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United States Government Accountability Office: 
GAO: 

Report to Congressional Committees: 

September 2012: 

Strategic Sourcing: 

Improved and Expanded Use Could Save Billions in Annual Procurement 
Costs: 

GAO-12-919: 

GAO Highlights: 

Highlights of GAO-12-919, a report to congressional committees. 

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 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. 

Figure: Selected Agencies’ Strategic Sourcing Spending and Savings 
Reported in FY 2011: 

[Refer to PDF for image: pie-chart] 

Total federal procurement spending, FY 2011: $537 billion; 
Selected agencies spending through strategic sourcing: 5%; 
Strategic sourcing savings reported: 0.4%. 

Note: FY = fiscal year. 

Source: GAO analysis of federal procurement and selected agencies data. 

[End of figure] 

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. 

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. 

View [hyperlink, http://www.gao.gov/products/GAO-12-919]. For more 
information, contact Cristina Chaplain at (202) 512-4841 or 
chaplainc@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Most Selected Agencies Leveraged Only a Fraction of Their Buying Power 
and Achieved Limited Savings: 

Selected Agencies and the FSSI Program Continue to Face Challenges in 
Implementing Strategic Sourcing: 

Federal Strategic Sourcing Initiatives Managed a Small Amount of 
Spending and Achieved Considerable Savings, but Greater Savings Are 
Possible: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Top 50 Governmentwide Products and Services by Dollars 
Obligated, Fiscal Year 2011: 

Appendix III: Comments from the Department of Defense: 

Appendix IV: Comments from the Department of Homeland Security: 

Appendix V: Comments from the Department of Veterans Affairs: 

Appendix VI: GAO Contact and Staff Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: Selected Agencies' Goals for Spending Managed through 
Strategic Sourcing: 

Table 2: Implemented and Planned Federal Strategic Sourcing 
Initiatives Managed by the FSSI Program Management Office, Fiscal Year 
2011: 

Figures: 

Figure 1: Broad Principles and Practices of Leading Companies' 
Strategic Approach: 

Figure 2: Overview of the Strategic Sourcing Process: 

Figure 3: Total Procurement Spending, Spending through Strategic 
Sourcing, and Total Savings Reported by Selected Agencies, Fiscal Year 
2011: 

Figure 4: Total Procurement Spending, Spending Through Strategic 
Sourcing, and Total Savings Reported by DOD Components, Fiscal Year 
2011: 

Figure 5: DOD Components' Initiatives Targeting Their Top 10 Products 
and Services: 

Figure 6: FSSI Governance Structure: 

Abbreviations: 

AT&L: Acquisition, Technology, and Logistics: 

DHS: Department of Homeland Security: 

DLA: Defense Logistics Agency: 

DOD: Department of Defense: 

DPAP: Defense Procurement and Acquisition Policy: 

FPDS-NG: Federal Procurement Data System-Next Generation: 

FSSI: Federal Strategic Sourcing Initiative: 

GSA: General Services Administration: 

OFPP: Office of Federal Procurement Policy: 

OMB: Office of Management and Budget: 

OSD: Office of the Secretary of Defense: 

PASS: Program Acquisition and Strategic Sourcing: 

VA: Department of Veterans Affairs: 

VHA: Veterans Health Administration: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

September 20, 2012: 

The Honorable Joseph I. Lieberman: 
Chairman: 
The Honorable Susan M. Collins: 
Ranking Member: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

The Honorable Darrell E. Issa: 
Chairman: 
The Honorable Elijah E. Cummings: 
Ranking Member: 
Committee on Oversight and Government Reform: 
House of Representatives: 

In fiscal year 2011, the federal government obligated approximately 
$537 billion on products and services. Given the increasing fiscal 
pressures facing the United States, there has been a renewed focus on 
maximizing efficiencies in the procurement process to achieve cost 
savings. In prior reports, we found that private industry best 
practices in strategic sourcing, a process--sometimes led by a central 
procurement organization--that moves a company away from numerous 
individual procurements to a broader aggregate approach, allowed 
companies to achieve savings of 10 to 20 percent of total procurement 
costs.[Footnote 1] We have also reported that 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, saving even 10 percent of the total federal procurement 
spending would produce more than $50 billion in savings annually. 
[Footnote 2] 

In 2005, the Office of Management and Budget (OMB) directed federal 
agencies to develop and implement a strategic sourcing effort to help 
control spending. A governmentwide strategic sourcing program--known 
as the Federal Strategic Sourcing Initiative (FSSI)--was also 
established. The FSSI Program Management Office is located within the 
General Services Administration (GSA) and the program reports to OMB's 
Office of Federal Procurement Policy (OFPP). You requested that we 
review the status of strategic sourcing efforts both at selected 
agencies and governmentwide, and identify challenges, leading 
practices, and potential for additional strategic sourcing savings. 
Accordingly, we assessed (1) the extent to which selected agencies 
managed spending and achieved savings through strategic sourcing, and 
whether buying power could be better leveraged; (2) key challenges 
agency and FSSI officials face in strategically sourcing products and 
services; and (3) the extent to which FSSIs managed spending and 
achieved savings through strategic sourcing, and whether 
governmentwide buying power could be better leveraged. 

To conduct our work, we reviewed strategic sourcing efforts at four 
agencies--Department of Defense (DOD), Department of Homeland Security 
(DHS), Department of Veterans Affairs (VA), and Department of Energy 
(Energy)--that were among the 10 agencies with the highest fiscal year 
2011 procurement obligations. To more fully assess strategic sourcing 
at DOD, we reviewed the efforts of four component agencies--Air Force, 
Army, Navy, and the Defense Logistics Agency (DLA)--which accounted 
for 88 percent of DOD spending in fiscal year 2011, as well as 
departmentwide efforts managed by DOD's Program Acquisition and 
Strategic Sourcing (PASS) office, which is within DOD's Defense 
Procurement and Acquisition Policy (DPAP) organization and reports to 
the Under Secretary of Defense for Acquisition, Technology, and 
Logistics (AT&L). We also examined governmentwide FSSI efforts managed 
by the FSSI Program Office and overseen by OFPP. We analyzed selected 
agencies' policies and interviewed agency and governmentwide strategic 
sourcing officials to determine the status of current and planned 
strategic sourcing efforts, with a focus on key challenges and leading 
practices. To identify the commodities (both products and services) on 
which the most federal procurement dollars were spent governmentwide 
and by our selected agencies, we analyzed fiscal year 2011 data from 
the Federal Procurement Data System--Next Generation (FPDS-NG). We 
determined that FPDS-NG data were sufficiently reliable for the 
purposes of our review. Further, we analyzed selected agencies' fiscal 
year 2011 data on strategic sourcing to identify current or planned 
strategic sourcing efforts addressing these commodities. We also 
analyzed data from selected agencies on managed spending--spending 
through their strategic sourcing contract vehicles--and savings and 
other benefits from current strategic sourcing efforts. We did not 
independently validate agency spending or savings data reported to us 
by the agencies; however, we did assess information from agency 
officials about the reliability of the data and resolved some 
discrepancies. We determined that these data were sufficiently 
reliable for the purpose of reporting governmentwide spending on 
products and services, agency spending, and savings reported by 
agencies. See appendix I for a more in-depth description of our scope 
and methodology. 

We conducted this performance audit from August 2011 to September 2012 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

Background: 

We have previously reported that because procurement at federal 
departments and agencies is generally decentralized, the federal 
government is not fully leveraging its aggregate buying power to 
obtain the most advantageous terms and conditions for its 
procurements.[Footnote 3] Agencies act more like many unrelated medium-
sized businesses and often rely on hundreds of separate contracts for 
many commonly used items, with prices that vary widely. 

In the private sector, however, we have previously reported that an 
approach called strategic sourcing has been used since the 1980s to 
reduce procurement costs at companies with large supplier bases and 
high procurement costs.[Footnote 4] Leading companies we reviewed 
found they could save billions of dollars and improve the quality of 
the products and services received by using strategic sourcing. The 
companies did not follow the exact same approach as they differed in 
the manner and degree to which they employed specific practices. 
However, in 2004, we identified four broad principles that were 
critical to successfully carrying out the companies' strategic 
approach.[Footnote 5] See figure 1 for the principles and practices. 

Figure 1: Broad Principles and Practices of Leading Companies' 
Strategic Approach: 

[Refer to PDF for image: list] 

Commitment: Secure up-front commitment from top leaders: 
* Recognize and communicate the urgency to change procurement spending 
practices; 
* Provide clear and strong executive leadership, including goals and 
targets. 

Knowledge: Obtain improved knowledge on procurement spending: 
* Develop information system—-i.e., a spend analysis system—-to 
identify how much is being spent with which supplier for what goods or 
services; 
* Analyze the data to identify opportunities to reduce costs, improve 
service levels, and provide better management of suppliers. 

Change: Create supporting structure, processes, and roles: 
* Create or identify organizations responsible for coordinating or 
managing purchases; 
* Establish proactive business relationships among end users, 
purchasing units, and other stakeholders; 
* Implement more integrated team-based sourcing processes; 
* Create commodity/service experts. 

Support: Enabie success through sustained leadership, communication, 
and metrics: 
* Obtain sustained support from senior leadership to facilitate change; 
* Establish clear lines of communication among all affected parties; 
* Demonstrate value and credibility of new processes through the use 
of metrics. 

Source: GAO. 

[End of figure] 

We reported that the support and commitment of senior management was 
viewed as essential to facilitating the companies' efforts to 
reengineer their approaches to acquisition. Once top leaders were 
committed to taking a strategic approach, the companies took a hard 
look at how much they were spending and with which vendors. By arming 
themselves with this knowledge, the companies could identify 
opportunities to leverage their buying power, reduce costs, and better 
manage their suppliers. Companies also instituted a series of 
structural, procedural, and role changes aimed at moving away from a 
fragmented acquisition process to a more efficient and effective 
enterprisewide process. Recent work by GAO and others has confirmed 
that these practices are still critical. For example, a recent survey 
of leading commercial firms found that senior leadership support 
remains key to ensuring that companies follow the strategic sourcing 
process and take ownership of savings goals. Companies we spoke with 
recently confirmed that knowledge of spending and of the relevant 
markets continues to be very important, and that a centralized 
procurement approach remains critical to their ability to ensure 
knowledge sharing and consistent procurement tactics. 

A strategic sourcing effort begins with an opportunity assessment--an 
analysis of spending and the identification of products and services 
for which strategic sourcing should be implemented. Spend analysis 
provides knowledge about how much is being spent for which products 
and services, who the buyers are, who the suppliers are, and where the 
opportunities are for leveraged buying and other tactics to save money 
and improve performance. Data on spending are analyzed on a continual 
basis to support decisions on strategic sourcing and procurement 
management in areas such as cost cutting, streamlining operations, and 
reducing the number of suppliers. Based on this analysis, 
organizations evaluate and prioritize commodities to create a list of 
top products or services to target for strategic sourcing. This list 
typically includes the products or services on which most of the 
organization's spending is focused. In addition to spending, criteria 
such as potential savings and relative ease of implementation are 
considered. 

Once a commodity--a product or service--is selected for strategic 
sourcing, a standardized process is followed to develop, implement, 
and manage the sourcing strategy for that product or service. See 
figure 2 for key steps in the strategic sourcing process. 

Figure 2: Overview of the Strategic Sourcing Process: 

[Refer to PDF for image: process illustration] 

Opportunity selection:  

Select commodity: 
Assess and prioritize opportunities based on a thorough organization-
wide spend analysis. 

Phase 1: Strategy development: 

Profile commodity: 
Develop detailed profile of commodity including spend  profile and 
specifications. 

Conduct supply market analysis: 
Conduct market analysis to identify supply and demand levers, new 
suppliers, buyer leverage. 

Develop commodity sourcing strategy: 
Develop sourcing strategy based on commodity profile and supply market 
analysis. 

Phase 2: Strategy implementation: 

Conduct acquisition and/or develop implementation plan; 
Implement strategy; 
Develop and issue solicitation based on sourcing strategy, conduct 
negotiations, evaluate proposals, and award contract(s). 

Phase 3: Commodity management: 

Manage commodity: 
Implement contract and establish process to track and manage 
performance. 

Source: GSA. 

[End of figure] 

Strategic sourcing can encompass a range of tactics for acquiring 
products and services more effectively and efficiently. In addition to 
leveraged buying, strategic sourcing tactics include managing demand 
by changing behavior, achieving efficiencies through standardization 
of the acquisition process, and managing supplier relationships. 
Private companies reported measuring the success of their strategic 
sourcing programs in various ways. For example, companies reported 
looking for reductions in the total cost of ownership and other forms 
of savings. 

Recognizing the benefits of strategic sourcing, OMB issued a 
memorandum in 2005 that implemented strategic sourcing practices. 
[Footnote 6] This memorandum defined strategic sourcing as the 
"collaborative and structured process of critically analyzing an 
organization's spending and using this information to make business 
decisions about acquiring commodities and services more effectively 
and efficiently." According to the memo, the process helps agencies 
optimize performance, minimize price, increase achievement of socio-
economic acquisition goals, evaluate total life cycle management 
costs, improve vendor access to business opportunities, and otherwise 
increase the value of each dollar spent. Agencies were directed to 
develop and implement strategic sourcing efforts based on the results 
of spend analyses and identify at least three commodities that could 
be purchased more effectively and efficiently through strategic 
sourcing. 

