Strategic Sourcing:

Improved and Expanded Use Could Save Billions in Annual Procurement Costs

GAO-12-919: Published: Sep 20, 2012. Publicly Released: Oct 4, 2012.

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What GAO Found

Selected agencies leveraged only 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 through strategic sourcing efforts. These agencies reported savings of $1.8 billion--less than one-half of one percent of procurement spending. 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. Further, most agencies' efforts do not address their highest spending areas such as services, which may provide opportunities for additional savings.

Most selected agencies and the Federal Strategic Sourcing Initiative (FSSI) program have not fully adopted a strategic sourcing approach. In prior work, GAO found that sustained leadership and effective metrics are important factors to implementing strategic sourcing. However, leaders at DOD have dedicated limited resources to strategic sourcing, and leaders at VA and Energy are just beginning to align resources for agencywide strategic sourcing efforts. A lack of clear guidance on metrics for measuring success has also impacted the management of ongoing FSSI efforts as well as most selected agencies' efforts. In contrast, DHS leaders stood up a centralized office and hold senior managers accountable to meet goals. DHS sets 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.

The FSSI program managed little spending through strategic sourcing initiatives, but reported considerable savings. In fiscal year 2011, the program managed $339 million through several governmentwide initiatives and reported $60 million in savings. However, total spending through the program remains low, in part, because the FSSI contracts have low rates of use and the program has not yet targeted the products and services on which the government spends the most.

Why GAO Did This Study

GAO has reported that the government is not fully leveraging its aggregate buying power, and 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 to 20 percent. A similar savings rate applied to the federal procurement budget would equal more than $50 billion dollars. In 2005, the Office of Management and Budget directed agencies to use strategic sourcing and established the FSSI program to manage governmentwide efforts. GAO was asked to assess (1) the extent to which selected agencies managed spending and achieved savings through strategic sourcing, (2) key challenges selected agency and FSSI officials face in strategically sourcing products and services, and (3) the extent to which the FSSI program managed spending and achieved savings through strategic sourcing. To do this, GAO selected four agencies that were among the highest in fiscal year 2011 procurement obligations--DOD, DHS, VA, and Energy--and reviewed governmentwide FSSI efforts. For each, GAO analyzed strategic sourcing data and policies, and interviewed responsible officials.

What GAO Recommends

GAO recommends a number of actions OMB, DOD, and VA can take to achieve more savings, such as applying strategic sourcing practices to their highest spending procurement categories, and setting targets for use of strategic sourcing contracts. All three agencies concurred with our recommendations.

For more information, contact Cristina Chaplain at (202) 512-4841 or chaplainc@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: 1) DOD stated it is working with the Strategic Sourcing Leadership Council (SSLC) to determine appropriate strategic sourcing goals. 2) DOD reported that the military services and agencies are currently tracking their own strategic sourcing initiatives. 3) DOD published the Defense-Wide Strategic Sourcing Program Concept of Operations (CONOPs) on June 17, 2013, along with an implementing memo from the Under Secretary of Defense for Acquisition, Technology, & Logistics. According to DOD, this updated CONOPS was the product of a long collaborative rewrite among the Strategic Sourcing Directors Board (SSDB) and advisors staffs. GAO considered this recommendation closed. 4) DOD decided to logically connect strategic sourcing and Better Buying Power 2.0 by moving the function of strategic sourcing to the new Services Acquisition Directorate established on May 3, 2013 within the Office of Defense Procurement and Acquisition Policy. The Department determined that moving this mission capability to report to the new Services Acquisition Directorate would also ensure strategic sourcing would continue to influence Better Buying Power 2.0. GAO considers this recommendation closed. 5) DOD reported that it has collaborated with the SSLC to establish metrics to measure savings, however it has not yet provided evidence that it has endorsed these or any metrics for use at DOD.

    Recommendation: To improve departmentwide strategic sourcing efforts at DOD, the Secretary of Defense should direct the Office of Acquisition, Technology, and Logistics to issue direction that (1) sets goals for spending managed through strategic sourcing vehicles, (2) establishes procedures for the identification and tracking of departmentwide and component strategic sourcing efforts through the PASS office, (3) implements the PASS office strategic sourcing guidance, (4) links strategic sourcing to its Better Buying Power memorandum, and (5) establishes metrics, such as utilization rates, to track progress toward these goals.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: The Office of Acquisition, Technology and Logistics reported evaluating the current resources of strategic sourcing within the Program Acquisition and Strategic Sourcing Office. According to DOD, the placement of strategic sourcing under the leadership of the new Services Acquisition Directorate allowed the Office of Defense Procurement and Acquisition Policy (DPAP) to devote one full-time equivalent to strategic sourcing. The Strategic Sourcing lead coordinates with the component leads across DOD. DOD feels this is the proper amount of resources to dedicate to strategic sourcing within DPAP. GAO considers this recommendation closed.

    Recommendation: To improve departmentwide strategic sourcing efforts at DOD, the Secretary of Defense should direct the Office of Acquisition, Technology, and Logistics to evaluate whether the current resources of OSD's PASS office are sufficient to enable the office to fulfill its strategic sourcing mission.

    Agency Affected: Department of Defense

  3. Status: Open

    Comments: DOD reported that the military services and defense agencies are currently tracking their own strategic sourcing initiatives, and that the Office of Defense Procurement and Acquisition Policy is working to collect information on departmentwide and component strategic sourcing initiatives.

    Recommendation: To improve departmentwide strategic sourcing efforts at DOD, the Secretary of Defense should direct the Office of Acquisition, Technology, and Logistics to evaluate existing acquisition strategies for DOD's current departmentwide acquisitions, and where these represent a strategic sourcing approach, ensure that data on these programs are submitted to the Program Acquisition and Strategic Sourcing (PASS) office.

