STRATEGIC 

SOURCING

Leading Commercial 

Practices Can Help 

Federal Agencies 

Increase Savings 

When Acquiring

Services

Report to Congressional Requesters

April 2013

GAO-13-417

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-13-417, a report to 

congressional requesters

April 2013

STRATEGIC SOURCING

Leading Commercial Practices Can Help Federal 

Agencies Increase Savings When Acquiring Services

Why GAO Did This Study

In fiscal year 2012, the federal 

government spent $307 billion to 

acquire services. The private sector is 

also reliant on services. Over the last 

5-7 years, leading companies have 

been examining ways to manage their 

services in order to maximize returns 

and minimize inefficiencies. Given the 

amount of federal spending on 

services, GAO was asked to identify

leading practices used by large 

commercial organizations for 

purchasing services. GAO identified (1) 

leading company practices for 

purchasing services, and (2) potential 

opportunities for federal agencies to 

incorporate these practices based on 

prior work. 

To determine leading companies’ 

practices in this area, GAO selected a 

nongeneralizable sample of companies 

based upon a literature search and 

recommendations from Defense and 

industry organizations that have 

studied services acquisition. GAO 

identified and interviewed officials from 

seven companies, an industry group, 

and a consulting organization. To 

identify opportunities for agencies to 

adopt leading practices, GAO 

compared the types of services 

purchased by agencies in fiscal year 

2012 with those purchased by 

companies. GAO also relied on prior, 

relevant work related to federal 

procurement of services and OMB

initiatives for expanding agencies’ use 

of strategic sourcing. 

What GAO Recommends

GAO has made recommendations in 

previous reports to help agencies 

strengthen strategic sourcing practices, 

which agencies concurred with and 

have planned actions under way. 

What GAO Found

Officials from leading companies GAO spoke with reported saving 4-15 percent 

over prior year spending through strategically sourcing the full range of services 

they buy—a process that moves away from numerous individual purchases to an 

aggregate approach. The federal government and leading companies buy many 

of the same services, such as facilities management, engineering, and 

information technology. Companies’ keen analysis of spending, coupled with 

central management and knowledge sharing about the services they buy, is key 

to their savings. Their analysis of spending patterns can be described as 

comprising two essential variables: the complexity of the service and the number 

of suppliers for that service. Knowing these variables for any given service, 

companies tailor their tactics to fit the situation; they do not treat all services the 

same. Company tactics fall into four basic categories, depicted in the framework 

below. 

Framework for Companies’ Purchasing Tactics

To illustrate how buying tactics are tailored, Walmart leverages its scale to 

compete basic or commodity services that have many suppliers, such as 

maintenance. When buying sophisticated services with few suppliers, such as 

consulting, Dell negotiates cost drivers such as labor rates. The framework is 

dynamic: over the long term, companies seek to reduce complexity and bring in 

additional suppliers to take advantage of market forces like competition. 

Federal agencies have sizable opportunities to leverage leading commercial 

practices to lower costs and maximize the value of the services they buy. In 

September 2012, GAO reported that large procurement agencies such as the 

Department of Defense and Veterans Affairs leveraged only a fraction of their 

buying power through strategic sourcing and faced challenges analyzing reliable 

data on spending, securing leadership support, and applying this approach to 

acquiring services. GAO recommended that these agencies and the Office of 

Management and Budget (OMB) issue guidance, develop metrics, and take other 

actions. The agencies and OMB concurred. OMB directed agencies to take 

actions to overcome these challenges. Potential savings are significant

considering a savings rate of 4 percent applied to the $307 billion spent by 

federal agencies on services in fiscal year 2012 would equate to $12 billion. 

