GSA Global Supply's Direct Vendor Delivery Proposal Addresses Declining Office Product Sales, but Annual Reviews May Be Needed to Monitor Impact on Small Business Participation

GAO-09-230R: Published: Feb 6, 2009. Publicly Released: Mar 9, 2009.

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In fiscal year 2007, the General Services Administration (GSA) purchased $853 million in supplies from businesses--large and small--for its Global Supply system for subsequent resale to federal agencies. Of this amount, $194 million was for office products sold through the Global Supply Stock Program (Stock Program). The Stock Program allows federal customers to purchase thousands of products, ranging from office supplies to firefighting equipment, from two GSA distribution centers. In an effort to reduce delivery times and cut costs, GSA has worked for several years to develop a new business model for the Stock Program. In November 2008, GSA issued a solicitation for proposals that would remove one-third, or about 550, of its office supply products from the Stock Program and require businesses to ship these office products directly to GSA customers. Under the proposed Direct Vendor Delivery (DVD) Program, blanket purchase agreements (BPA) would be put in place between GSA and vendors, with the aim of allowing customers to receive additional price discounts, save time, and reduce paperwork. Small businesses and others have raised concerns about the impact of the proposed shift to DVD on small businesses' participation in office product sales. In fiscal year 2007, GSA purchased $76 million in office products from small businesses, or about 39 percent of the total purchases of office products under the Stock Program. In response to Congressional request, this report addresses three questions: (1) What are the factors behind GSA's proposal to migrate some office products from its Stock Program to DVD? (2) How will small businesses likely be affected by GSA's proposal to migrate some office products from its Stock Program to DVD? (3) How will GSA's removal of some office products from the Stock Program affect the ability of agencies to meet their needs during emergencies or disasters?

GSA officials identified declining office product sales to federal agencies, increased competition from other procurement alternatives, and the need to update its Global Supply business model as the key factors behind its decision to develop its DVD Program proposal. Stock Program office product sales to federal agencies dropped from about $488 million in fiscal year 1996 to about $162 million in fiscal year 2007, in constant fiscal year 2007 dollars. A GSA-commissioned study of Global Supply found that Stock Program items (including office supplies) had the highest markups of any products sold through the Global Supply system. The study also found that these items were often priced considerably higher than the same items in the commercial marketplace. GSA officials explained that these high price markups, as well as slow delivery times, made the Stock Program a less attractive procurement alternative for potential federal customers than other options. GSA officials told us, for example, that office product procurement alternatives, such as BPAs and purchase cards, had increased competition for office product sales to federal agencies. Although purchasing supplies from GSA had previously been required, since 1988, federal agencies have been able to procure supplies from other sources. GSA officials told us that its Stock Program was based on an outdated business model for procuring office products and should be modernized in order to provide products at more competitive prices with faster delivery. In addition, the commissioned study of Global Supply's operations suggested that GSA update its Stock Program business model to reduce the costs of stocking products. As such, GSA officials told us that the proposed DVD Program would reduce the inventory held in the Stock Program, in an attempt to lower GSA's costs; improve delivery time; and encourage federal agencies to procure office products through Global Supply.

Recommendation for Executive Action

  1. Status: Closed - Not Implemented

    Comments: GSA has decided to cancel the Direct Vendor Delivery (DVD) effort. According to GSA, its paramount goal for the DVD program was to reduce the price of national stock number office products stocked in GSA warehouses for its federal customers. At this time, GSA has concluded that the DVD model will not be able to achieve this goal and that the GSA stock program remains an efficient cost effective approach to distributing office products. Therefore, in the best interest of the government, GSA has decided to cancel the DVD effort, leave the items in stock, and continue to review the method of supply as appropriate, in order to offer the best possible prices for office supplies to its federal customers.

    Recommendation: To increase oversight and transparency, the GSA Administrator should monitor and report to Congress on the annual level of small business participation in the proposed DVD Program for the first three full fiscal years of the program. This action could be accomplished, for example, as part of GSA Global Supply's annual performance review of the DVD BPAs.

    Agency Affected: General Services Administration


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