In addition to individual agency efforts, a governmentwide strategic 
sourcing program--known as the FSSI--was established in 2005, as a 
direct result of the OMB memo. FSSI was created to address 
governmentwide opportunities to strategically source commonly 
purchased products and services and eliminate duplication of efforts 
across agencies. OFPP--the office within OMB assigned to oversee the 
FSSI program--is ultimately responsible for providing oversight and 
guidance as well as ensuring the overall effectiveness of FSSI. The 
FSSI mission is to encourage agencies to aggregate requirements, 
streamline processes and coordinate purchases of like products and 
services to leverage spending to the maximum extent possible. Federal 
strategic sourcing contract vehicles can be based on the existing 
multiple award schedules--contracts for similar or comparable goods 
and services, established with more than one supplier, at varying 
prices--which are available for use governmentwide and are managed by 
GSA and VA. However, not all acquisitions using these schedules are 
considered strategic sourcing; rather the FSSI program has identified 
specific initiatives which follow the structured strategic sourcing 
process to be included as FSSIs. 

Most Selected Agencies Leveraged Only a Fraction of Their Buying Power 
and Achieved Limited Savings: 

The four agencies we reviewed--DOD, DHS, Energy, and VA--together 
accounted for 80 percent of the total $537 billion federal procurement 
spending in fiscal year 2011, but reported managing less than 5 
percent, or $25.8 billion, through agencywide strategic sourcing 
contracts. From these efforts, the four agencies reported achieving a 
combined savings of $1.8 billion, or less than one-half of one percent 
of total federal procurement spending. While strategic sourcing may 
not be suitable for all procurement spending, this percentage of 
managed spending and savings is very low compared to leading companies 
which generally strategically manage about 90 percent of their 
procurement spending and achieve savings of 10 to 20 percent of total 
procurements annually. According to DOD officials, DOD procurement 
spending and savings through strategic sourcing contracts in fiscal 
year 2011 may be underreported, as DOD currently tracks departmentwide 
initiatives on an ad hoc basis. When strategic sourcing contracts were 
used, selected agencies generally reported savings ranging from 5 
percent to over 20 percent of spending through strategically sourced 
contracts. Further, most of the four agencies' current and planned 
strategic sourcing efforts do not address their highest spending 
areas, the majority of which exceed $1 billion and most of which are 
services. As a result, opportunities exist for agencies to realize 
significant savings by applying strategic sourcing in these areas. 

Selected Agencies Reported Managing a Fraction of Their Procurement 
Spending through Strategic Sourcing: 

OMB directed agencies to implement strategic sourcing practices in 
2005, but taken together, the agencies we reviewed have leveraged only 
a fraction of what could potentially be managed and saved through 
strategic sourcing. DOD, DHS, Energy, and VA accounted for 80 percent 
of the total federal procurement spending for fiscal year 2011, but 
reported managing less than 5 percent, or $25.8 billion, through 
strategic sourcing efforts, and achieving a combined savings of $1.8 
billion. The four agencies varied widely in the level of spending 
managed through strategic sourcing. For example, in fiscal year 2011, 
of the agencies we reviewed, DHS reported the highest percentage of 
its total procurement spending, nearly 20 percent, being managed 
through strategic sourcing contracts. By contrast, VA reported the 
lowest at 1.4 percent. Figure 3 compares spending and savings through 
strategic sourcing at the four agencies. 

Figure 3: Total Procurement Spending, Spending through Strategic 
Sourcing, and Total Savings Reported by Selected Agencies, Fiscal Year 
2011: 

[Refer to PDF for image: 4 pie-charts] 

Agency: DOD; 
Total agency procurement spending: $332.1 billion; 
Spending through strategic sourcing: 5.8%; 
Reported strategic sourcing savings compared to total procurement 
spending: 0.06%. 

Agency: Energy; 
Total agency procurement spending: $25.1 billion; 
Spending through strategic sourcing: 9.3%; 
Reported strategic sourcing savings compared to total procurement 
spending: 1.34%. 

Agency: VA; 
Total agency procurement spending: $17.4 billion; 
Spending through strategic sourcing: 1.4%; 
Reported strategic sourcing savings compared to total procurement 
spending: 0.32%. 

Agency: DHS; 
Total agency procurement spending: $14.2 billion; 
Spending through strategic sourcing: 19.8%; 
Reported strategic sourcing savings compared to total procurement 
spending: 2.28%. 

Source: GAO analysis of FPDS and agency data. 

Note: Overall spending for DOD in fiscal year 2011 was $375 billion. 
DOD procurement spending total as shown is based on Army, Navy, Air 
Force, and DLA spending only, which together accounted for 88 percent 
of DOD total spending. 

[End of figure] 

According to some agency officials, not all of their procurement 
spending may be addressable through strategic sourcing. For example, 
DHS considers some spending related to natural disasters such as 
hurricanes and earthquakes to be unaddressable through strategic 
sourcing. In another instance, Energy officials stated that they 
consider less than a third of Energy's total procurement spending to 
be addressable through strategic sourcing. However, while some 
spending may not be suitable for strategic sourcing, the percentage of 
spending selected agencies report managing through strategic sourcing 
is small compared to the amount leading companies are managing 
strategically. Industry groups recently reported that leading 
companies they surveyed strategically manage approximately 90 percent 
of their procurement spending centrally. Moreover, leading companies 
we spoke with in 2012 reported that setting goals and using metrics to 
measure managed spending is important. By contrast, only a few of our 
selected agencies have set goals for the amount of spending managed 
through strategic sourcing (see table 1). 

Table 1: Selected Agencies' Goals for Spending Managed through 
Strategic Sourcing: 

Agency: Department of Defense; 
Goal: None specified. 

Agency: Air Force; 
Goal: 50 percent of Installation Operations and Maintenance spending 
(approximately $12 billion annually) by 2015. 

Agency: Army; 
Goal: None specified. 

Agency: Navy; 
Goal: None specified. 

Agency: Defense Logistics Agency; 
Goal: None specified. 

Agency: Department of Homeland Security; 
Goal: None specified[A]. 

Agency: Department of Veterans Affairs; 
Goal: None specified. 

Agency: Department of Energy; 
Goal: 2.5 percent of the anticipated $10 billion of contractor 
spending for fiscal year 2012. 

Source: Selected agencies. 

[A] In fiscal year 2011, DHS set a utilization goal of 35 percent, 
which resulted in achieving 20 percent of procurement spending through 
strategic sourcing contracts. 

[End of table] 

Managed Spending and Savings Varied Greatly within DOD: 

At DOD--the federal government's largest procurer of products and 
services--the Army, Navy, Air Force, and DLA together reported 
spending almost 6 percent, or $19 billion, through strategic sourcing 
contracts. In addition, the Defense Program Acquisition and Strategic 
Sourcing (PASS) office, which coordinates strategic sourcing efforts 
across the department, was unable to provide us with a comprehensive 
list of departmentwide strategic sourcing initiatives, and indicated 
that there are likely more strategic sourcing initiatives that are not 
accounted for because departmentwide initiatives are reported on an ad 
hoc basis.[Footnote 7] However, they provided information on a limited 
number of departmentwide strategic sourcing initiatives that together 
represented more than $1 billion of spending and over $900 million in 
savings in fiscal year 2011. 

The proportion of procurement spending being managed through strategic 
sourcing varied widely among the military departments and DLA (see 
figure 4). For example, the Army spent more than $125 billion on 
products and services in fiscal year 2011, but reported that only $280 
million, or less than a quarter of one percent of procurement 
spending, was strategically sourced. In contrast, DLA spent $36 
billion on goods and services in fiscal year 2011, and reported that 
46 percent or $16 billion was strategically sourced. According to DOD 
officials, it is to be expected that a high percentage of DLA's 
spending is suitable for strategic sourcing because DLA's unique 
mission is to supply high volume products that are bought across DOD, 
such as uniforms and food. Although DLA's spending represents only 10 
percent of DOD's total procurement spending, DLA's strategic sourcing 
efforts demonstrate that when DOD approaches procurement from a 
departmentwide level, it can achieve successful outcomes. In addition, 
PASS officials reported savings of $889 million in fiscal year 2011 
from one initiative that leveraged departmentwide spending on 
enterprise software. Specifically, the initiative consolidates DOD 
commercial software, information technology hardware, and services 
requirements to obtain lower prices from information technology 
providers. Figure 4 provides reported fiscal year 2011 procurement 
spending, and strategic sourcing information for the military 
departments and DLA. 

Figure 4: Total Procurement Spending, Spending Through Strategic 
Sourcing, and Total Savings Reported by DOD Components, Fiscal Year 
2011: 

[Refer to PDF for image: 4 pie-charts] 

Agency: Army; 
Total agency procurement spending: $125.2 billion; 
Spending through strategic sourcing: 0.2%; 
Reported strategic sourcing savings compared to total procurement 
spending: 0.02%. 

Agency: Air Force; 
Total agency procurement spending: $65.5 billion; 
Spending through strategic sourcing: 3.7; 
Reported strategic sourcing savings compared to total procurement 
spending: 0.19%. 

Agency: Navy; 
Total agency procurement spending: $105.4 billion; 
Spending through strategic sourcing: 0.1%; 
Reported strategic sourcing savings compared to total procurement 
spending: 0.03%. 

Agency: DLA; 
Total agency procurement spending: $36 billion; 
Spending through strategic sourcing: 45.6%; 
Reported strategic sourcing savings compared to total procurement 
spending: 0.09%. 

Source: GAO analysis of FPDS and agency data. 

[End of figure] 

Savings Reported from Limited Strategic Sourcing Efforts Indicate 
Potential for Generating Additional Savings: 

Selected agencies' reported savings added up to $1.8 billion in fiscal 
year 2011--less than one-half of one percent of total federal 
procurement spending. We previously reported that some companies 
achieved reported savings of 10 percent to 20 percent of their total 
procurement costs through the use of a strategic approach to buying 
products and services.[Footnote 8] DHS reported fiscal year 2011 
savings of $324 million. At DOD, the military departments and DLA 
reported a total of $213 million in savings for fiscal year 2011. The 
PASS office is just starting to collect some data on departmentwide 
strategic sourcing savings and could not definitively report savings 
through departmentwide strategic sourcing in fiscal year 2011. 
However, based on information provided, DOD achieved $900 million in 
savings from agencywide efforts. We have previously reported that DOD 
has not fully collected and assessed cost savings and other 
information from strategic sourcing initiatives.[Footnote 9] Energy 
and VA officials reported $335 million and $56 million in savings 
respectively for their strategic sourcing efforts in fiscal year 2011. 

When strategic sourcing contracts were used, agencies generally 
reported rates of savings ranging from 5 percent to over 20 percent of 
spending through those contracts. For example, the Navy reported 
spending $145 million and achieving savings of $30 million through 
strategic sourcing in fiscal year 2011; these reported savings are 
almost 21 percent of the spending through strategic sourcing vehicles. 
However, spending through strategic sourcing was a tiny fraction of 
the Navy's total procurement spending (0.1 percent). If the Navy were 
to direct even 10 percent of its total procurement spending of $105 
billion through strategic sourcing vehicles, and achieved savings 
equivalent to 21 percent of the spending directed through strategic 
sourcing vehicles, it would save over $2 billion. In another example, 
the Air Force reported spending $2.4 billion and achieving savings of 
$126 million through strategic sourcing in fiscal year 2011. These 
reported savings are equal to 5 percent of the spending through 
strategic sourcing. If the Air Force were to strategically source even 
10 percent of its total procurement spending of $65 billion, and 
achieved savings equivalent to 5 percent of the spending through 
strategic sourcing vehicles, it would save $339 million. 

Strategic Sourcing Efforts at Most Agencies We Reviewed Are Not 
Addressing the Highest Spending Categories Offering the Most Potential 
for Savings: 

DOD training materials highlight the importance of prioritizing 
spending categories by looking at total spending dollars, among other 
criteria; specifying that a priority list can be developed by 
identifying those top spend categories that comprise 80 percent of the 
organization's total procurement spending. While some agencies such as 
DHS have implemented initiatives that address top spend categories, 
current and planned initiatives at the other agencies we reviewed do 
not address the categories that represent their highest spending, the 
majority of which exceed $1 billion and most of which are for services 
rather than products. Consequently, agencies are leaving large 
segments of spending unmanaged, particularly in the area of services. 
We found that as the amount of spending managed through strategic 
sourcing at selected agencies increased, reported savings generally 
increased. 

In fiscal year 2011, more than half of the procurement spending at the 
four agencies we reviewed was used to acquire services. However, we 
found that strategic sourcing efforts addressed products significantly 
more often than services. Officials reported that they have been 
reluctant to strategically source services for a variety of reasons, 
such as difficulty in standardizing requirements or a decision to 
focus on less complex commodities that can demonstrate success. 
Leading companies we spoke with have focused their efforts on services 
in the past 5 to 7 years because of the growth in spending in that 
area, and have achieved significant savings. For example, officials at 
one leading company told us that they developed standardized regional 
labor rates to allow strategic sourcing of services. Strategic 
sourcing leading practices at private companies suggest that it is 
critical to analyze all procurement spending with equal rigor and with 
no categories that are off limits. In addition, achieving savings 
requires a departure from the status quo. An industry group recently 
surveyed companies and reported that companies have successfully 
strategically sourced categories of services spending that have been 
off limits or controversial for most procurement organizations, such 
as information technology, professional services, technical services, 
and facilities management.[Footnote 10] Selected agencies are 
procuring many of the same types of services, such as professional 
services, and are missing opportunities to coordinate efforts. For 
example, DOD conducted a spend analysis in 2010 that identified 
knowledge-based services such as engineering management services and 
logistics management services as the largest portfolio of spending 
being procured by all the DOD components. 