View GAO-13-417. For more 

information, contact Cristina Chaplain 

at (202) 512-4841 or 

chaplainc@gao.gov.
Page i GAO-13-417 Strategic Sourcing

Letter 1 

Background 3

Leading Companies Achieve Significant Savings through a Strategic 

Approach That Establishes Goals, Builds Market Knowledge, 

and Tailors Procurement Tactics to Different Services 7

Opportunities Exist for Federal Agencies to Adopt Commercial 

Practices 21

Concluding Observations 27

Third-Party Comments 28

Appendix I Objectives, Scope, and Methodology 30

Appendix II Profiles of Leading Companies 32

Appendix III GAO Contact and Staff Acknowledgments 40

Related GAO Products 41

Tables 

Table 1: Top 10 Services Categories Purchased by the Federal 

Government in Fiscal Year 2012 5

Table 2: Selected Leading Companies’ 2012 Results at a Glance 9

Table 3: Examples of Services Based on Complexity and Number 

of Suppliers 17

Table 4: Key Tactics by Quadrant 19

Figures

Figure 1: Federal Government Spending on Services since Fiscal 

Year 2008 4

Figure 2: Companies’ Transactional Framework 16

Figure 3: Companies’ Long-Term Goal Is to Commoditize Services 

to the Extent Possible 18

Contents 
Page ii GAO-13-417 Strategic Sourcing

Abbreviations

CPO Chief Procurement Officer

DHS Department of Homeland Security

DOD Department of Defense

FPDS-NG Federal Procurement Data System-Next Generation

FSSI Federal Strategic Sourcing Initiative

GSA General Services Administration

OMB Office of Management and Budget 

VA Department of Veterans Affairs

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately.
Page 1 GAO-13-417 Strategic Sourcing

United States Government Accountability Office

Washington, DC 20548

April 15, 2013

The Honorable Thomas R. Carper

Chairman

The Honorable Tom Coburn

Ranking Member

Committee on Homeland Security and Governmental Affairs

United States Senate

The Honorable Susan M. Collins

United States Senate

In fiscal year 2012, the federal government obligated $307 billion to 

acquire services ranging from the management and operation of 

government facilities, to information technology services, to research and 

development. Spending on services has increased significantly since 

fiscal year 2000.

The private sector is also increasingly reliant on services, many of which 

are similar to those that the federal government buys, such as information 

technology services. Leading companies have been examining ways of 

managing their services in order to stay competitive, respond to market 

and stockholder pressures, and deal with economic downturns. We have 

previously reported that leading companies implemented a strategic 

approach to improve service acquisition outcomes and identified 

opportunities for federal agencies, specifically the Department of Defense 

(DOD), to implement improvements across the range of services they 

purchase.1

 

1

GAO, Best Practices: Taking a Strategic Approach Could Improve DOD’s Acquisition of 

Services, 

Under the strategic sourcing approach, companies took a hard 

look at how much they were spending on services and from whom they 

were buying these services. This approach included identifying the 

number of suppliers, the number of contracts, and prices paid across the 

company to identify inefficiencies such as paying different rates for similar 

services and suppliers, or not consolidating purchases across the 

company to lower prices. Armed with this knowledge, companies were 

GAO-02-230 (Washington, D.C: Jan. 18, 2002).

 
 

Page 2 GAO-13-417 Strategic Sourcing

able to leverage their buying power, reduce costs, and better manage 

their suppliers.2

Given the trend of increased federal government spending on services 

and today’s constrained fiscal environment, there has been a renewed 

focus on maximizing return on investment. You requested that we identify 

practices used by large commercial organizations in purchasing services. 

We briefed your staff on the results of this review. This report presents 

those results. Specifically, we (1) identified leading company practices for 

acquiring services, and (2) examined potential opportunities for federal 

agencies to incorporate these practices.

To determine leading companies’ practices in this area, we selected a 

nongeneralizable sample of companies based on (1) a literature search, 

including our prior leading practices reports on services acquisition, and 

(2) recommendations from the Defense Business Board, Defense 

Science Board, and industry experts who have studied the issues. Based 

on this approach, we identified and interviewed seven leading companies: 

