IRS buys strategically

The Internal Revenue Service has begun to alter the way it buys products and services, taking its cue from a procurement model that saves some corporations millions of dollars a year.

John Ely, deputy director for procurement at the IRS, said the new approach, called strategic sourcing, will bring the latest e-business practices to the IRS and Treasury Department and save money for agency program offices. In short, what worked for IBM Corp. can work for the IRS, said Ely, who spoke this morning in Falls Church, Va., at a business seminar sponsored by Eagle Eye Publishers Inc.

Strategic sourcing involves consolidating agency spending on information technology and other commodities, resulting in fewer vendors, but larger contracts for each. Larger contracts mean lower prices and better service for the agency, he said.

Ely described a future in which point-and-click ordering from online catalogs will eliminate a significant portion of the agency's transaction costs. The IRS now spends $2 billion a year on commodities, including $402 million on IT and telecommunications.

The IRS has created a customer acquisition council to advise agency officials on each commodity purchased through strategic sourcing.

Recently, the IRS used strategic sourcing to buy wireless phones. It had been spending about $4 million a year on wireless phones from 30 vendors through 300 separate purchasing contracts, Ely said. When the IRS consolidated its wireless phone buys, it went from 30 vendors to three for a savings of 5.4 percent, or about $200,000, in the first year.

Now, the IRS is in the midst of consolidating its copier purchases nationwide. The agency spends $24.2 million a year on copiers, but Ely and other procurement officials think the agency can save $1.1 million to $1.8 million a year on copiers through strategic sourcing.

Whether consolidated contracting will produce a backlash from companies feeling left out remains to be seen, said one minority-owned business official who attended the seminar.