Of the four agencies we reviewed, only DHS reported addressing the 
majority of its top 10 spending categories of products and services. 
In contrast, VA reported implemented initiatives in 3 of its top 10 
spending categories. Energy reported departmentwide initiatives for 
one of its top 10 categories of spending--operation of Government-
Owned Contractor-Operated Research and Development Facilities, which 
comprises a large percentage of the agency's total procurement 
spending--but officials noted that some of their components have 
strategic sourcing efforts in those top 10 spending categories where 
virtually all of the spending is concentrated at one component. 
Because of this concentration, Energy officials did not believe 
greater efficiencies could be achieved by sourcing those commodities 
at a departmentwide level. At DOD, PASS officials could not provide a 
comprehensive list of departmentwide initiatives and therefore, we 
could not fully assess their efforts to address the department's 
highest spending categories through departmentwide strategic sourcing 
efforts. 

The DOD components varied in the extent to which their efforts address 
their top spending categories. Of the components we reviewed, only DLA 
reported initiatives addressing the majority of their highest spending 
categories (see figure 5). According to Navy officials, they choose 
products and services for strategic sourcing by examining their top 
spending products and services and eliminating those that they do not 
consider to be good candidates for strategic sourcing. Through this 
analysis, Navy officials identified engineering and technical services 
as a good candidate for strategic sourcing and stated they planned to 
create a commodity team in the fourth quarter of fiscal year 2012 to 
develop an initiative in this area. In addition, the Air Force 
reported completing multiple spend analyses to identify and establish 
commodity councils, and also to prioritize strategic sourcing 
initiatives within these commodity councils. Air Force officials 
reported that strategic sourcing opportunities were prioritized based 
on a value/complexity trade-off. 

Figure 5: DOD Components' Initiatives Targeting Their Top 10 Products 
and Services: 

[Refer to PDF for image: 4 tables] 

Air Force: 

1. Aircraft, fixed wing; 
Initiatives: none. 

2. Space vehicles; 
Initiatives: none. 

3. Maintenance, repair and rebuilding of equipment: aircraft and 
airframe structural components; 
Initiatives: none. 

4. Other research and development: applied research and exploratory 
development; 
Initiatives: none. 

5. Systems engineering services; 
Initiatives: none. 

6. Miscellaneous aircraft accessories and components; 
Initiatives: none. 

7. Space research and development: applied research and exploratory 
development; 
Initiatives: none. 

8. Engineering and technical services; 
Initiatives: Planned, Implemented. 

9. Other professional services; 
Initiatives: none. 

10. Maintenance, repair and rebuilding of equipment: miscellaneous 
aircraft accessories and components; 
Initiatives: none. 

Army: 

1. Logistics support services; 
Initiatives: none. 

2. Engineering and technical services; 
Initiatives: none. 

3. Aircraft, rotary wing; 
Initiatives: none. 

4. Construction of structures and facilities: miscellaneous buildings; 
Initiatives: none. 

5. Combat, assault, and tactical vehicles, wheeled; 
Initiatives: none. 

6. Construction of structures and facilities: other non-building 
facilities; 
Initiatives: none. 

7. Other professional services; 
Initiatives: none. 

8. Ground effect vehicles; 
Initiatives: none. 

9. Trucks and truck tractors, wheeled; 
Initiatives: none. 

10. Guided missiles; 
Initiatives: none. 

Navy: 

1. Aircraft, fixed wing; 
Initiatives: none. 

2. Destroyers; 
Initiatives: none. 

3. Engineering and technical services; 
Initiatives: Planned. 

4. Submarines; 
Initiatives: none. 

5. Aircraft, rotary wing; 
Initiatives: none. 

6. Defense aircraft: operational systems development; 
Initiatives: none. 

7. Combat, assault, and tactical vehicles, tracked; 
Initiatives: none. 

8. Airframe structural components; 
Initiatives: none. 

9. Other automatic data processing and telecommunications services; 
Initiatives: Implemented. 

10. Gas turbines and jet engines, aircraft, prime moving; and 
components; 
Initiatives: none. 

DLA: 

1. Liquid propellants and fuels, petroleum base; 
Initiatives: none. 

2. Fuel oils; 
Initiatives: none. 

3. Dairy foods and eggs; 
Initiatives: Implemented. 

4. Drugs and biologicals; 
Initiatives: Implemented. 

5. Gas turbines and jet engines, aircraft, prime moving; and 
components; 
Initiatives: Implemented. 

6. Airframe structural components; 
Initiatives: Implemented. 

7. Marine lifesaving and diving equipment; 
Initiatives: Implemented. 

8. Miscellaneous aircraft accessories and components; 
Initiatives: Implemented. 

9. Medical and surgical instruments, equipment, and supplies; 
Initiatives: Implemented. 

10. Clothing, special purpose; 
Initiatives: Implemented. 

Source: GAO analysis of FPDS-NG and agency data. 

[End of figure] 

Of the top spending categories that DOD components reported targeting 
through implemented strategic sourcing initiatives, only two are 
services. However, leading companies and DHS have successfully tackled 
some high-spend and complex services that are comparable to DOD's high 
spend services. For example, DHS has implemented a strategic sourcing 
initiative for engineering and technical services, which is also in 
the top 10 spending categories for the Army, Air Force and Navy. DOD 
acknowledges the need to better manage services spending. A DOD 
instruction is in place that requires each service acquisition 
executive in the military departments to collaborate with other senior 
officials to determine key categories of services that can be 
strategically sourced, and to dedicate full-time commodity managers to 
coordinate procurement of these services.[Footnote 11] These officials 
are also responsible for conducting periodic spend analyses of their 
procurement data. DOD officials told us that the appointment of a 
senior manager for the acquisition of services at each of the military 
departments and defense agencies is in progress, but that it will take 
some time to fully achieve this change. 

Agency officials stated that not all categories of spending are good 
candidates for strategic sourcing. However, industry sources, 
government guidance, and our prior work have identified a range of 
strategic sourcing tactics that are appropriate for various types of 
government products and services. For example, some military officials 
have cited weapon systems as one category that they do not consider to 
be good candidates for strategic sourcing. While weapon systems are 
highly specialized items that have a long development cycle, we have 
identified where weapon systems acquisition could benefit from some 
strategic sourcing practices, such as supplier relationship 
management.[Footnote 12] In a 2005 memo on strategic sourcing, DOD 
stated that enhancing relationships with suppliers minimizes costs, as 
DLA has done through long-term contracts. Further, DOD cited the need 
for improving long-term strategic relationships with suppliers in its 
2010 Better Buying Power memo, and directed components to participate 
in an agencywide pilot to develop preferred supplier relationships. 
[Footnote 13] 

In addition, the Better Buying Power memo acknowledged a need for a 
cohesive and integrated strategy for acquiring services, many of which 
are among the highest spending categories for DOD. The memo cited the 
use of more than 100,000 contract vehicles held by more than 32,200 
contractors and also stated that contract support services spending at 
DOD represented more than 50 percent of its total contract spending in 
2009. However, the memo was not clear how strategic sourcing would be 
incorporated into their ongoing efforts in this area. Similarly, the 
Defense Business Board issued a report in January 2011 recommending 
that DOD target high value areas for cross-military department 
coordination.[Footnote 14] The report noted that strategic sourcing 
savings of even one percent at the department would equate to billions 
of dollars. 

Selected Agencies' Strategic Sourcing Efforts Varied Widely: 

Initiatives Address a Range of Products and Services: 

Some of the four agencies have implemented many initiatives covering a 
wide range of products or services, while others report only a few 
initiatives that address a limited number of products or services. As 
of fiscal year 2011, the four agencies we reviewed reported 
initiatives that have been implemented or planned targeting nearly 750 
products and services--ranging from ammunition to architecture and 
engineering services to seating. In addition to the initiatives that 
have already been implemented at the four agencies, officials reported 
a total of 85 efforts planned for fiscal years 2012 through 2016. Many 
initiatives include multiple products or services. For example, DHS 
reported, for fiscal year 2011, 42 implemented departmentwide 
initiatives that covered approximately 270 products and services, 
ranging from software to professional and program management support 
services. By contrast, VA reported 4 initiatives covering flags, 
hearing aids, wireless devices, and affiliate negotiation teams. At 
the Department of Energy, the majority of spending through strategic 
sourcing is led by the management and operating contractors who 
operate and maintain most of their government-owned facilities, such 
as national laboratories. Energy officials told us that labs managed 
by the National Nuclear Security Administration require their 
contractors to collaborate to produce contracting vehicles for common 
products and services used across the program. However, national labs 
managed by the Office of Science do not. The Office of Environmental 
Management began implementing an initiative modeled on National 
Nuclear Security Administration's approach in 2012. 

At DOD, PASS officials were unable to definitively report how many 
initiatives were ongoing as of fiscal year 2011. However, they did 
provide information on a limited number of ongoing departmentwide 
initiatives. Within DOD, the military departments and DLA varied in 
the number of efforts that they have implemented and the types of 
products and services that have been addressed. For example, the Air 
Force reported 17 implemented initiatives whereas the Army reported 8 
and the Navy reported 7 implemented initiatives. These initiatives 
include products, such as taxiway lighting and maritime coatings, and 
services, such as clinical support services and integrated logistics 
support services. 

Agencies' Management of Strategic Sourcing Efforts: 

We found that agencies with more mature strategic sourcing programs--
those with more implemented initiatives--managed more spending through 
strategic sourcing than those with less mature efforts. For example, 
DHS had the most initiatives and had the highest percentage of 
spending through strategic sourcing of the four selected agencies we 
reviewed. Conversely, VA officials reported the fewest initiatives and 
the lowest amount of spending managed through strategic sourcing of 
the agencies we reviewed. To support strategic sourcing efforts, DHS 
stood up a strategic sourcing office at its headquarters to centralize 
strategic sourcing efforts when the department was created in 2003, 
and its strategic sourcing program has been operating under an 
implemented management directive since 2004. We reported in 2004 that 
VA had success with a few initiatives.[Footnote 15] However, since 
that time they do not appear to have expanded their use of strategic 
sourcing. According to VA officials, efforts were stymied by a lack of 
reliable data. However, they are in the process of ramping up to add 
resources and increase their strategic sourcing efforts. 

Additionally, Energy's major programs--National Nuclear Security 
Administration, Office of Science, and Office of Environmental 
Management--have ongoing strategic sourcing efforts and require some 
contractors operating their facilities to strategically source; 
however, Energy is still working to centralize its management of 
strategic sourcing initiatives and create an agencywide strategic 
sourcing program. In 2010, the Deputy Secretary of Energy cited 
further opportunities to leverage the department's buying power 
through a more centralized and less fragmented approach, but according 
to Energy officials, steps have only recently been taken to take 
advantage of those opportunities. For example, the Office of 
Environmental Management created a partnership in January 2012 with 
the National Nuclear Security Administration's Supply Chain Management 
Center. Under this partnership, the Environmental Management 
contractors have begun working with the Supply Chain Management Center 
to create a cooperative strategic sourcing solution that achieves 
efficiencies and economies of scale, and increases productivity and 
cost savings. In 2012, the Office of Science conducted a review of the 
National Nuclear Security Administration's Supply Chain Management 
Center process and concluded that it does not make financial or 
practical sense for their labs to leverage existing efforts or 
establish a similar organization. They fulfill this function using 
their previously established Integrated Contractor Purchasing Team. We 
recently recommended that the Secretary of Energy assess whether the 
National Nuclear Security Administration and the Office of Science are 
taking the necessary steps to address challenges limiting 
implementation of cost savings efforts.[Footnote 16] They agreed with 
our recommendation and are taking steps to address it. 

Efforts across DOD components varied but in general are not mature. 
Army officials reported that the Army is currently aligning and 
allocating strategic sourcing responsibilities in partnership with the 
Army's Senior Services Manager. In 2011, the Assistant Secretary of 
the Army issued a memo establishing a strategic sourcing board 
structure and program. The Air Force has been incorporating some 
aspects of strategic sourcing into its procurement practices for over 
a decade and its efforts are the most mature. 

The Office of the Secretary of Defense (OSD) relies on each military 
department to develop its own strategic sourcing efforts. The Defense 
Business Board reported in 2011 that DOD had not incorporated 
agencywide strategic sourcing into its operations and business 
practices. Rather, PASS officials told us that they conduct a detailed 
and comprehensive spending analysis, which they provide to the 
military departments so that they may determine which products and 
services they should address. Using this detailed spend analysis to 
select commodities that could be strategically sourced across DOD is 
not their primary goal; instead, PASS officials told us that they used 
it to identify and develop goals set forth in the Better Buying Power 
memo, which addresses productivity and efficiency initiatives such as 
increasing competition and reducing the use of high-risk contract 
vehicles. DOD guidance has not made clear how efforts related to the 
Better Buying Power memo link specifically to strategic sourcing 
initiatives. Military service officials told us that they would 
welcome guidance on strategic sourcing efforts from the PASS office, 
which is the organization responsible for championing strategic 
sourcing policy and initiatives for the department. The PASS office is 
currently updating its departmentwide strategic sourcing concept of 
operations, and is revising additional guidance which will include a 
process for regular review of DOD component and departmentwide 
proposed strategic sourcing initiatives. PASS officials stated that 
additional direction from DPAP or AT&L may be needed. 