Boeing, Dell, Delphi, Humana, MasterCard, Pfizer, and Walmart; an 

industry group: Institute for Supply Management; and a consulting 

organization: A.T. Kearney. We identified key practices reported by 

companies, including procurement organization structures, services 

procurement history and strategies, initiatives and resultant savings, and 

contracting methods. We also compared companies’ procurement 

practices with those identified in our prior work. To maximize the 

applicability of our findings to the federal government, we identified the 

top categories of services that the government acquired in fiscal year 

2010 from the Federal Procurement Data System-Next Generation 

(FPDS-NG)—the government’s system for tracking contracting data—and 

interviewed companies about their practices in those categories. We 

analyzed company practices to identify common themes. We then 

provided this information to the companies and they confirmed our 

analysis. To assess the reliability of companies’ data on acquisition 

savings, we requested information on data quality control procedures and 

system safeguards from company officials. In addition, we provided 

relevant sections of a draft of this report to companies for review and 

comment. To assess the reliability of FPDS-NG data, we reviewed 

 

2

GAO, Best Practices: Improved Knowledge of DOD Service Contracts Could Reveal 

Significant Savings, GAO-03-661 (Washington, D.C.: June 9, 2003).
 

Page 3 GAO-13-417 Strategic Sourcing

documentation and electronically tested data for obvious problems. We 

determined that the company and FPDS-NG data were sufficiently 

reliable for the purposes of this report. To further identify opportunities for 

agencies to adopt leading companies’ practices, we also compared the 

types of services purchased by companies and agencies in fiscal year 

2012 and relied on our recent, relevant work that examined federal 

strategic sourcing efforts. Appendix I provides further details on the scope 

and methodology used for this work.

We conducted this performance audit from December 2011 to April 2013

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. 

As figure 1 shows, services spending for the federal government has 

accounted for over half the annual procurement spending since fiscal 

year 2008.

Background 
 

Page 4 GAO-13-417 Strategic Sourcing

Figure 1: Federal Government Spending on Services since Fiscal Year 2008

Note: Amounts are in then-year dollars.

In fiscal year 2012, the federal government obligated about $307 billion to 

acquire services. Table 1 lists the top services purchased by federal 

agencies in fiscal year 2012, which range in complexity from defense 

research and development to housekeeping.
 

Page 5 GAO-13-417 Strategic Sourcing

Table 1: Top 10 Services Categories Purchased by the Federal Government in Fiscal Year 2012

Category

Amount 

(dollars in 

billions) Examples of types of services within category

Professional services

$49.8

Legal, engineering, human resources, market research.

Automated data processing 

(information technology) and 

telecommunications 29.5

Data entry, telecommunications and transmission, programming, cyber security 

and data backup, web-based subscription(s), help desk.

Building construction 

23.8

Construction of storage, parking, utilities facilities.

Defense systems research and 

development 22.0

Research and development for systems such as aircraft, ships, tanks.

Equipment maintenance and 

repair 20.0

Repair and maintenance of plumbing, heating, waste disposal equipment, 

furniture.

Building operations

19.1

Operations of storage, parking, utilities facilities.

Management support 

18.2

Advertising, accounting, public relations, data collection, auditing.

Housekeeping 

12.2

Snow removal, landscaping, garbage collection, pest control.

General health care 

12.0

General medical services for health care.

Other defense research and 

development 9.5

Research and development for items such as ammunition, textiles, fuels.

Source: GAO analysis of FPDS-NG fiscal year 2012 data. 

We previously reported that agencies have had difficulty managing 

services acquisitions and have purchased services inefficiently which 

places them at risk of paying more than necessary.3

 

3

GAO, Defense Acquisition: Actions Needed to Ensure Value for Service Contracts, 

These inefficiencies 

can be attributed to several factors. First, agencies have had difficulty 

defining requirements for services, such as developing clear statements 

of work which can reduce the government’s risk of paying for more 

services than needed. Second, agencies have not always leveraged 

knowledge of contractor costs when selecting contract types, including 

time-and-materials contracts, performance-based contracts, and 

undefinitized contracts. Third, agencies have missed opportunities to 

GAO-09-643T (Washington, D.C.: Apr. 23, 2009). 
 

Page 6 GAO-13-417 Strategic Sourcing

increase competition for services due to overly restrictive and complex 

requirements; a lack of access to proprietary, technical data; and supplier 

preferences.

4

Agencies purchase services under the Federal Acquisition Regulation, 

which places some constraints on how contracts are competed and 

awarded. Generally, agencies are statutorily required to award contracts 

using full and open competition, unless an exception applies. Additionally,

agencies are subject to certain requirements when awarding contracts, 

such as meeting the Small Business Administration’s annual statutory 

goals to make awards to various kinds of small businesses.

