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.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    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

    Status: Open

    Comments: 1) DOD stated it is in the process of determining the appropriate goals and metrics in regards to strategic sourcing. 2) DOD reported that it established a baseline of strategic sourcing contracts in March 2013. The components were then directed to review those vehicles to determine whether or not those contracts were available to more than one customer. DOD officials stated the second review is scheduled to be complete by Fall 2013. The Department will then be able to determine the existing strategic sourcing contracts which can be considered for consolidation, or allowed to end. 3) DOD published the Defense-Wide Strategic Sourcing (DWSS) Program Concept of Operations (CONOPs) on June 17, 2013. According to DOD, this updated DWSS Program CONOPS was the product of a long collaborative rewrite among the Strategic Sourcing Directors Board (SSDB) and advisors staffs. The current version has been reduced from 56 to 22 pages and has been updated to include lessons learned and a reflection of today's environment. The document is publicly available on DOD's website (http://www.acq.osd.mil/dpap/ss/dwss.html). GAO is currently reviewing this action to determine whether to close this recommendation. 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. Some specific examples of how strategic sourcing is a conduit to achieving better buying power is included on the Services Acquisition's website (http://www.acq.osd.miUdpap/salindex.html). GAO considers this recommendation closed. 5) DOD reported that it is in the process of determining the appropriate metrics in regards to strategic sourcing.

    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

    Status: Open

    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 is currently reviewing this action to determine whether to close this recommendation.

    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

    Status: Open

    Comments: DOD reported that it established a baseline of strategic sourcing contracts in March 2013. The components were then directed to review those vehicles to determine whether or not those contracts were available to more than one customer. DOD officials stated that the second review is scheduled to be complete by Fall 2013. The Department will then be able to determine the existing strategic sourcing contracts which can be considered for consolidation, or allowed to end.

    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

    Status: Open

    Comments: DOD conducts spend analysis yearly and has identified its high spend categories that are also good candidates for strategic sourcing. According to DOD, the high spend categories are areas where they are already leading strategic sourcing efforts. The new Services Acquisition Directorate will work with the components and inter-agency organizations through the Strategic Sourcing Leadership Council (SSLC) to maximize the use of strategic sourcing vehicles across the government. The Department is committed to providing resources to the SSLC Commodity Teams when there is DOD equity. This will be an on-going analysis.

    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

    Status: Open

    Comments: DOD reported that the new Services Acquisition directorate is currently working with the Components to identify those products and services which may offer opportunity for Federal Strategic Sourcing Initiatives (FSSI) program participation. DOD expects to complete their review by December 2013. The Services Acquisition directorate has directed the Components to review all strategic sourcing vehicles, determine their feasibility for inter-agency participation, determine their contract ceiling value, and determine when the contracts will end. DOD will then be able to analyze all vehicles and determine gaps in mission support and areas where FSSI program vehicles may be opportunities for support.

    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

    Status: Open

    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. Two full-time positions were filled in January/February 2013 (two procurement analyst - the Director (GS-15) and one analyst (GS-14)); three authorizations were held under the Army's hiring freeze through the end of FY13. The SSM will revisit authorizations allocated to strategic sourcing first quarter FYI4.

    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

    Status: Open

    Comments: VA reports that it is continuing efforts to set goals and establish metrics for its strategic sourcing efforts. Currently, VA Heads of Contracting Activities (HCAs) are developing detailed implementation strategies and supporting performance measures, to fill acquisition capability gaps and improve mission operations.

    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

    Status: Open

    Comments: VA reported it has taken action to implement this recommendation. Specifically, it has established a Spend Analysis Team, which has conducted significant analysis of its highest department-wide spending categories of products and services. VA further reported team has completed 40 internal business cases, totaling $3.4 billion in VA spending, for medical equipment and services, information technology, and facilities management. However, VA has not yet provided evidence to GAO that its spend analysis evaluated the best way to source each of VA's highest spending products and services.

    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

    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.

    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

    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.

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