Selected Agencies and the FSSI Program Continue to Face Challenges in 
Implementing Strategic Sourcing: 

Selected agencies and the FSSI program, which manages governmentwide 
strategic sourcing initiatives, continue to face common challenges 
which prevent them from fully adopting a strategic sourcing approach 
to procurement. A lack of leadership investment has prevented several 
agencies from transforming their procurement organizations to allow 
for enterprisewide strategic sourcing, as leading companies have done. 
For example, leaders at DOD and the Army have not devoted resources to 
set up the necessary organizational structures for strategic sourcing. 
In addition, agencies are still challenged to obtain and analyze 
reliable and detailed agencywide spending data, which hinders their 
ability to identify and study the strategic sourcing opportunities 
offering the most potential benefits. Finally, the FSSI program and 
selected agencies face challenges in communicating information for new 
and ongoing initiatives as well as establishing and meeting 
utilization goals to measure the effectiveness of these efforts and to 
realize cost savings. Where agencies have overcome some of these 
challenges, strategic sourcing results have improved. For example, DHS 
has established a centralized strategic sourcing office, identified 
opportunities in high spend areas despite data deficiencies, and taken 
steps to manage and monitor ongoing efforts. DHS is currently managing 
nearly 20 percent of its total procurement spending through strategic 
sourcing contracts and in fiscal year 2011 met its goal of 35 percent 
of spending on relevant products and services directed through the 
strategic sourcing contracts. 

Except for DHS, Leadership Commitment Has Been Lacking, but 
Improvements Are Under Way: 

Leaders at DOD and Energy have not committed to creating a procurement 
organization that views spending and makes strategic sourcing 
decisions at an agencywide level. DHS has created a centralized 
strategic sourcing organization and VA has initiated some 
reorganization in 2012, but it is too early to tell whether recent 
realignment efforts within VA will be successful. Each of these four 
agencies must overcome challenges posed by insufficient leadership 
support, including failure to dedicate resources and lack of 
management action to address disincentives to strategic sourcing. 
However, all four agencies reported they have begun to adopt some 
practices aimed at addressing these challenges. 

Dedication of Resources: 

At a few agencies, leadership has not devoted sufficient resources to 
allow for strategic sourcing to be conducted at a departmentwide 
level. Strategic sourcing programs can be structured in various ways 
that require varying levels of resources. For example, DHS established 
a strategic sourcing program office, located in the Office of the 
Chief Procurement Officer, which includes DHS's Director of Strategic 
Sourcing and nine additional staff members. This office coordinates 
with the components to identify opportunities and develop agencywide 
contracts that apply strategic sourcing principles. VA reported that 
in response to a proposal from Veterans Health Administration (VHA) 
personnel, VA leadership has recently committed to support the VHA in 
hiring approximately 150 full time personnel who will establish 
commodity management teams to identify departmentwide strategic 
sourcing opportunities and develop improved requirements packages, 
among other duties. Similarly, the Air Force reported that roughly 125 
employees within its Enterprise Sourcing Group are involved in cross-
functional strategic sourcing that leverages installation spending 
across 71 sites. 

The structure of an agency's strategic sourcing program will determine 
the amount of dedicated resources that are needed; however, in two 
cases we found large agencies with only one or two full time employees 
who were expected to coordinate strategic sourcing across the entire 
organization. The Army, which managed more annual procurement spending 
than any other government agency in fiscal year 2011, currently does 
not have a formal strategic sourcing program office. The strategic 
sourcing function presently lies within the Policy and Oversight 
Directorate under the Deputy Assistant Secretary of the Army for 
Procurement, which has committed only one staff person at a quarter 
time to managing its strategic sourcing. Moreover, at the OSD level, 
DOD has allocated one Deputy Director and one full-time staff member 
to its PASS office. The failure of agency leaders to devote resources 
to strategic sourcing has been a recurring issue. For example, in 
2009, the FSSI program reported that many strategic sourcing staff 
cited resource constraints as the main barrier to implementation of 
strategic sourcing in their organizations. During our review we 
observed that agencies that have committed more resources to managing 
departmentwide strategic sourcing efforts were better able to maintain 
data on their agencies' current strategic sourcing initiatives. This 
is a necessary step for coordinating and managing purchases 
agencywide--identified in our prior work as critical to taking a 
strategic approach to procurement. For example, DHS maintains a 
published list of available departmentwide strategic sourcing 
vehicles, while Army officials told us it was difficult for them to 
supply information on all initiatives because strategic sourcing data--
even on Army-wide efforts--are not kept centrally and would require a 
data call. 

Management Action to Counteract Disincentives: 

Agency officials mentioned several disincentives that can discourage 
procurement and program officials from proactively participating in 
strategic sourcing, and at many agencies, these disincentives have not 
been fully addressed by leadership. Key disincentives identified by 
agency officials include the following: 

* A perception that reporting savings due to strategic sourcing could 
lead to program budgets being cut in subsequent years, 

* Difficulty identifying existing strategic sourcing contracts that 
are available for use as there is no centralized source for this 
information, 

* A perception that strategically sourced contract vehicles may limit 
the ability to customize requirements, 

* A desire on the part of agency officials to maintain control of 
their contracting, 

* Program officials' and contracting officers' relationships with 
existing vendors, and: 

* The opportunity to get lower prices by going outside of 
strategically sourced contracts. 

For example, a key disincentive to implementing efforts and tracking 
and reporting savings is a perception that program budgets may be cut 
as a result of producing savings. Agency officials stated that a 
reluctance to track and report savings for fear of budget reductions 
contributes to underreporting of savings. Military officials reported 
a perception that any money saved will be taken from the next year's 
budget. Navy officials stated that several of their commands have 
expressed concerns that tracking and reporting savings could trigger 
another round of budget reductions and that the issue is frequently 
raised during their meetings with Navy senior management. DOD 
leadership has not yet addressed this perception for strategic 
sourcing efforts. 

Leaders at some agencies have proactively introduced practices that 
address these disincentives to strategically source. For example, DHS 
and VA reported increasing personal incentives for key managers by 
adding strategic sourcing performance measures to certain executives' 
performance evaluations. In addition, several agencies including DOD, 
DHS, and VA have instituted policies making use of some strategic 
sourcing contracts mandatory or mandatory "with exception," although 
the extent to which these policies have increased use of strategic 
sourcing vehicles is not yet clear. Some agencies have made use of 
automated systems to direct spending through strategic sourcing 
contracts. For example, FSSI issued a blanket purchase agreement 
through its office supplies initiative which included provisions 
requiring FSSI prices to be automatically applied to purchases made 
with government purchase cards. VA reported that its utilization rate 
for the office supplies FSSI contracts increased from 12 percent to 90 
percent after these measures took effect. Officials from a number of 
agencies reported that they expected shrinking budgets will prompt 
leadership to provide additional requirements or incentives to 
strategically source. In fact, VA and Navy officials reported renewed 
attention to strategic sourcing as a potential tool to deal with 
budget cuts. 

A Few Agencies Have Conducted Opportunity Analyses Despite a Lack of 
Reliable Agencywide Spending Data: 

Obtaining and Analyzing Spending Data: 

The FSSI program and selected agencies generally cited the Federal 
Procurement Data System--Next Generation (FPDS-NG)--the federal 
government's current system for tracking information on contracting 
actions--as their primary source of data, and noted numerous 
deficiencies with this data for the purposes of conducting strategic 
sourcing research. Agencies reported that when additional data sources 
are added, incompatible data and separate systems often presented 
problems. We have previously reported extensively on issues agencies 
faced in gathering data to form the basis for their spend analysis. 
[Footnote 17] However, some agencies have been able to make progress 
on conducting enterprisewide opportunity analyses despite flaws in the 
available data. For example, both the FSSI Program Management Office 
and DHS told us that current data, although imperfect, provide 
sufficient information for them to begin to identify high spend 
opportunities. DHS has in fact evaluated the majority of its 10 
highest-spend commodities and developed sourcing strategies for seven 
of those based on its analysis of primarily FPDS-NG data. 

Availability of Strategic Sourcing Expertise: 

Officials at several agencies noted that the lack of trained 
acquisition personnel made it difficult to conduct an opportunity 
analysis and develop an informed sourcing strategy. For example, Army 
officials cited a need for expertise in strategic sourcing and spend 
analysis data, and OMB officials echoed that a key challenge is the 
dearth of strategic sourcing expertise in government. VA and Energy 
also reported this challenge. A few agencies have responded to this 
challenge by developing training on strategic sourcing for acquisition 
personnel. For example, the Air Force noted that they instituted 
training related to strategic sourcing because it is necessary to have 
people who are very strong analytically to do the front end work for 
strategic sourcing, and these are the hardest to find. The training 
course gives acquisition personnel strong analytical skills to perform 
steps like market evaluation. VA has also begun to develop training to 
address this challenge. 

Agencies Report Challenges in Executing Individual Strategic Sourcing 
Initiatives: 

Developing the Sourcing Strategy: 

Agency officials listed several challenges that they commonly face in 
developing the sourcing strategy for a product or service. As with the 
opportunity analysis stage, imperfect data and a lack of expertise 
also pose challenges to agencies when developing a sourcing strategy. 
This phase requires study of various types of information; for 
example, data on the agency's requirements and historical and 
projected demand for the product or service. Some agencies have found 
additional information on existing suppliers and contracts to also be 
important in identifying commodities to target for strategic sourcing. 
For example, the Air Force also considers data on the number of 
contracts, the number of purchasing locations, the number of 
transactions, the number of suppliers, and estimated total cost 
savings for each potential commodity, among other factors. Several 
agencies have historically turned to contractors to perform this step; 
however some have recently decided to increase internal expertise in 
this area. For example, the FSSI Program Management Office reported 
hiring two new staff with relevant expertise to help with this process. 

A few agencies also reported challenges specifically with meeting 
requirements unique to government procurements. Government 
procurements must meet specified socioeconomic goals; for example, 
agencies are expected to award a certain portion of their contracts to 
small businesses. Organizations representing small businesses have 
expressed concern that federal strategic sourcing reduces contracting 
opportunities for small businesses. However, while acknowledging that 
reducing the number of vendors providing a product or service means 
that some vendors will be unable to participate, agency officials 
reported finding ways to conduct strategic sourcing efforts that allow 
for maximum feasible small business participation. For example, DHS, 
VA, and Air Force officials told us they collaborated with small 
business advocates early in the acquisition planning stage to ensure 
they conducted market research that would help determine how to 
maximize small business participation. In addition, Federal Strategic 
Sourcing Initiatives to date have generally awarded a number of 
contracts to small businesses. For example, of 15 contracts awarded 
for an initiative focusing on office supplies, 13 were awarded to 
small businesses, and these businesses received over 70 percent of 
office supplies spending through that initiative in fiscal year 2011. 
Another initiative targeting print management services awarded 5 of 11 
contracts to small businesses. Several agency small business 
utilization officials with whom we spoke were generally satisfied with 
FSSI and agency efforts to involve small businesses in strategic 
sourcing. 

Officials at all of our four selected agencies discussed challenges in 
getting buy-in among those who would be using the strategic sourcing 
contracts to purchase products or services. Buyers can face a number 
of disincentives to using strategic sourcing vehicles, as outlined 
above. In addition to creating structures that provide incentives for 
participation in strategic sourcing, several agencies incorporate 
practices into individual strategic sourcing efforts to increase 
stakeholder buy-in. OMB, DHS, and Air Force officials reported that 
one such practice is involving stakeholders early in the process. For 
example, Air Force officials said that in order for strategic sourcing 
to be successful, the cross-functional commodity team must include the 
organization that is funding the acquisition. DHS officials added that 
in order to have support with all levels of personnel involved, it is 
important to have the end users in the room when making procurement 
decisions. Similarly, the program manager for GSA's planned FSSI 
covering wireless rate plans and devices personally conducted 
extensive outreach with agencies to understand their technical 
requirements and encourage customer involvement. In response, agencies 
have sent representatives from offices of both the Chief Information 
Officer and the Chief Acquisition Officer to work with the team in 
developing the acquisition strategy. 

Implementing and Managing Strategic Sourcing Efforts: 

Challenges in Ensuring Utilization: 

After strategic sourcing contracts are awarded, realizing cost savings 
and other benefits depends on utilization of these contracts. Agency 
officials indicated that a key challenge with strategic sourcing is 
communicating new contracting options. For example, Navy officials 
expressed that even though they have templates for communication that 
can be used when rolling out an initiative, it is really people who 
determine whether the communication will be effective. In addition to 
putting together a communication plan to alert government purchase 
card users that use of the office supplies FSSI was now required, Air 
Force officials conducted random telephone calls to ensure these users 
knew of the existence of the policy. Air Force officials believed that 
these communication efforts led to a 50 percent increase in FSSI usage 
from March to April 2011. 

To improve the existing FSSI efforts, GSA applied lessons learned from 
previous initiatives to increase buy-in and utilization. The first 
generation of the office supplies initiative did not have a high 
utilization rate, and officials attributed this, in part, to a failure 
to publicize the effort. As a result, GSA increased its outreach 
efforts for the second iteration of the initiative and developed an 
implementation kit--a pre-packaged communications campaign to help 
implement the FSSI. The kit included a five-step implementation 
process, sample communications and policy memos, and reporting 
templates. In fiscal year 2011, an estimated 13 percent of 
governmentwide spending on office supplies went through second 
generation office supplies initiative contracts, up from less than 1 
percent of similar spending through first generation contracts in 
fiscal year 2009. 