 

GAO has been assessing strategic sourcing and the potential value of 

applying these techniques to federal acquisitions for more than a decade. 

In 2002, GAO reported that leading companies of that time committed to 

a strategic approach to acquiring services—a process that moves a 

company away from numerous individual procurements to a broader 

aggregate approach—including developing knowledge of how much they 

were spending on services and taking an enterprise-wide approach to 

services acquisition.5 As a result, companies made structural changes 

with top leadership support, such as establishing commodity managers—

responsible for purchasing services within a category—and were better 

able to leverage their buying power to achieve substantial savings. We 

have emphasized the importance of comprehensive spend analysis for 

efficient procurement since 2002. Spend analysis provides knowledge 

about how much is being spent for goods and services, who the buyers 

are, who the suppliers are, and where the opportunities are to save 

money and improve performance. In 2005, the Office of Management and 

Budget (OMB) defined strategic sourcing as a structured process based 

on spend analysis to make business decisions about acquiring 

commodities and services more efficiently and effectively.6

In 2007, GAO reviewed DOD’s processes for acquiring services and 

found that DOD could take further action to improve its strategic sourcing. 

 

4

GAO, Defense Contracting: Competition for Services and Recent Initiatives to Increase 

Competitive Procurements, GAO-12-384 (Washington, D.C.: Mar. 15, 2012).

5

GAO-02-230. 

6

OMB, Memorandum, Implementing Strategic Sourcing, (Washington, D.C.: May 20, 

2005). 
 

Page 7 GAO-13-417 Strategic Sourcing

GAO reported that the department’s approach had tended to be reactive 

and did not fully address key factors for success at either the strategic 

(organization-wide) or transactional (individual services transaction) level. 

GAO recommended that DOD take a proactive approach to managing 

strategic and transactional level service acquisitions elements, including 

communicating where individual transactions can then be made to 

support strategic goals. Key factors at the transactional level included 

clearly defined requirements, appropriate contracting vehicles, and 

effective contractor oversight.7

The leading companies we studied used a strategic sourcing approach to 

achieve sustained annual savings, over prior year spending, of 4-15 

percent in services over the last 5-7 years. This strategic approach drives 

companies to continually strive for savings, partly spurred by annual 

goals. To enable this process, companies rely on five foundational 

principles to build spending and market knowledge and gain situational 

awareness of their procurement environment. In the short term, 

companies use this knowledge to adjust their procurement tactics for 

different types of services depending on service complexity and number 

of available suppliers in order to best achieve savings and efficiencies. 

This enables companies to target the full range of services they buy. In 

the long term, companies try to address their procurement constraints by 

reducing requirements complexity to commoditize services and 

developing new suppliers to increase competition. This allows companies 

to more aggressively leverage their buying power for all types of services. 

Each of the leading companies we reviewed used annual savings 

expectations to drive a corporate culture of savings. For example, 

Walmart’s executive leadership sets annual savings goals for their 

services procurement division; in 2012, the goal was to save around $100 

million, or about 8 percent, of the division’s $1.2 billion budget. A Walmart 

official emphasized the importance of savings expectations and 

accountability, noting that the very act of establishing goals and metrics 

helps enable a culture of savings.

 

7

GAO, Defense Acquisitions: Tailored Approach Needed to Improve Service Acquisition 

Outcomes, GAO-07-20 (Washington, D.C: Nov. 9, 2006).

Leading Companies 

Achieve Significant 

Savings through a 

Strategic Approach 

That Establishes 

Goals, Builds Market 

Knowledge, and 

Tailors Procurement 

Tactics to Different 

Services 

Companies Foster a 

Culture of Savings through 

Setting Goals and Ensuring 

Accountability 
 

Page 8 GAO-13-417 Strategic Sourcing

“If you measure it, it will happen.”

Companies further translate savings expectations into individual 

performance goals to which executives and employees are held 

accountable. Savings expectations are allocated to each procurement 

team member and the head of procurement regularly reviews progress. 

