The private sector has found that strategic sourcing, a process that moves a company away from numerous individual procurements to a broader aggregate approach, allowed companies to achieve savings of 10 percent or more of total procurement costs. Through strategic sourcing, an organization can leverage its aggregate buying power to negotiate lower prices. Because procurement within the federal government is generally decentralized, the government is not fully leveraging its aggregate buying power and could benefit from adoption of strategic sourcing practices. For example, in March 2011 GAO reported that saving 10 percent of the total federal procurement spending would produce more than $50 billion in savings annually, and stated that leaders across the government needed to embrace a strategic sourcing approach, beginning with collecting, maintaining, and analyzing data on current procurement spending. In 2005, the Office of Management and Budget (OMB) directed federal agencies to develop and implement a strategic sourcing effort to help control spending. OMB also established a government-wide strategic sourcing programknown as the Federal Strategic Sourcing Initiative (FSSI). The FSSI was created to address government-wide opportunities to strategically source commonly purchased products and services and eliminate duplication of efforts across agencies. The FSSI Program Management Office is located within the General Services Administration (GSA). The Program Management Office closely collaborates with and provides regular reporting to OMBs Office of Federal Procurement Policy. In 2012, GAO reviewed government-wide strategic sourcing efforts conducted through the FSSI, as well as agency-wide strategic sourcing initiatives at selected top-spending agencies.
In September 2012, GAO reported that selected agencies among those with the highest fiscal year 2011 procurement obligations leveraged a fraction of their buying power through strategic sourcing and achieved limited savings. In fiscal year 2011, the Departments of Defense (DOD), Homeland Security (DHS), Energy, and Veterans Affairs (VA) accounted for 80 percent of the $537 billion in federal procurement spending, but reported managing about 5 percent, or $25.8 billion of their procurements, through strategic sourcing efforts and reported a combined savings of $1.8 billion. Most selected agencies efforts did not address their highest-spending areas such as services, which may provide opportunities for additional savings. By contrast, DHS reported that nearly 20 percent of its fiscal year 2011 procurement spending was directed through strategically sourced contracts, including the majority of its top 10 spending categories of products and services. While strategic sourcing may not be suitable for all procurement spending, leading companies strategically manage about 90 percent of their procurements and report annual savings of 10 percent or more.
In fiscal year 2011, the FSSI program managed $339 million through several government-wide strategic sourcing initiatives and reported $60 million in savings. However, total spending through the program remains low, as only 15 percent of government-wide spending for the products and services covered by the FSSI initiatives went through the FSSI contracts in fiscal year 2011. In addition, the program has not yet targeted the products and services on which the government spends the most.
Most of the four selected agencies and the FSSI program have not fully adopted a strategic sourcing approach but have actions under way. For example, GAO found that DOD had invested limited resources in strategic sourcing, tracked department-wide strategic sourcing initiatives on an ad hoc basis, which may have led to underreporting,and had not focused on using its spend analysis to identify high-spend opportunities for department-wide strategic sourcing. However, DOD reported it is currently assessing the need for additional resources, identifying additional strategic sourcing efforts, and creating additional guidance that will include a process for regular review of proposed strategic sourcing initiatives. In another example, VA was not systematically considering its highest-spend commodities for department-wide strategic sourcing. In addition, VA reported that it had not been maintaining complete data on strategic sourcing contract spending, which limited its ability to establish metrics and goals for spending managed through strategic sourcing. However, VA reported it has recently taken steps to better measure such spending. VA is also in the process of reviewing business cases for new strategic sourcing initiatives and adding resources to increase strategic sourcing efforts.
A lack of clear guidance on metrics for measuring success has affected the management of ongoing FSSI efforts as well as most selected agencies efforts. For example, officials from these agencies used a variety of different methodologies to calculate savings, making strategic sourcing savings difficult to track and compare. In contrast, DHS leaders held senior managers accountable to meet strategic sourcing goals. DHS also set targets for use of strategic sourcing contracts and reported that nearly 20 percent of its fiscal year 2011 procurement spending was directed through strategically sourced contracts, with reported savings of $324 million.
In December 2012, OMB further directed agencies to improve strategic sourcing efforts by requiring agencies to designate a Strategic Sourcing Accountable Official, and assigned large federal agencies new responsibilities for designing and implementing government-wide strategic sourcing solutions. For example, OMB created an interagency strategic sourcing leadership council with representation from DOD, Energy, DHS, and VA, as well as the Department of Health and Human Services, the General Services Administration, the National Aeronautics and Space Administration, and the Small Business Administration. By March 2013, the council was to recommend at least five products or services for which new government-wide strategic sourcing vehicles or management approaches should be developed to ensure that the federal government receives the most favorable offers possible. However, while the council was directed to estimate savings opportunities for each of the recommended products or services, no guidance was given on what method should be used to calculate savings. Overall, these actions have the potential to improve the federal governments strategic sourcing outcomes, but it is too early to tell how effectively the OMB memorandum will be implemented.
Examples of high-spend services procured by selected agencies included engineering and technical assistance, management support services, and data processing and telecommunication services.
To improve strategic sourcing efforts across the government, in September 2012, GAO recommended that the Secretary of Defense, the Secretary of Veterans Affairs, and the Director of the Office of Management and Budget take a series of detailed steps, which are summarized below.
The Secretary of Defense should take the following action:
The Secretary of Veterans Affairs should take the following action:
The Director of OMB should take the following action:
Taking these actions would allow federal agencies to better implement strategic sourcing practices and maximize their ability to realize billions of dollars in potential savings annually.
The information contained in this analysis is based on findings from the products listed in the related GAO products section. In 2012, GAO selected four agencies that were among the highest in fiscal year 2011 procurement obligationsDOD, DHS, Energy, and VAand reviewed strategic sourcing efforts at those agencies as well as government-wide FSSI efforts. For each, GAO analyzed fiscal year 2011 strategic sourcing data and policies, and interviewed responsible officials. GAO did not independently validate agency spending or savings data reported to it by the agencies; however, GAO did assess information from agency officials about the reliability of the data and resolved some discrepancies.
In commenting on the September 2012 report on which this analysis is based, DOD, VA, and OMB concurred with the recommendations and stated they would take action to adopt them. OMB staff also noted that our report compared the percent of spending through strategic sourcing to total procurement spending, rather than to spending on the products and services for which strategic sourcing is applicable. In response, we revised our draft report to more explicitly acknowledge that not all spending is suitable for strategic sourcing. DOD, Energy, and GSA also provided technical comments, which were incorporated as appropriate.
GAO provided a draft of this report section to DOD, Energy, DHS, VA, GSA, and OMB. In its technical comments, DOD provided an updated and more comprehensive list of the departments strategic sourcing initiatives and noted a more focused targeting of top procurement spending categories for supplies, equipment, and services. OMB reiterated its previous comment. DHS and GSA also provided technical comments that were incorporated as appropriate.
For additional information about this area, contact Cristina Chaplain at (202) 512-4841, or email@example.com.