    Agency Affected: Department of Defense

  4. Status: Open

    Comments: DOD stated that the appointment of senior officials to manage the acquisition of services should help DOD further expand strategic sourcing efforts for these high-spend categories. In addition, DOD stated that various military services have already addressed some high spend categories such as information technology through service-wide strategic sourcing initiatives. However, DOD has not yet provided details on its highest spending categories and strategic sourcing approaches that were used or considered for each.

    Recommendation: To improve departmentwide strategic sourcing efforts at DOD, the Secretary of Defense should direct the Office of Acquisition, Technology, and Logistics to identify and evaluate the best way to strategically source DOD's highest spending categories of products and services (e.g., governmentwide vehicles, interagency collaboration, departmentwide vehicles).

    Agency Affected: Department of Defense

  5. Status: Closed - Implemented

    Comments: DOD reported that it has become an active participant in SSLC planning activities, is acting as the category manager for a new initiative, and has committed to using various FSSIs.

    Recommendation: To improve departmentwide strategic sourcing efforts at DOD, the Secretary of Defense should direct the Office of Acquisition, Technology, and Logistics to identify and submit to the FSSI program a list of products and services that, if developed as FSSIs, present the best opportunities for future DOD participation.

    Agency Affected: Department of Defense

  6. Status: Closed - Implemented

    Comments: DOD reported that the Deputy Assistant Secretary of the Army for Procurement realigned strategic sourcing from the Policy and Oversight directorate to the Office of the Senior Services Manager (SSM). The SSM established a Strategic Sourcing directorate and was authorized five full-time authorizations. DOD reported that three of these positions had been filled and one additional position was expected to be filled as of June 2014.

    Recommendation: To improve strategic sourcing efforts at the Army, and in light of significant potential savings and performance improvements, the Secretary of Defense should evaluate whether the resources that the Army's Policy and Oversight Directorate has allocated to strategic sourcing are sufficient to enable the Directorate to fulfill its strategic sourcing mission.

    Agency Affected: Department of Defense

  7. Status: Open

    Comments: VA reported in September 2014 that it has taken action to implement this recommendation. Specifically, the Office of Acquisition Operations has awarded multiple products and services and continues to work closely with customers to determine other commodities/services recommended for strategic sourcing. In addition, VA reported the majority of actions currently underway within its Strategic Acquisition Center fall under one of its top 20 categories of spending - Medical and Dental Supplies. However, VA has not yet provided evidence of how it considered its top spend services for strategic sourcing.

    Recommendation: To help ensure that VA's strategic sourcing efforts further reflect leading practices, and in light of significant potential savings and performance improvements, the Secretary of Veterans Affairs should direct strategic sourcing staff to, based on analysis of agencywide spending, evaluate the best way to strategically source VA's highest spending categories of products and services (e.g., governmentwide vehicles, interagency collaboration, agencywide vehicles).

    Agency Affected: Department of Veterans Affairs

  8. Status: Closed - Implemented

    Comments: VA reported in September 2014 that it does not set goals for overall spending through strategic sourcing vehicles, but rather works to increase "managed spend" relative to its entire procurement spend, primarily by reducing the number of unique procurements driven by individual business decisions. For fiscal year 2014, VA's focus has been on increasing managed spend for information technology (IT) products and services, and it set a specific goal to increase IT managed spend by 5 percent by directing more available spend to its IT strategic sourcing contracts. In addition, VA reports its Strategic Acquisition Center implemented a method to track utilization of strategically sourced contracting vehicles that it has awarded. Finally, VA continues to track cost avoidance associated with the utilization of strategic sourcing vehicles.

    Recommendation: To help ensure that VA's strategic sourcing efforts further reflect leading practices, and in light of significant potential savings and performance improvements, the Secretary of Veterans Affairs should direct strategic sourcing staff to set goals for spending managed through strategic sourcing, and establish metrics, such as utilization rates, to monitor progress toward these goals.

    Agency Affected: Department of Veterans Affairs

  9. Status: Open

    Comments: In December 2012 OMB issued memo M-13-02 which directed agencies to take various actions to support improvements to both agency-wide and government-wide strategic sourcing. However, this memo did not include guidance on measuring savings, and OMB officials report they are continuing to work to issue such guidance. We failed to receive updated information from OMB for fiscal year 2014 despite our attempts to collect this information.

    Recommendation: To help ensure that government strategic sourcing efforts further reflect leading practices, and in light of significant potential savings and performance improvements, the Director of Office of Management and Budget (OMB) should direct the Administrator of Office of Federal Procurement Policy (OFPP) to issue an updated memorandum or other direction to federal agencies that includes guidance on calculating savings (including administrative cost savings) and establishes additional metrics to measure progress toward goals.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  10. Status: Open

    Comments: OMB that GSA conducted an analysis of spending in conjunction with the activities of the newly formed Strategic Sourcing Leadership Council (SSLC), and that recommendations from both the GSA spend analysis and the SSLC analysis were considered in selecting commodities for upcoming Federal Strategic Sourcing Initiatives. However, GSA has not provided evidence that all high spend commodities were evaluated, and OFPP officials reported that no services - which are among the government's categories of highest spending - were selected for further consideration for FSSIs. We failed to receive updated information from OMB for fiscal year 2014 despite our attempts to collect this information.

    Recommendation: To help ensure that government strategic sourcing efforts further reflect leading practices, and in light of significant potential savings and performance improvements, the Director of OMB should direct the Administrator of OFPP to direct the FSSI Program to report on the program's assessment of whether each top spend product and service governmentwide is suitable for an FSSI, with a plan to address those products or services that are suitable for strategic sourcing.

    Agency Affected: Executive Office of the President: Office of Management and Budget

 

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