Using Goals and Metrics to Measure Progress: 

Failure to set goals and difficulty in measuring the utilization of 
strategic sourcing contracts also present a critical challenge. A lack 
of detailed data on spending makes it difficult for agencies to track 
utilization of existing strategic sourcing contracts. FPDS-NG provides 
spending data by product service code, but the products and services 
targeted by most strategic sourcing initiatives are only a subset of 
these much broader categories. Further, FPDS-NG lacks information on 
transactions below a certain dollar threshold. Even where agencies 
have improved their data on spending through strategically sourced 
contracts--for example, a FSSI blanket purchase agreement requires 
vendors to provide detailed line item data on spending--they continue 
to lack data that allows them to reliably identify spending on these 
products and services that go to contractors outside of strategically 
sourced contracts. Inability to track this spending makes tracking 
utilization imprecise, but the FSSI program, VA, and DHS have all 
begun tracking utilization data--though imperfect--and are using 
utilization rates as one metric to manage strategic sourcing efforts. 
VA officials acknowledged that regular monitoring of strategically 
sourced spending is what creates the incentive to stabilize savings 
following the initial drop in spending, which is crucial to continued 
success. 

Agencies are equally challenged to produce other metrics--such as 
spending through strategic sourcing contracts and savings--that can be 
used to monitor progress. However, agencies will be increasingly 
called upon to produce metrics as the use of strategic sourcing 
expands. For example, in 2012 OMB issued a new cross-cutting 
management improvement goal, which calls for agencies to strategically 
source at least two new products or services in both 2013 and 2014 
that yield at least 10 percent savings. Agencies will need to measure 
savings to document their progress toward this goal. However, although 
recognizing the need for guidance on how agencies are to measure 
savings, OMB has not yet issued such guidance. 

The strategic sourcing savings figures reported to us by agency 
officials were calculated using a variety of savings methodologies; 
for example, the difference in the paid price versus the price from 
ordering the same product or service from GSA schedule contracts. 
Other examples for calculating savings include totaling GSA management 
fees avoided because GSA schedules were not used for the procurement, 
and comparison of the prices paid on the contracts before strategic 
sourcing and after. Often several methodologies were used even within 
agencies. We recently reported that Energy's guidance on calculating 
procurement cost savings gave its maintenance and operations 
contractors considerable flexibility in choosing the methods for 
estimating savings, and therefore estimates could vary 
widely.[Footnote 18] For example, one laboratory estimated a $9 
million savings from a software purchase in 2010 using its preferred 
estimation method. By other methods used elsewhere in Energy, however, 
the site estimated that its savings could have been as high as $35 
million. We recommended that Energy clarify its guidance on estimating 
cost savings from streamlining efforts.[Footnote 19] Energy officials 
agreed with our recommendation and stated they have clarified their 
guidance on developing savings estimates. In addition, our recent 
reports highlighted the difficulties that agencies face when 
calculating acquisition savings. Specifically, we found that agencies 
reported billions of dollars in overstated and questionable savings in 
response to OMB's Acquisition Savings Initiative due to differing 
methods of calculating savings as well as confusion as to what should 
be included as savings.[Footnote 20] We also found that when 
calculating savings from various efforts including strategic sourcing, 
VA had double counted savings on different efforts and had not 
accounted for the cost of implementing other efforts.[Footnote 21] 

In addition to savings, leading companies that we spoke with have 
identified a variety of metrics they use to measure return on 
strategic sourcing investments, such as the spending under management, 
reductions in total cost of ownership, and efficiencies due to 
streamlined processes. Agency officials have identified, but have not 
quantified, some of these other benefits to strategic sourcing. 
Officials acknowledge that strategic sourcing efforts can produce 
administrative cost savings, but they are difficult to quantify. For 
example, DHS reported that consolidating procurements using agencywide 
contracts streamlines the acquisition process and saves the department 
significant administrative costs; however, DHS does not quantify these 
savings. Strategic sourcing efforts can also achieve efficiencies by 
changing buying behavior and managing demand for products and 
services. For example, OSD officials reported the Navy has been 
innovative in incorporating demand management into its approach for 
buying wireless services. Navy's wireless effort is down to eight 
plans and eight devices, and the service is now doing demand analysis. 

Several agencies mentioned a need for sustained leadership support and 
additional resources in order to more effectively monitor ongoing 
initiatives. For example, DOD's PASS office--with only two people to 
advocate strategic sourcing policy and coordinate communication of 
component initiatives--does not track current strategic sourcing 
efforts at the component or departmentwide level. Some agencies that 
have developed metrics such as contract utilization rates report using 
those metrics to increase ongoing communication with leadership and 
maintain leadership investment. For example, VA officials said that 
they collect utilization metrics for the FSSIs and brief the Deputy 
Secretary on those metrics monthly. 

Federal Strategic Sourcing Initiatives Managed a Small Amount of 
Spending and Achieved Considerable Savings, but Greater Savings Are 
Possible: 

The FSSI program has adopted some leading practices for strategic 
sourcing, such as creating the structure and processes necessary to 
implement and monitor efforts. Through the end of fiscal year 2011, 
the program had only managed a small amount of spending through its 
four governmentwide strategic sourcing initiatives; however it 
reported achieving significant savings on those efforts. In fiscal 
year 2011, the FSSI program managed $339 million through these 
governmentwide initiatives and reported achieving $60 million in 
savings. However, the program faces key challenges in obtaining agency 
commitments to use new FSSIs and in increasing the level of agency 
spending directed through FSSI vehicles. For example, only 15 percent 
of governmentwide spending for the products and services covered by 
the FSSI initiatives went through the FSSI contracts in fiscal year 
2011. Successfully addressing these challenges could help the FSSI 
program achieve greater governmentwide savings and efficiencies. In 
addition, the FSSI program has not yet targeted any of the 
government's 50 highest spend products and services for strategic 
sourcing, and therefore is missing the potential for more significant 
strategic sourcing savings and other benefits governmentwide. 

The FSSI Program Governance Structure Allows for Interagency 
Collaboration on FSSIs: 

The FSSI program reports to OMB's Chief Acquisition Officers Council 
through its Strategic Sourcing Working Group. The Working Group, 
comprised of representatives of various agencies, vets and approves 
initiatives and sourcing strategies, and establishes the standards, 
processes, and policies governing FSSI. The FSSI Program Management 
Office supports the Working Group and coordinates the efforts of 
executive agents to implement individual FSSI initiatives. See figure 
6 for the FSSI program governance structure. 

Figure 6: FSSI Governance Structure: 

[Refer to PDF for image: organizational chart] 

Top level: 
Office of Management and Budget: 
Office of Federal Procurement Policy (OFPP). 

Second level: 
Chief Acquisition Officers Council (CAOC). 

Third level: 
Strategic Sourcing Working Group (SSWG). 

Fourth level: 
FSSI Program Management Office (PMO). 

Associated with both third and fourth levels: 
Community of Practice (COP). 

Fifth level: 
Executive agency: 
Commodity teams. 

Source: GSA. 

[End of figure] 

The FSSI Program Management Office is located within the GSA's Federal 
Acquisition Service. In addition, each of the four implemented 
strategic sourcing initiatives is also managed by GSA's Federal 
Acquisition Service staff. The FSSI Program Management Office provides 
guidance and oversight, reviews information and recommendations, and 
makes strategic program decisions. This structure has allowed the FSSI 
program to assess opportunities for procuring certain products and 
services, develop and implement sourcing strategies to leverage 
governmentwide buying power, and manage the strategic sourcing 
efforts. Agency representatives participate in developing and managing 
FSSIs through membership in commodity teams. 

The FSSI Program Managed a Small Amount of Fiscal Year 2011 Spending 
through Several Federal Strategic Sourcing Initiatives and Reported 
Achieving Considerable Savings: 

In fiscal year 2011, the FSSI program managed $339 million through 
governmentwide initiatives and achieved approximately $60 million in 
savings, or almost 18 percent of the procurement spending it managed 
through these initiatives. As of fiscal year 2011, four initiatives 
had been implemented. The domestic delivery services and office supply 
initiatives--originally implemented in 2006 and 2007, respectively -
are in their second iterations. The wireless telecommunications 
expense management initiative has been in place since 2008. The first 
print management initiative contracts were awarded near the end of 
fiscal year 2011, and initial efforts focused on assessing agencies' 
use of print output devices. Given the timing of the first contract 
award in late fiscal year 2011, FSSI Program Management Officials 
reported that no spending was yet managed through the contracts in 
that fiscal year. The number of agencies participating in the 
initiatives varied widely. For example, the FSSI Program Management 
Office reported that as of fiscal year 2011, five agencies 
participated in the Wireless Telecommunications Expense Management 
Services initiative, while 95 participated in the Domestic Delivery 
Services II initiative. Table 2 describes four implemented and two 
planned governmentwide strategic sourcing initiatives. 

Table 2: Implemented and Planned Federal Strategic Sourcing 
Initiatives Managed by the FSSI Program Management Office, Fiscal Year 
2011: 

Initiative: Office Supplies--Second Generation; 
Description: Offers a catalogue of consumable office supplies; 
Date implemented: June 2010; 
Governmentwide spending on applicable products and services: $1.6 
billion; 
Spending through strategic sourcing: $202 million; 
Savings reported by FSSI Program Management Office: $24 million. 

Initiative: Domestic Delivery Services--Second Generation; 
Description: Offers delivery service for small packages; 
Date implemented: August 2009; 
Governmentwide spending on applicable products and services: $505 
million; 
Spending through strategic sourcing: $109 million; 
Savings reported by FSSI Program Management Office: $31 million. 

Initiative: Telecommunications Expense Management Services; 
Description: Optimizes wireless rate plans, reduces billing errors, 
and increases visibility into spending; 
Date implemented: January 2008; 
Governmentwide spending on applicable products and services: $100 
million; 
Spending through strategic sourcing: $28 million; 
Savings reported by FSSI Program Management Office: $5 million. 

Initiative: Print Management; 
Description: Reduces equipment needed for printing, copying, scanning, 
and faxing, and includes print behavior and continuous process 
improvement components; 
Date implemented: September 2011; 
Governmentwide spending on applicable products and services: Spending 
not yet under management in fiscal year 2011; 
Spending through strategic sourcing: Spending not yet under management 
in fiscal year 2011; 
Savings reported by FSSI Program Management Office: Spending not yet 
under management in fiscal year 2011. 

Initiative: SmartBUY; 
Description: Leverages buying of commercial off-the-shelf software and 
services; 
Date implemented: Planned for fiscal year 2012; 
Governmentwide spending on applicable products and services: Not 
managed under the FSSI program in fiscal year 2011; 
Spending through strategic sourcing: Not managed under the FSSI 
program in fiscal year 2011; 
Savings reported by FSSI Program Management Office: Not managed under 
the FSSI program in fiscal year 2011. 

Initiative: Wireless; 
Description: Offers rate plans and wireless devices; 
Date implemented: Planned for fourth quarter, fiscal year 2012; 
Governmentwide spending on applicable products and services: Not 
applicable as contracts were not yet awarded in fiscal year 2011; 
Spending through strategic sourcing: Not applicable as contracts were 
not yet awarded in fiscal year 2011; 
Savings reported by FSSI Program Management Office: Not applicable as 
contracts were not yet awarded in fiscal year 2011. 

Source: GAO analysis of GSA data. 

[End of table] 

SmartBUY is an existing federal procurement vehicle that was started 
in 2003 and leverages the government's buying power to reduce the cost 
of commercial off-the-shelf software and services. As of the end of 
fiscal year 2011, SmartBUY was not classified as a Federal Strategic 
Sourcing Initiative, but the Strategic Sourcing Working Group in June 
2012 formally accepted it as an FSSI Initiative. The FSSI Program 
Management Office plans that going forward, the FSSI SmartBUY will 
develop strategies to address as many large software publishers as 
possible. The planned initiative targeting wireless rate plans and 
devices will aim to deliver acquisition savings due to lower 
purchasing costs as well as operational savings through improvement of 
processes and information. 

The FSSI Program Faces Challenges in Getting Top Spending Agencies to 
Commit to Governmentwide Strategic Sourcing Contracts: 

FSSI program officials that manage the governmentwide strategic 
sourcing initiatives told us that before contracts are awarded, 
obtaining spending commitments--especially from top spending agencies-
-is important in negotiating discounted prices and implementing a 
successful strategic sourcing effort. However, they noted that getting 
agency commitments to use the FSSI initiatives sometimes can be a 
challenge. Even agencies that are part of strategic sourcing commodity 
teams sometimes do not commit to using the resulting FSSI contracts. 
For example, DOD representatives participated in the commodity team 
for the Office Supplies II effort, and DOD spending represented a 
large portion of the total federal government spending on office 
supplies. However, prior to Office Supplies II implementation, DOD 
committed only to continue support of the FSSI for office supplies, 
but did not specifically commit to using Office Supplies II contracts. 
By contrast, other agencies such as VA provided the FSSI program with 
letters of intent that committed the agencies to use the Office 
Supplies II contracts once awarded. This information was used by the 
FSSI program to negotiate better prices with vendors. 

PASS officials acknowledged that although DOD participates in 
commodity teams for the Federal Strategic Sourcing Initiatives, the 
department has not fully committed to certain FSSI contracts for a 
variety of reasons, including having more sophisticated requirements 
or different mission needs than those of civilian agencies, and having 
existing contract vehicles in place when some FSSI initiatives were 
implemented. A PASS official said that the department would more 
likely commit to current and planned FSSI contracts if those contracts 
showed significant savings/best value over established DOD contracts, 
to include the cost of administration, fees, and transition. Officials 
added that they may also be more likely to commit to FSSI contracts if 
FSSI initiatives addressed products or services not previously 
addressed by DOD, or if the FSSI program selected products or services 
with more significant spending. 