This metric-based accountability spurs companies’ culture of savings, but 

is not necessarily dictated by leadership. 

• Dell establishes savings expectations and metrics in cooperation with 

procurement staff. These metrics are tied to individual performance 

contract goals to which staff are held accountable with quarterly 

reviews. Top performers are tapped to lead teams and manage critical 

procurement projects.

• At Delphi, savings targets are initiated by both procurement staff and 

leadership. The process continues iteratively until all parties agree to 

a final savings target, including after considering areas where costs 

are expected to actually rise due to economic conditions.

• Additional incentives can drive this culture of savings; for example, 

one company allows business units to reinvest savings into their 

operations, primarily to fund innovation and strategic initiatives.

Having such a culture is critical to companies’ continual pursuit of savings 

and efficiencies. A Pfizer official described this culture as being part of the 

company’s DNA. 

“Savings is in our DNA.”

Leading companies reported achieving a sustained savings rate of 4-15 

percent annually on services procurement by strategically sourcing the 

full range of services they buy. Companies achieved these savings after 

increasing their focus on services acquisitions over the last 5-7 years. 

Companies reported using the same general procurement strategies and 

tactics for both goods and services. However, the impetus for an 

increased focus on services was leadership recognition that spending had 

significantly increased, resulting in additional dedicated resources to 

manage this area. 

Leading Companies Have 

Achieved Significant Savings 

after Prioritizing Services 
 

Page 9 GAO-13-417 Strategic Sourcing

Companies chose different paths to begin the process of improving the 

efficiency of services acquisition. For example, Pfizer conducted a spend 

analysis in 2007 which revealed increased spending on legal, consulting, 

and financial services, as well as opportunities for improving the efficiency 

of its processes. Boeing’s Chief Executive Officer made tackling services 

spending a priority after noticing how much was being spent in this area 

compared to the company’s spending on items directly affecting 

customers. This led Boeing to adopt a company-wide procurement model 

in 2006. Delphi centralized indirect procurement—products and services 

used in support of Delphi’s operations—between 2005 and 2007 in order 

to improve efficiency and drive savings. Some companies reported 

achieving the greatest amount of savings in the initial years after 

prioritizing their procurement of services. For example, Dell reported 

achieving 23 percent savings in the first year after increasing its focus on 

improving services acquisition, and has been able to sustain 10 percent in 

savings thereafter. Another company noted that it is typical to achieve 

larger savings at the beginning and that the savings percent goes down 

over time, to around 4-7 percent annually. Table 2 below highlights 

examples of the annual savings companies reported in 2012, and the 

main services they buy.

Table 2: Selected Leading Companies’ 2012 Results at a Glance

Company

Spending on services 

(dollars in billions)

Savings 

(percent) Main services purchased

Boeing

$7 10% 

Information technology, professional services, contingent labor, site 

services, travel, manufacturing support, freight and logistics, benefits 

administration. 

Dell 55 (overall spend 

portfolio) 10 a

Internal and external consulting, third-party customer support, technicians. 

Delphi

1.2 6 

Transportation and logistics, healthcare and benefits, contract labor, 

engineering, warehousing. 

Pfizer

16-17 4-6 a a

Legal, management consulting, information technology services, human 

resources consulting, research, development and medical, business 

process outsourcing, fleet, marketing and sales, media, agencies, raw 

materials, contract manufacturing, capital equipment and construction. 

Walmart

1.5 12-15

Facilities maintenance, capital expenditures. 

Source: Listed companies’ data. 

Note: Two companies declined to publicly share their spending and savings information; however, 

their results were consistent with those of other companies. Savings metrics varied between 

companies, such as annual change in spending, unit price reduction, and change in average invoice 

price.

a

Figure includes both goods and services. 
 

Page 10 GAO-13-417 Strategic Sourcing

Leading companies generally agreed that foundational principles—

maintaining spend visibility, centralizing procurement, developing 

category strategies, focusing on total cost of ownership, and regularly 

reviewing strategies and tactics—are all important to achieving successful 

services acquisition outcomes. Taken together, these principles enable 

companies to better identify and share information on spending and 

increase market knowledge about suppliers to gain situational awareness 

of their procurement environment. This awareness positions companies 

to make more informed contracting decisions. 

