Strategic Sourcing: Improved and Expanded Use Could Save Billions in Annual Procurement Costs
Highlights
What GAO Found
Selected agencies leveraged only a fraction of their buying power through strategic sourcing and achieved limited savings. In fiscal year 2011, the Departments of Defense (DOD), Homeland Security (DHS), Energy, and Veterans Affairs (VA) accounted for 80 percent of the $537 billion in federal procurement spending, but reported managing about 5 percent or $25.8 billion through strategic sourcing efforts. These agencies reported savings of $1.8 billion--less than one-half of one percent of procurement spending. While strategic sourcing may not be suitable for all procurement spending, leading companies strategically manage about 90 percent of their procurements and report annual savings of 10 percent or more. Further, most agencies' efforts do not address their highest spending areas such as services, which may provide opportunities for additional savings.
Most selected agencies and the Federal Strategic Sourcing Initiative (FSSI) program have not fully adopted a strategic sourcing approach. In prior work, GAO found that sustained leadership and effective metrics are important factors to implementing strategic sourcing. However, leaders at DOD have dedicated limited resources to strategic sourcing, and leaders at VA and Energy are just beginning to align resources for agencywide strategic sourcing efforts. A lack of clear guidance on metrics for measuring success has also impacted the management of ongoing FSSI efforts as well as most selected agencies' efforts. In contrast, DHS leaders stood up a centralized office and hold senior managers accountable to meet goals. DHS sets targets for use of strategic sourcing contracts, and reported that nearly 20 percent of its fiscal year 2011 procurement spending was directed through strategically sourced contracts.
The FSSI program managed little spending through strategic sourcing initiatives, but reported considerable savings. In fiscal year 2011, the program managed $339 million through several governmentwide initiatives and reported $60 million in savings. However, total spending through the program remains low, in part, because the FSSI contracts have low rates of use and the program has not yet targeted the products and services on which the government spends the most.
Why GAO Did This Study
GAO has reported that the government is not fully leveraging its aggregate buying power, and that strategic sourcing, a process that moves a company away from numerous individual procurements to a broader aggregate approach, allowed companies to achieve savings of 10 to 20 percent. A similar savings rate applied to the federal procurement budget would equal more than $50 billion dollars. In 2005, the Office of Management and Budget directed agencies to use strategic sourcing and established the FSSI program to manage governmentwide efforts. GAO was asked to assess (1) the extent to which selected agencies managed spending and achieved savings through strategic sourcing, (2) key challenges selected agency and FSSI officials face in strategically sourcing products and services, and (3) the extent to which the FSSI program managed spending and achieved savings through strategic sourcing. To do this, GAO selected four agencies that were among the highest in fiscal year 2011 procurement obligations--DOD, DHS, VA, and Energy--and reviewed governmentwide FSSI efforts. For each, GAO analyzed strategic sourcing data and policies, and interviewed responsible officials.
Recommendations
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.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Defense |
Priority Rec.
To improve departmentwide strategic sourcing efforts at DOD, the Secretary of Defense should direct the Office of Acquisition, Technology, and Logistics to issue direction that (1) sets goals for spending managed through strategic sourcing vehicles, (2) establishes procedures for the identification and tracking of departmentwide and component strategic sourcing efforts through the PASS office, (3) implements the PASS office strategic sourcing guidance, (4) links strategic sourcing to its Better Buying Power memorandum, and (5) establishes metrics, such as utilization rates, to track progress toward these goals. |
DOD has taken action to improve department-wide strategic sourcing efforts by implementing the Office of Management and Budget's (OMB) category management initiative. OMB established metrics to measure DOD progress in implementing category management and increasing use of strategic sourcing. DOD also appointed a leader to initiate key reforms, including the development of a department-wide governance structure to align with category management.
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| Department of Defense | To improve departmentwide strategic sourcing efforts at DOD, the Secretary of Defense should direct the Office of Acquisition, Technology, and Logistics to evaluate whether the current resources of OSD's PASS office are sufficient to enable the office to fulfill its strategic sourcing mission. |
The Office of Acquisition, Technology and Logistics reported evaluating the current resources of strategic sourcing within the Program Acquisition and Strategic Sourcing Office. According to DOD, the placement of strategic sourcing under the leadership of the new Services Acquisition Directorate allowed the Office of Defense Procurement and Acquisition Policy (DPAP) to devote one full-time equivalent to strategic sourcing. The Strategic Sourcing lead coordinates with the component leads across DOD. DOD feels this is the proper amount of resources to dedicate to strategic sourcing within DPAP. GAO considers this recommendation closed.
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| Department of Defense | To improve departmentwide strategic sourcing efforts at DOD, the Secretary of Defense should direct the Office of Acquisition, Technology, and Logistics to evaluate existing acquisition strategies for DOD's current departmentwide acquisitions, and where these represent a strategic sourcing approach, ensure that data on these programs are submitted to the Program Acquisition and Strategic Sourcing (PASS) office. |
The military services have identified those acquisitions they consider to represent a strategic sourcing approach and have submitted data on these acquisitions to the Office of Defense Procurement and Acquisition Policy. GAO considers this recommendation closed.
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| Department of Defense |
Priority Rec.
To improve departmentwide strategic sourcing efforts at DOD, the Secretary of Defense should direct the Office of Acquisition, Technology, and Logistics to identify and evaluate the best way to strategically source DOD's highest spending categories of products and services (e.g., governmentwide vehicles, interagency collaboration, departmentwide vehicles). |
DOD has taken action to improve department-wide strategic sourcing efforts by implementing the Office of Management and Budget's (OMB) category management initiative. OMB established metrics to measure DOD progress in implementing category management and increasing use of strategic sourcing. DOD also appointed a leader to initiate key reforms, including the development of a department-wide governance structure to align with category management.