The FSSI Program Faces Challenges to Achieve Greater Governmentwide 
Savings and Efficiencies through Increased Use of Strategic Sourcing 
Contracts: 

Although reported spending through FSSI vehicles has increased from 
fiscal year 2009 to fiscal year 2011, spending through the vehicles 
continues to be limited. Only $339 million, or 15 percent, of 
governmentwide spending for the products and services covered by the 
FSSIs went through the vehicles in fiscal year 2011. However, where 
spending went through FSSI vehicles, the program reported savings 
equivalent to almost 18 percent of the spending through those 
vehicles. Although not all spending is suitable for strategic 
sourcing, if even 1 percent of total federal procurement spending were 
directed through the FSSIs and achieved savings equivalent to 18 
percent of that spending, the federal government could save over $900 
million. 

Agencies cited a variety of reasons for not participating in the 
governmentwide FSSI initiatives. Some agencies told us they were more 
likely to engage in agencywide strategic sourcing than to participate 
in a governmentwide effort because they: 

* want to maintain control over their contracting, 

* have unique requirements, or: 

* can get lower prices outside of the FSSI contract vehicles. 

For example, Energy officials told us their buyers are purchasing some 
items through Office Supplies II, but also have gotten lower prices on 
other items from current vendors by comparing prices. 

FSSI use is not mandatory and agencies face no consequence for not 
using the FSSI contract vehicles. According to OFPP and GSA officials, 
they have not made use of FSSI contracts mandatory governmentwide--
preferring instead to establish FSSI contract vehicles that agencies 
will want to use. However, though GSA is the sponsoring agency, only 
28 percent of its own office supply spending in fiscal year 2011 went 
through Office Supplies II. Agencies can mandate FSSI use agencywide, 
and the Air Force, Navy, DHS, and VA have issued policies making at 
least consideration of some FSSI use mandatory. GSA officials 
indicated that they are revisiting whether mandatory use policies 
would benefit the current FSSI initiatives. 

In 2012, OMB released a Cross-Agency Priority Goal Statement which 
requires agencies to increase their agencywide strategic sourcing 
efforts and also requires agencies to increase their use of FSSI 
contracts by at least 10 percent in both fiscal years 2013 and 2014, 
unless they can establish that their current spending patterns on 
related products are more cost-effective. This is a positive step and 
may help to increase agency use of FSSI contracts; however, the 
guidance does not include information on how agencies will be held 
accountable for meeting these goals and it is too early to tell what 
effect the establishment of this goal will have. 

The FSSI Program Has Not Targeted High Spending Categories of Products 
and Services Offering the Most Potential for Savings Governmentwide: 

Many of the governmentwide highest-spending categories of products and 
services exceed $10 billion, and therefore offer great opportunities 
for savings if they can be strategically sourced successfully. In 
fiscal year 2011, federal spending on the top 50 products and services 
was $283 billion, or 53 percent of total government procurement 
spending. Appendix II identifies the fiscal year 2011 highest 
governmentwide spending categories. 

Current governmentwide strategic sourcing initiatives do not address 
any of the top 50 governmentwide products and services, in part 
because the FSSI program excludes some of them from consideration for 
governmentwide strategic sourcing. The FSSI program evaluates products 
and services based on savings potential, diversity of customer pool, 
and ease of implementation. In its fiscal year 2011 analysis of 
spending, before considering products and services for a 
governmentwide initiative, the program removed those considered 
unsuitable for strategic sourcing, including: 

* mission-critical products and services, 

* products and services for which DOD alone or two or fewer 
departments accounted for 80 percent or greater of funding, and: 

* construction, architect/engineering, and building maintenance 
services. 

Consequently, only about one quarter of total spending--or $129 
billion--remained open for consideration for a governmentwide 
initiative. 

Officials told us that where spending on a product or service is 
concentrated among just a few agencies, a better approach would be for 
these agencies to collaborate to strategically source it rather than 
establish a governmentwide effort. However, many high-spending 
categories of services with spending spread more broadly across 
agencies are also not currently being targeted. FSSI Program 
Management Officials acknowledged that services comprise a high volume 
of governmentwide procurement spending, and that the FSSI program 
cannot ignore them for much longer. 

Current FSSI contracts address products and services that have 
relatively low spending when compared to those that are among the top 
50. For example, all products procured under the Office Supplies II 
FSSI combined would rank 134th in fiscal year 2011 federal procurement 
spending. FSSI officials reported that they selected FSSI products and 
services for reasons other than a high spending level, which included 
agency adoption and standard purchase requirements across government. 
For example, FSSI officials explained that the current FSSIs, 
including Office Supplies II, were selected to demonstrate that 
strategic sourcing could be successful with simpler commodities before 
they pursued more complicated products and services. They also may 
select a product or service that an agency has already been 
considering to build on momentum. For example, an upcoming FSSI 
initiative for publication licenses was chosen because of interest by 
the Library of Congress. The Library of Congress will also lead the 
initiative, which will be the first time that GSA will not be the 
executive agent for an FSSI effort, but this FSSI only addresses an 
estimated $500 million to $600 million in federal procurement spending. 

Conclusions: 

Current fiscal pressures and budgetary constraints have heightened the 
need for agencies to take full advantage of strategic sourcing and 
other efficiencies. Government agencies and commercial firms tend to 
have more spending managed through strategic sourcing efforts when 
they incorporate leading practices such as using their spend analysis 
to inform their selection of products and services for strategic 
sourcing, devoting resources to strategic sourcing efforts, and 
measuring the benefits of ongoing efforts. These practices drive 
efficiencies and yield benefits beyond savings, such as increased 
business knowledge. Governmentwide strategic sourcing efforts have 
been initiated, and the four federal agencies we reviewed have 
improved and expanded upon their use of strategic sourcing to achieve 
cost savings and other benefits, but some agencies' leaders, such as 
OSD and the Army, have not made a sufficient commitment to strategic 
sourcing, investing limited resources and failing to establish goals 
and performance metrics. Energy's experience has been similar to 
DOD's, and we have recently made related recommendations to the 
Secretary of Energy.[Footnote 22] DHS and DLA have shown that agencies 
can successfully target high spend commodities for strategic sourcing. 
Despite these examples, selected agencies' current efforts and the 
FSSIs fall well short of addressing most of the federal procurement 
spending. Perennial high spend areas such as services offer the 
biggest potential for savings but have been largely ignored in 
strategic sourcing efforts. Focusing only on low risk, low return 
strategic sourcing strategies diminishes the government's ability to 
fully leverage its enormous buying power and achieve other 
efficiencies. Until top-spending federal entities, especially DOD and 
the FSSI program, better incorporate strategic sourcing leading 
practices, increase the amount of spending through strategic sourcing, 
and direct more efforts at high spend categories, billions of dollars 
in potential savings may be missed, denying agencies a valuable tool 
for maximizing their ability to carry out critical missions under 
tight budgets. 

Recommendations for Executive Action: 

To improve departmentwide strategic sourcing efforts at DOD, we 
recommend that the Secretary of Defense direct the Office of 
Acquisition, Technology, and Logistics to take the following five 
actions: 

* Issue direction that: 

- sets goals for spending managed through strategic sourcing vehicles, 

- establishes procedures for the identification and tracking of 
departmentwide and component strategic sourcing efforts through the 
PASS office, 

- implements the PASS office strategic sourcing guidance, 

- links strategic sourcing to its Better Buying Power memorandum, and: 

- establishes metrics, such as utilization rates, to track progress 
toward these goals. 

* Evaluate whether the current resources of OSD's PASS office are 
sufficient to enable the office to fulfill its strategic sourcing 
mission. 

* 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 PASS office. 

* 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). 

* 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. 

To improve strategic sourcing efforts at the Army, and in light of 
significant potential savings and performance improvements, we 
recommend that the Secretary of Defense take the following action: 

* 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. 

To help ensure that VA's strategic sourcing efforts further reflect 
leading practices, and in light of significant potential savings and 
performance improvements, we recommend that the Secretary of Veterans 
Affairs direct strategic sourcing staff to take the following two 
actions: 

* 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). 

* Set goals for spending managed through strategic sourcing, and 
establish metrics, such as utilization rates, to monitor progress 
toward these goals. 

To help ensure that government strategic sourcing efforts further 
reflect leading practices, and in light of significant potential 
savings and performance improvements, we recommend that the Director 
of OMB direct the Administrator of OFPP to take the following two 
actions: 

* 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. 

* 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 Comments and Our Evaluation: 

We sent copies of a draft of this report to DOD, Energy, DHS, VA, GSA, 
and OMB. In its written comments (reproduced in appendix III), DOD 
concurred with our recommendations and stated it would take action to 
adopt them. DHS comments (reproduced in appendix IV) emphasized the 
agency's commitment to improving and expanding its use of strategic 
sourcing. In its written comments (reproduced in appendix V), VA 
concurred with our recommendations and gave additional information on 
its strategic sourcing activities. As acknowledged in VA's letter, it 
did not provide this data in response to requests made during our 
review, and therefore we were unable to evaluate this additional data. 

OMB staff provided oral comments concurring with our recommendations 
and stated they are developing guidance designed to accomplish the 
intended results in collaboration with a new senior level interagency 
governance group. In their oral comments, OMB staff also noted that 
our report compares 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. However, during our 
review we observed that agencies held different views on whether 
certain categories of products and services are addressable through 
strategic sourcing, and our recommendations aim to encourage agencies 
to make this determination for each high spend product or service 
through a structured analysis. 

DOD also provided technical comments which we considered and 
incorporated into the report as appropriate. Energy and GSA provided 
only technical comments, which we considered and incorporated into the 
report as appropriate. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies to the 
Director of OMB; the Administrator of OFPP; the Administrator of 
General Services; and the Secretaries of the Departments of Homeland 
Security, Energy, Veterans Affairs, and Defense, as well as the 
Secretaries of the Air Force, Army, and the Navy, and the Director of 
DLA. This report will also be available at no charge on GAO's website 
at [hyperlink, http://www.gao.gov]. 

If you or your staff have any questions about this report or need 
additional information, please contact me at (202) 512-4841 or 
chaplainc@gao.gov. Contact points for our Offices of Congressional 
Relations and Public Affairs may be found on the last page of this 
report. Staff acknowledgments are provided in appendix VI. 

Signed by: 

Cristina Chaplain: 
Director: 
Acquisition and Sourcing Management: 

[End of section] 

Appendix I: Scope and Methodology: 

We were asked to review the status of strategic sourcing efforts both 
at selected agencies and governmentwide, and identify challenges, 
leading practices, and potential for additional strategic sourcing 
savings. Accordingly, we assessed: (1) the extent to which selected 
agencies managed spending and achieved savings through strategic 
sourcing, and whether buying power could better be leveraged, (2) key 
challenges agency and Federal Strategic Sourcing Initiative (FSSI) 
officials face in strategically sourcing products and services, (3) 
the extent to which FSSIs managed spending and achieved savings 
through strategic sourcing, and whether governmentwide buying power 
could better be leveraged. 

To evaluate agency strategic sourcing efforts, we selected for review 
four agencies--Department of Defense (DOD), Department of Homeland 
Security (DHS), Department of Veterans Affairs (VA), and Department of 
Energy (Energy)--among the top ten in fiscal year 2011 procurement 
obligations that accounted for 80 percent of total federal procurement 
spending. In addition, to more fully assess strategic sourcing at DOD, 
we reviewed the efforts of four component agencies--Air Force, Army, 
Navy, and the Defense Logistics Agency (DLA)--which accounted for 88 
percent of DOD fiscal year 2011 spending, as well as departmentwide 
efforts managed by DOD's Defense Program Acquisition and Strategic 
Sourcing (PASS) office, which reports to the Under Secretary of 
Defense for Acquisition, Technology, and Logistics (AT&L). 

We requested and analyzed data on active and planned agencywide 
strategic sourcing initiatives, and any other efforts they might have 
begun, but discontinued. We asked the agencies for fiscal years 2009 
through 2011 information on: 

* Federal Procurement Data System--Next Generation (FPDS-NG) Product 
Service Codes associated with the initiatives: 

* spending through their strategic sourcing vehicles; 

* amount of savings achieved; 

* amount of any savings through means other than cost reduction or 
avoidance; [Footnote 23] 

* methods for calculating savings. 

To avoid double counting, we excluded agency data on spending and 
savings achieved through FSSIs, and limited our analysis to the data 
provided on their agencywide initiatives. We did not independently 
verify this information that agencies reported to us, but we did 
assess information from agency officials about the reliability of the 
data and resolved some discrepancies. We determined that these data 
were sufficiently reliable for the purposes of analyzing agency-
reported strategic sourcing spending and savings data. 

To identify the products and services with the highest federal 
procurement spending--both governmentwide and by our selected 
agencies--we analyzed fiscal year 2011 data from the FPDS-NG. To 
assess the reliability of the FPDS-NG, we reviewed existing 
documentation and electronically tested the data to identify obvious 
problems with completeness or accuracy. We determined that these data 
were sufficiently reliable for the purpose of reporting governmentwide 
and agency spending on products and services. 

At the selected agencies and the General Services Administration 
(GSA), we interviewed strategic sourcing officials to determine the 
status of current and planned governmentwide and agencywide strategic 
sourcing efforts, with a focus on key challenges and leading 
practices. Specifically, we asked about: 

* governance structure, 

* obstacles to strategic sourcing, 

* enablers or good practices in strategic sourcing, 

* agencywide initiatives, 

* participation in governmentwide initiatives, 

* spend analysis, and: 

* savings and potential other benefits from strategic sourcing efforts. 

