cuts and new revenue (taxes) is roughly 2.78 to 1. That’s pretty close to the Simpson-Bowles recommendation. Not bad, if you’re a deficit hawk. But the process we took to arrive at this outcome has undoubtedly disappointed many. This is precisely why Obama and Congress could learn a lot from what we might term “procurement and finance budgeting” collaboration strategies in top performing companies.

These include:

  • Reducing budgets even before exact savings are identified from sourcing, supplier development and general cost reduction efforts. This in turn forces all key stakeholders to become more efficient and engaged in the cost reduction process (they have to, since they’ve lost the budget already)
  • Defining not only baselines measurements and KPIs focused on historic costs (e.g., SKU-based costs), but also the specific metrics on which savings (and the broader, encompassing definition of “value” on a total cost basis) will be forecasted, measured, and counted
  • Encouraging creative savings approaches by examining all aspects of potential cost “wins,” including better demand management (i.e., reducing consumption), demand aggregation (Obama and the OMB are finally starting to encourage this in Washington), credits/rebate tracking and overall supplier compliance

A combination of forced spending cuts due to the sequester and new tax revenue may not be such a bad thing for those who want to move toward a balanced budget and ultimate paying down the deficit. But by applying lessons from the private sector and procurement and finance collaboration in the sourcing and procurement realm, Washington could be doing so much more to ensure greater value and accountability for every dollar, even before it’s spent.

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