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| Department of Defense | To improve departmentwide strategic sourcing efforts at DOD, the Secretary of Defense should direct the Office of Acquisition, Technology, and Logistics to identify and submit to the FSSI program a list of products and services that, if developed as FSSIs, present the best opportunities for future DOD participation. |
DOD reported that it has become an active participant in SSLC planning activities, is acting as the category manager for a new initiative, and has committed to using various FSSIs.
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| Department of Defense | To improve strategic sourcing efforts at the Army, and in light of significant potential savings and performance improvements, the Secretary of Defense should evaluate whether the resources that the Army's Policy and Oversight Directorate has allocated to strategic sourcing are sufficient to enable the Directorate to fulfill its strategic sourcing mission. |
DOD reported that the Deputy Assistant Secretary of the Army for Procurement realigned strategic sourcing from the Policy and Oversight directorate to the Office of the Senior Services Manager (SSM). The SSM established a Strategic Sourcing directorate and was authorized five full-time authorizations. DOD reported that three of these positions had been filled and one additional position was expected to be filled as of June 2014.
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| Department of Veterans Affairs | To help ensure that VA's strategic sourcing efforts further reflect leading practices, and in light of significant potential savings and performance improvements, the Secretary of Veterans Affairs should direct strategic sourcing staff to, based on analysis of agencywide spending, evaluate the best way to strategically source VA's highest spending categories of products and services (e.g., governmentwide vehicles, interagency collaboration, agencywide vehicles). |
The Department of Veterans Affairs (VA) has evaluated strategic sourcing opportunities as GAO recommended in September 2012. In fiscal year 2014 and 2015, VA reported it evaluated VA's top 20 spending categories for strategic sourcing opportunities, and that its spend analysis team had completed 40 internal strategic sourcing business cases in the top spending areas, such as medical supplies as well as information technology (IT) services. VA officials reported that six strategic sourcing contracts had been awarded or were expected to be awarded based on these business cases. In addition, VA is also in discussions with OMB, the Office of Federal Procurement Policy, and the General Services Administration to serve as the Federal category lead for the medical category. VA intends to focus initially on pharmaceuticals, which historically represent VA's single largest spend category. These actions should allow VA to better implement strategic sourcing practices and improve its ability to realize cost savings.
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| Department of Veterans Affairs | To help ensure that VA's strategic sourcing efforts further reflect leading practices, and in light of significant potential savings and performance improvements, the Secretary of Veterans Affairs should direct strategic sourcing staff to set goals for spending managed through strategic sourcing, and establish metrics, such as utilization rates, to monitor progress toward these goals. |
VA reported in July 2015 that it does not set goals for overall spending through strategic sourcing vehicles, but rather works to increase "managed spend" relative to its entire procurement spend, primarily by reducing the number of unique procurements driven by individual business decisions. For fiscal year 2015, VA continued to increase managed spend for information technology (IT) products and services, and it set a specific goal to increase IT managed spend by 5 percent by directing more available spend to its IT strategic sourcing contracts. In addition, VA reports its Strategic Acquisition Center implemented a method to track utilization of strategically sourced contracting vehicles that it has awarded. Finally, VA continues to track cost avoidance associated with the utilization of strategic sourcing vehicles.
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| Office of Management and Budget |
Priority Rec.
To help ensure that government strategic sourcing efforts further reflect leading practices, and in light of significant potential savings and performance improvements, the Director of Office of Management and Budget (OMB) should direct the Administrator of Office of Federal Procurement Policy (OFPP) to issue an updated memorandum or other direction to federal agencies that includes guidance on calculating savings (including administrative cost savings) and establishes additional metrics to measure progress toward goals. |
The Office Of Management and Budget (OMB) agreed with this recommendation, and in December 2012, established a council to lead efforts to increase the government-wide management and sourcing of goods and services. In February 2014, this council approved the general principles for calculating savings for federal strategic sourcing initiatives, which were then circulated to agencies. In addition, in May 2015, OMB issued category management guidance applicable to ten categories of government-wide spending which, according to OMB, represent the majority of government-wide spending. The guidance provided preliminary metrics including spend under management, savings, and reduced contract duplication. OMB's third quarter update for fiscal year 2015 contained specific goals and metrics for items such as laptop and desktop computers in the information technology procurement category, including metrics for measuring savings, spending under management, and duplicative contracts. In February 2016, OFPP named managers for the government's remaining high-spend categories, and the category management leadership council has approved proposed goals and metrics for these categories. In addition, OFPP has issued metrics and targets for spending under management, which assesses both spending at the agency level and agency participation in government-wide solutions. These actions are responsive to GAO's recommendation.
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| Office of Management and Budget | To help ensure that government strategic sourcing efforts further reflect leading practices, and in light of significant potential savings and performance improvements, the Director of OMB should direct the Administrator of OFPP to direct the FSSI Program to report on the program's assessment of whether each top spend product and service governmentwide is suitable for an FSSI, with a plan to address those products or services that are suitable for strategic sourcing. |
OMB agreed with this recommendation and on December 4, 2014, issued a memorandum introducing its Category Management initiative and establishing a Category Management Leadership Council (CMLC), which furthered efforts to employ strategic sourcing across the government. Through this initiative, the CMLC identified 10 categories of government spending appropriate for strategic management, including both high-spend goods and services such as information technology and professional services. These 10 categories represent the majority of government procurement spending. As of February 2016, leads have been identified for each category, and work is underway on initiatives to manage spending. GAO considers this recommendation closed.
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