We also obtained and reviewed agency strategic sourcing policies and 
other documentation, including spend analyses, where applicable. In 
addition, we reviewed previous GAO reports on leading company 
practices for strategic sourcing as well as related reports on 
acquisition, contract management, government streamlining, and 
duplication, overlap, and fragmentation in the federal government. We 
also reviewed work papers from a 2012 engagement on best commercial 
practices for acquiring services. In addition, we examined related 
testimony before various congressional committees. Furthermore, we 
reviewed the Defense Business Board 2011 Report to the Secretary of 
Defense on Strategic Sourcing, as well as literature from industry 
sources on successful strategic sourcing efforts. To examine how 
agencies consider small businesses in the strategic sourcing process, 
we interviewed personnel at DHS and VA Offices of Small and 
Disadvantaged Business Utilization and the Air Force Office of Small 
Business. We also analyzed selected data to determine the number of 
small businesses participating in strategic sourcing efforts and the 
level of spending directed to small business contractors. 

To evaluate governmentwide strategic sourcing, we examined the FSSI 
efforts led by GSA and overseen by the Office of Federal Procurement 
Policy (OFPP). We interviewed strategic sourcing officials at GSA to 
determine the status of current and planned FSSI initiatives, again 
looking at challenges and leading practices. We sought information on 
topics similar to those discussed with officials at our selected 
agencies, and obtained and reviewed FSSI documentation, including 
spend analysis. Similarly to the selected agencies, we requested and 
analyzed GSA fiscal years 2009-2011 information on Product Service 
Codes, governmentwide spending, and governmentwide savings associated 
with the FSSIs. In addition, we used the results of prior work on the 
Office Supplies II FSSI.[Footnote 24] We did not independently verify 
the FSSI information GSA reported to us, but we did assess information 
from agency officials about the reliability of the data and resolved 
some discrepancies. We determined that these data were sufficiently 
reliable for analyzing reported governmentwide FSSI spending and 
savings data. 

To assess OFPP's oversight of strategic sourcing, we met with OFPP 
officials to discuss: 

* the agency's role in advancing the FSSIs, 

* the agency's role in facilitating agency participation in the FSSIs, 

* consistency across agencies in estimating strategic sourcing 
savings, and: 

* selection of goods and services for future FSSIs. 

We also obtained and reviewed OFPP documentation, including memoranda 
promoting increased use of strategic sourcing, and observed a monthly 
meeting of OFPP's Chief Acquisition Officers Council, Strategic 
Sourcing Working Group. 

We conducted this performance audit from August 2011 to September 2012 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Top 50 Governmentwide Products and Services by Dollars 
Obligated, Fiscal Year 2011: 

1. Aircraft, Fixed Wing: 

2. Engineering and Technical Services: 

3. Other Automatic Data Processing and Telecommunications Services: 

4. Other Professional Services: 

5. Logistics and Support Services: 

6. Drugs and Biologicals: 

7. General Health Care Services: 

8. Operation of Government-Owned Facilities: Government-Owned 
Contractor-Operated Research and Development Facilities: 

9. Liquid Propellants and Fuels, Petroleum Base: 

10. Aircraft, Rotary Wing: 

11. Program Management/Support Services: 

12. Construction of Structures and Facilities: Miscellaneous Buildings: 

13. Destroyers: 

14. Guided Missiles: 

15. Combat, Assault, and Tactical Vehicles, Tracked: 

16. Airframe Structural Components: 

17. Automatic Data Processing Software: 

18. Guard Services: 

19. Gas Turbines and Jet Engines, Aircraft, Prime Moving; and 
Components: 

20. Construction of Structures and Facilities: Office Buildings: 

21. Miscellaneous Aircraft Accessories and Components: 

22. Systems Engineering Services: 

23. Other Management Support Services: 

24. Submarines: 

25. Defense Aircraft: Operational Systems Development: 

26. Facilities Operations Support Services: 

27. Fuel Oils: 

28. Precious Metals Primary Forms: 

29. Technical Assistance: 

30. Dairy Food and Eggs: 

31. Construction of Structures and Facilities: Other Non-Building 
Facilities: 

32. Miscellaneous Communications Equipment: 

33. Automated Information System Design and Integration Services: 

34. Maintenance Repair and Rebuilding of Equipment: Aircraft and 
Airframe Structural Components: 

35. Medical and Surgical Instruments, Equipment, and Supplies: 

36. Lease or Rental of Facilities: Office Buildings: 

37. Space Vehicles: 

38. Automatic Data Processing Systems Development and Services: 

39. Other Administrative Support Services: 

40. Trucks and Truck Tractors, Wheeled: 

41. Ground Effect Vehicles: 

42. Defense Missile and Space Systems: Advanced Development: 

43. Maintenance, Repair or Alteration of Real Property: Miscellaneous 
Buildings: 

44. Combat, Assault, Tactical Vehicles, Wheeled: 

45. Other Research and Development: Applied Research and Exploratory 
Development: 

46. Air Charter for Things: 

47. Nuclear Reactors: 

48. Passenger Air Charter Service: 

49. Other Research and Development: Basic Research: 

50. Maintenance Repair and Rebuilding of Equipment: Communication, 
Detection and Coherent Radiation Equipment: 

[End of section] 

Appendix III: Comments from the Department of Defense: 

Office of The Under Secretary Of Defense: 
Acquisition, Technology and Logistics: 
3000 Defense Pentagon: 
Washington, DC 20301-3000:  

September 12, 2012: 

Ms. Cristina Chaplain: 
Director, Acquisition and Sourcing Management: 
U.S. Government Accountability Office: 
441 0 Street, N.W. 
Washington, DC 20548:  

Dear Ms. Chaplain:  

This is the Department of Defense (DoD) response to the GAO Draft 
Report, GAO-12919, "Strategic Sourcing: Improved and Expanded Use 
Could Save Billions in Annual Procurement Costs," dated August 15, 
2012 (GAO Code 120999). Detailed comments on the report 
recommendations are enclosed.  

Sincerely, 

Signed by: 

Richard Ginman: 
Director, Defense Procurement and Acquisition Policy: 
 
Enclosure: As stated. 
 
GAO Draft Report Dated August 15, 2012: 
GAO-12-919 (GAO Code 120999): 

"Strategic Sourcing: Improved And Expanded Use Could Save Billions In 
Annual Procurement Costs" 

Department Of Defense Comments To The GAO Recommendation: 

Recommendation 1: The GAO recommends that the Secretary of Defense 
direct the Office of Acquisition, Technology and Logistics to take 
action to issue direction that: 

a. Sets goals for spending managed through strategic sourcing vehicles, 

b. Establishes procedures for the identification and tracking of 
departmentwide and component strategic sourcing efforts through the 
PASS office, 

c. Implements the PASS office strategic sourcing guidance, 

d. Links strategic sourcing to its Better Buying Power memo, and, 

e. Establishes metrics, such as utilization rates, to track progress 
toward these goals. 

DoD Response: Concur. Specifically, the Department will set strategic 
sourcing goals based on DoD spend, establish procedures for 
identification and tracking of Department-wide and Component strategic 
sourcing efforts, publish and implement DoD-Wide Strategic Sourcing
Program Concept of Operations, link strategic sourcing to Better 
Buying Power, and establish metrics to track progress towards the 
Department's goals. The Department will complete actions 1.a. through 
1.d. within 6 months after the final GAO report is published. The 
Department will complete the establishment of metrics within one year 
after the final GAO report is published. 

Recommendation 2: The GAO recommends that the Secretary of Defense 
direct the Office of Acquisition, Technology and Logistics to take 
action to issue direction that evaluates whether the current resources 
of OSD's PASS office are sufficient to enable the office to fulfill 
its strategic sourcing mission. 

DoD Response: Concur. The Department will evaluate whether current 
resources of OUSD(AT&L) DPAP/PASS office are sufficient with respect 
to its role in supporting the strategic sourcing mission. The 
evaluation will be completed within 6 months after the final
GAO report is published. 

Recommendation 3: The GAO recommends that the Secretary of Defense 
direct the Office of Acquisition, Technology and Logistics to take 
action to issue direction that evaluates 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 PASS office. 

DoD Response: Concur. The Department will identify current Department-
wide business arrangements, and where these represent a strategic 
sourcing approach, ensure that data on these programs are tracked. The 
Department will develop a listing of Department-wide business 
arrangements within 6 months after the final GAO report is published. 

Recommendation 4: The GAO recommends that the Secretary of Defense 
direct the Office of Acquisition, Technology and Logistics to take 
action to identify and evaluate the best way to strategically source 
DOD's highest spending categories of products and services (e.g. 
government wide vehicles, interagency collaboration, department wide 
vehicles.) 

DoD Response: Concur. The Department will identify and evaluate the 
best way to strategically source DOD's highest spending categories of 
products and services. The Department's evaluation will be completed 
within 6 months after the final GAO report is published. 

Recommendation 5: The GAO recommends that the Secretary of Defense 
direct the Office of Acquisition, Technology and Logistics to take 
action to identify and submit to the FSSI program a list of products 
and services that, if developed as FS SIs, present the best 
opportunities for future DOD participation. 

DoD Response: Concur. The Department will identify and submit to the 
FSSI program a list of products and services that present the best 
opportunities for future DOD participation. The Department will submit 
this list to the FSSI program within 6 months after the final GAO 
report is published. 

Recommendation 6: The GAO recommends that the Secretary of Defense 
take the action to 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. 

DoD Response: Concur. The Department will direct the Deputy Assistant 
Secretary of the Army for Procurement to evaluate whether the 
resources within its Policy and Oversight Directorate are sufficiently 
allocated to fulfill its strategic sourcing mission. The evaluation 
and the resulting decision or plan will be completed and submitted to 
the Department within 6 months after the final GAO report is published. 

[End of section] 

Appendix IV: Comments from the Department of Homeland Security: 

U.S. Department of Homeland Security: 
Washington, D.C. 20528: 

September 12, 2012: 

Cristina Chaplain: 
Director, Acquisition and Sourcing Management: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Re: Draft Report GAO-12-919, "Strategic Sourcing: Improved and
Expanded Use Could Save Billions in Annual Procurement Costs" 

Dear Ms. Chaplain: 

Thank you for the opportunity to review and comment on this draft 
report. The U.S. Department of Homeland Security (DHS) appreciates the 
U.S. Government Accountability Office's (GAO's) work in planning and 
conducting its review and issuing this report. 

The Department is pleased that the report recognizes DHS's strategic 
sourcing accomplishments, including that of the four agencies 
reviewed, and that DHS had the most initiatives and reported the 
highest percentage of spending through strategic-sourcing efforts. 
Further, DHS has adopted a strategic-sourcing approach, which includes 
standing up a centralized office, setting targets for use of strategic 
sourcing contracts, and holding managers accountable for meeting 
goals. Additionally, the report states that DHS is the only of four 
agencies to have addressed the top 10 spending categories of products 
and services. GAO also cited DHS's strategic-sourcing vehicles
for engineering and technical services as examples highlighting the 
Department as having successfully tackled high-spend and complex 
services. 

While the report contains no recommendations specifically directed to 
DHS, the Department remains committed to improving and expanding its 
use of strategic sourcing to achieve cost savings and other benefits. 

Again, thank you for the opportunity to review and comment on this 
draft report. We look forward to working with you in the future. 

Sincerely, 

Signed by: 

[Illegible] for: 
Jim H. Crumpacker: 
Director: 
Departmental GAO/OIG Liaison Office: 

[End of section] 

Appendix V: Comments from the Department of Veterans Affairs: 

Department of Veterans Affairs: 
Washington DC 20420: 

September 14, 2012: 

Ms. Christina Chaplain: 
Director, Acquisition and Sourcing Management: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Ms. Chaplain: 

The Department of Veterans Affairs (VA) has reviewed the Government
Accountability Office's (GAO) draft report, "Strategic Sourcing: 
Improved and Expanded Use Could Save Billions In Annual Procurement 
Costs" (GAO-12-919). VA generally agrees with GAO's conclusions and 
concurs with GAO's recommendations to the Department. 

The enclosure specifically addresses GAO's recommendations and 
provides general comments to the draft report. VA appreciates the 
opportunity to comment on your draft report. 

Sincerely, 

Signed by: 

John R. Gingrich: 
Chief of Staff: 

Enclosure: 

Department of Veterans Affairs (VA) Comments to Government 
Accountability Office (GAO) Draft Report "Strategic Sourcing: Improved 
and Expanded Use Could Save Billions in Annual Procurement Costs" 
(GA0-12-919): 

GAO Recommendation: To help ensure that VA's strategic sourcing efforts 
further reflect leading practices, and in light of significant 
potential savings and performance improvements, we recommend that the 
Secretary of Veterans direct strategic sourcing staff to take the 
following two actions:  

a. Based on analysis of agency-wide spending, evaluate the best way to 
strategically source VA's highest spending categories of products and 
services (e.g. government-wide vehicles, interagency collaboration, 
agencywide vehicles).  

VA Response: Concur. As outlined in the report, and with the 
additional information provided below, VA has embraced this concept of 
strategic sourcing and continues to dedicate significant effort in 
standing up the Strategic Acquisition Center (SAC). The SAC is working 
directly with the new VHA Program offices in generating strategic 
sourcing contract vehicles for a wide range of healthcare and related 
products and services. Our Technology Acquisition Center (TAC) is also 
continuing successful strategic sourcing efforts with the VA Office of 
Information and Technology in generating contract vehicles for IT 
products and services. Business Cases have been developed for the 
following products and services. If these Businesses Cases are 
successfully implemented, potential savings range from $668 to $810 
million.  

Table: 

Business Case Commodity/Service: Multi-Function Devices 
Estimated Savings Range: $18-$27 million. 

Business Case Commodity/Service: Mobile Devices 
Estimated Savings Range: $5 million. 

Business Case Commodity/Service: Software License Purchase, Management 
and Maintenance 
Estimated Savings Range: $110 million. 
  
Business Case Commodity/Service: Laboratory Supplies 
Estimated Savings Range: $0.02-$0.09 million. 

Business Case Commodity/Service: Locum Tenens 
Estimated Savings Range: $130 million. 

Business Case Commodity/Service: Affiliate Negotiation Teams 
Estimated Savings Range: $101 million. 

Business Case Commodity/Service: Steel Index 
Estimated Savings Range: $7 million. 

Business Case Commodity/Service: Radiology Decision Support 
Estimated Savings Range: $130-$150 million. 

Business Case Commodity/Service: Furniture 
Estimated Savings Range: $21-$51 million. 

Business Case Commodity/Service: Medical/Surgical Products (21 
Commodities/Service Groups) 
Estimated Savings Range: $54-$75 million. 
 
Business Case Commodity/Service: Natural Gas Index Pricing 
Estimated Savings Range: $32-$45 million. 

Business Case Commodity/Service: Electricity 
Estimated Savings Range: $10 million. 

Business Case Commodity/Service: Maintenance, Repair, and Operations 
(MRO) 
Estimated Savings Range: $50-$150 million. 

[End of table] 

VA also continues to actively participate on the OMB Strategic 
Sourcing Working Group which focuses on identifying best ways to 
strategically source high spend products and services. 

b. Set goals for spending managed through strategic sourcing, and 
establish metrics, such as utilization rates, to monitor progress 
toward these goals. 

VA Response: Concur. VA agrees with monitoring strategic sourcing 
efforts and establishing metrics to assist in evaluating and managing 
strategic sourcing activities. VA, and VHA in particular, is 
establishing utuilization rates for competitively awarded commodities. 
These rates will be assessed as an ongoing program activity to ensure 
that, once awarded, strategically sourced items deliver anticipated 
returns. Additionally, VHA is increasing its standardization of 
inventory management practices as a foundational activity to enable 
enhanced monitoring of inventory use. These improved standardization 
and performance management activities will provide a framework for 
documenting progress in achieving strategic sourcing goals. 

General Comments: 

Page 8, Figure 3: GAO states VA spent $17.4 billion in fiscal year 
(FY) 2011 with only 1.4 percent of that amount spent through strategic 
sourcing vehicles. This finding is based on the limited spend 
information VA provided to GAO during the study. While
VA has been maintaining a fairly complete tally on savings and cost 
avoidance, it had not been maintaining a complete database on 
strategic sourcing contract spending. However, the Department very 
recently implemented a database that tracks spending through strategic 
sourcing vehicles and has identified $5.68 billion spent through those 
vehicles in FY 2011. This equates to 33 percent of all Federal 
Procurement Data System (FPDS) spending versus the 1.4 percent stated 
in the draft report. 

Page 8, Figure 3: GAO states that only .32 percent savings were 
achieved through strategic sourcing. However, when adding the new 
information into the calculation, VA has achieved 13 percent in cost 
avoidance and cost savings. 

Page 17, paragraph 1, sentence 6: GAO states VA reported four 
initiatives covering flags, hearing aids, wireless devices, and 
affiliate negotiation teams. This statement is correct given the 
limited information provided. However, to provide a more accurate 
picture of the full range of strategic sourcing underway at VA, 
pharmaceutical and related items should be considered among ongoing 
strategic sourcing commodities. VA has awarded national contracts for 
dispensed pharmacy products including national contracts for 
pharmaceuticals, intravenous solutions, and nutritional supplements.
Further, the Department has an in-depth Pharmacy Prime Vendor program 
through which nearly all pharmaceutical and related items are 
distributed. This prime vendor contract provides an additional savings 
through a "negative" distribution fee. For FY 2011 $4.185 Billion was 
spent through the Pharmacy Prime Vendor contract and the negative 
distribution fee savings amounted to $225 million in FY 2011 alone. 
Similar savings are expected for FY 2012. 

[End of section] 

Appendix VI: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Cristina Chaplain, (202) 512-4841, or chaplainc@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, W. William Russell, Assistant 
Director; Joseph Fread; Laura Greifner; Julia Kennon; John Krump; 
Leigh Ann Nally; Michael Palinkas; Ralph Roffo; Roxanna Sun; and Ann 
Marie Udale made key contributions to this report. 

[End of section] 

Related GAO Products: 

Managing for Results: GAO's Work Related to the Interim Crosscutting 
Priority Goals under the GPRA Modernization Act. [hyperlink, 
http://www.gao.gov/products/GAO-12-620R]. Washington, D.C.: May 31, 
2012. 

Follow-up on 2011 Report: Status of Actions Taken to Reduce 
Duplication, Overlap, and Fragmentation, Save Tax Dollars, and Enhance 
Revenue. [hyperlink, http://www.gao.gov/products/GAO-12-453SP]. 
Washington, D.C.: February 28, 2012. 

VA Health Care: Methodology for Estimating and Process for Tracking 
Savings Need Improvement. [hyperlink, 
http://www.gao.gov/products/GAO-12-305]. Washington, D.C.: February 
27, 2012. 

Department of Energy: Additional Opportunities Exist to Streamline 
Support Functions at NNSA and Office of Science Sites. [hyperlink, 
http://www.gao.gov/products/GAO-12-255]. Washington D.C.: January 31, 
2012. 

Strategic Sourcing: Office Supplies Pricing Study Had Limitations, but 
New Initiative Shows Potential for Savings. [hyperlink, 
http://www.gao.gov/products/GAO-12-178]. Washington, D.C.: December 
20, 2011. 

Federal Contracting: OMB's Acquisition Savings Initiative Had Results, 
but Improvements Needed. [hyperlink, 
http://www.gao.gov/products/GAO-12-57]. Washington, D.C.: November 15, 
2011. 

Streamlining Government: Key Practices from Select Efficiency 
Initiatives Should Be Shared Governmentwide. [hyperlink, 
http://www.gao.gov/products/GAO-11-908]. Washington, D.C.: September 
30, 2011. 

Opportunities to Reduce Potential Duplication in Government Programs, 
Save Tax Dollars, and Enhance Revenue. [hyperlink, 
http://www.gao.gov/products/GAO-11-318SP]. Washington, D.C.: March 1, 
2011. 

Contracting Strategies: Data and Oversight Problems Hamper 
Opportunities to Leverage Value of Interagency and Enterprisewide 
Contracts. [hyperlink, http://www.gao.gov/products/GAO-10-367]. 
Washington, D.C.: April 29, 2010. 

Defense Acquisitions: Tailored Approach Needed to Improve Service 
Acquisition Outcomes. [hyperlink, 
http://www.gao.gov/products/GAO-07-20]. Washington, D.C.: November 9, 
2006. 

Homeland Security: Successes and Challenges in DHS's Efforts to Create 
an Effective Acquisition Organization. [hyperlink, 
http://www.gao.gov/products/GAO-05-179]. Washington, D.C.: March 29, 
2005. 

Best Practices: Using Spend Analysis to Help Agencies Take a More 
Strategic Approach to Procurement. [hyperlink, 
http://www.gao.gov/products/GAO-04-870]. Washington, D.C.: September 
16, 2004. 

Contract Management: High-Level Attention Needed to Transform DOD 
Services Acquisition. [hyperlink, 
http://www.gao.gov/products/GAO-03-935]. Washington, D.C.: September 
10, 2003. 

Best Practices: Improved Knowledge of DOD Service Contracts Could 
Reveal Significant Savings. [hyperlink, 
http://www.gao.gov/products/GAO-03-661]. Washington, D.C.: June 9, 
2003. 

Best Practices: Taking a Strategic Approach Could Improve DOD's 
Acquisition of Services. [hyperlink, 
http://www.gao.gov/products/GAO-02-230]. Washington, D.C.: January 18, 
2002. 

Best Practices: DOD Can Help Suppliers Contribute More to Weapon 
Systems Programs, [hyperlink, 
http://www.gao.gov/products/GAO/NSIAD-98-87]. Washington, D.C.: March 
17, 1998. 

[End of section] 

Footnotes: 

[1] GAO, Opportunities to Reduce Potential Duplication in Government 
Programs, Save Tax Dollars, and Enhance Revenue, [hyperlink, 
http://www.gao.gov/products/GAO-11-318SP] (Washington, D.C.: Mar. 1, 
2011); Best Practices: Using Spend Analysis to Help Agencies Take a 
More Strategic Approach to Procurement, [hyperlink, 
http://www.gao.gov/products/GAO-04-870] (Washington, D.C.: Sept. 16, 
2004); Best Practices: Improved Knowledge of DOD Service Contracts 
Could Reveal Significant Savings, [hyperlink, 
http://www.gao.gov/products/GAO-03-661] (Washington, D.C.: June 6, 
2003); and Best Practices: Taking a Strategic Approach Could Improve 
DOD's Acquisition of Services, [hyperlink, 
http://www.gao.gov/products/GAO-02-230 (Washington, D.C.: Jan. 18, 
2002). 

[2] [hyperlink, http://www.gao.gov/products/GAO-11-318SP]. 

[3] [hyperlink, http://www.gao.gov/products/GAO-11-318SP]. 

[4] [hyperlink, http://www.gao.gov/products/GAO-11-318SP]. 

[5] [hyperlink, http://www.gao.gov/products/GAO-04-870]. 

[6] Office of Management and Budget, Memorandum for Chief Acquisition 
Officers, Chief Financial Officers, and Chief Information Officers on 
Implementing Strategic Sourcing (Washington, D.C.: 2005). 

[7] PASS officials told us that for fiscal years 2005 through 2008, 
they collected information on departmentwide and component initiatives 
in the course of preparing annual reports on strategic sourcing to 
OMB; however they do not currently have a process in place to identify 
and track DOD-wide initiatives. 

[8] [hyperlink, http://www.gao.gov/products/GAO-03-661]. 

[9] GAO, Follow-up on 2011 Report: Status of Actions Taken to Reduce 
Duplication, Overlap, and Fragmentation, Save Tax Dollars, and Enhance 
Revenue, [hyperlink, http://www.gao.gov/products/GAO-12-453SP] 
(Washington, D.C.; Feb. 28, 2012). 

[10] Resources Global Professionals Supply Chain Management briefing 
presented at the Institute of Supply Management conference, May 2012. 

[11] DOD Instruction 5000.02, issued in 2008, establishes a simplified 
and flexible management framework for translating capability needs and 
technology opportunities based on approved capability needs into 
stable, affordable, and well-managed acquisition programs that include 
weapon systems, services, and automated information systems. 

[12] GAO, Best Practices: DOD Can Help Suppliers Contribute More to 
Weapon Systems Programs, [hyperlink, 
http://www.gao.gov/products/GAO/NSIAD-98-87] (Washington, D.C.: Mar. 
17, 1998). 

[13] On September 14, 2010, the Undersecretary for Acquisition, 
Technology, and Logistics issued a memo called Better Buying Power: 
Guidance for Obtaining Greater Efficiency and Productivity in Defense 
Spending. 

[14] Defense Business Board Report to the Secretary of Defense on 
Strategic Sourcing, January 2011. 

[15] [hyperlink, http://www.gao.gov/products/GAO-04-870]. 

[16] GAO, Department of Energy: Additional Opportunities Exist to 
Streamline Support Functions at NNSA and Office of Science Sites, 
[hyperlink, http://www.gao.gov/products/GAO-12-255] (Washington D.C.: 
Jan. 31, 2012). 

[17] GAO, Opportunities to Reduce Potential Duplication in Government 
Programs, Save Tax Dollars, and Enhance Revenue, [hyperlink, 
http://www.gao.gov/products/GAO-11-318SP] (Washington, D.C.: Mar. 1, 
2011); Defense Acquisitions: Tailored Approach Needed to Improve 
Service Acquisition Outcomes, [hyperlink, 
http://www.gao.gov/products/GAO-07-20] (Washington, D.C.: Nov. 9, 
2006); Homeland Security: Successes and Challenges in DHS's Efforts to 
Create an Effective Acquisition Organization, [hyperlink, 
http://www.gao.gov/products/GAO-05-179] (Washington, D.C.; Mar. 29, 
2005); Best Practices: Using Spend Analysis to Help Agencies Take a 
More Strategic Approach to Procurement, [hyperlink, 
http://www.gao.gov/products/GAO-04-870], (Washington, D.C.: Sept. 16, 
2004); and Best Practices: Improved Knowledge of DOD Service Contracts 
Could Reveal Significant Savings, [hyperlink, 
http://www.gao.gov/products/GAO-03-661] (Washington, D.C.: June 6, 
2003). 

[18] [hyperlink, http://www.gao.gov/products/GAO-12-255]. 

[19] [hyperlink, http://www.gao.gov/products/GAO-12-255]. 

[20] GAO, Federal Contracting: OMB's Acquisition Savings Initiative 
Had Results, but Improvements Needed, [hyperlink, 
http://www.gao.gov/products/GAO-12-57] (Washington, D.C.: Nov. 15, 
2011). 

[21] GAO, VA Health Care: Methodology for Estimating and Process for 
Tracking Savings Need Improvement, [hyperlink, 
http://www.gao.gov/products/GAO-12-305] (Washington, D.C.: Feb. 27, 
2012). 

[22] [hyperlink, http://www.gao.gov/products/GAO-12-255]. 

[23] Other means of achieving savings--often referred to as soft 
savings--include demand management, changes in buying behavior, 
process improvements, or use of less resources (including staff time) 
in processing transactions. 

[24] [hyperlink, http://www.gao.gov/products/GAO-12-178]. 

[End of section] 

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