Each company we spoke with had a history of struggling with fragmented 

information on spending, which did not allow them to spot inefficiencies or 

opportunities for consolidating purchases. For example, Humana’s Chief 

Procurement Officer (CPO) conducted a year-long spend analysis effort 

which revealed, among other things, cases where a supplier charged 

different rates to different departments for the same service. Dell 

emphasized the importance of actively monitoring spending trends in 

order to identify opportunities for savings. As one official put it, 

unmanaged spend is by definition inefficient. 

“Unmanaged spend equals inefficiency.” 

To address these issues, companies maintain visibility into spending by 

integrating procurement and financial systems across the organization. 

For example, in 1999, Boeing upgraded its paper-based manual 

processes for procurement to a new, automated system which enabled 

more efficient spend analysis. The new system also increased operational 

efficiency because it provided a common language and data set for the 

procurement staff. To aid efficient spend analysis, Boeing defined a 

services taxonomy to allow analysis at the invoice line item level. Invoice 

line items are defined beforehand—called billing units—and are built into 

contract statements of work. Dell, Delphi, and Humana also reported 

using centralized databases that provide transparency into their global 

spend. Similarly, in 2012, Walmart started implementing a centralized 

database to increase spend visibility. 

In addition to leveraging knowledge about spending, leading companies 

centralize procurement decisions by aligning, prioritizing, and integrating 

procurement functions within the organization. The companies we spoke 

Companies Follow Five 

Foundational Principles to 

Leverage Spending and 

Market Knowledge for 

More Efficient 

Procurement

Principle 1: Maintain Spend 

Visibility

Principle 2: Centralize 

Procurement 
 

Page 11 GAO-13-417 Strategic Sourcing

with overcame the challenge of having a decentralized approach to 

purchasing services, which had made it difficult to share knowledge 

internally or use consistent procurement tactics. Without a centralized 

procurement process, officials told us, companies ran the risk that 

different parts of the organization could be unwittingly buying the same 

item or service, thereby missing an opportunity to share knowledge of 

procurement tactics proven to reduce costs. Company officials noted that 

centralizing procurement does not necessarily refer to centralizing 

procurement activity, but to centralizing procurement knowledge. For 

example, Dell’s procurement organization is centralized, and utilizes a 

common tool, enabling cost data to be shared globally. Global Category 

Managers are expected to have a good understanding of all aspects of 

the services within their category. Clearly defined and communicated 

policies ensure users cannot engage with suppliers without procurement 

organization involvement. Similarly, Pfizer has “category teams” with a 

global reach for broad groupings of services with category managers 

assigned to each category. The global category zone leads are managed 

by Vice-Presidents who report directly to the head of the procurement 

organization and work with internal business partners, who execute 

contracts on a company-wide basis or locally as needed. Boeing has a 

team of financial analysts that support the procurement function by 

conducting “should cost” analyses and providing supplier or service cost 

breakdowns to procurement agents.

8

“Centralize the knowledge, not the activity.”

Company officials told us that the key to an effective centralized process 

is ensuring that services spending goes through approved contracts. A 

Walmart official referred to non-approved spending as “rogue buying.” 

Companies focus on compliance in order to eliminate unapproved 

purchases. For example, Delphi aims for 95 percent of its sourcing to 

adhere to pre-approved category strategies. The company uses an 

internally developed database to manage all sourcing initiatives from 

concept to business case to approval by the procurement and financial 

 

8

Should-cost reviews are a type of cost analysis that help organizations ascertain what a 

product or service should actually cost based on analyzing the components of that product 

or service. This allows organizations to determine how much they should pay when 

negotiating with suppliers. 
 

Page 12 GAO-13-417 Strategic Sourcing

organizations. Pfizer has a policy that procurement transactions over 

$100,000 must be competitively bid with limited, documented exceptions. 

“You must eliminate rogue buying.” 

Companies develop category-specific procurement strategies with 

stakeholder buy-in in order to use the most effective sourcing strategies 

for each category. Category-specific procurement strategies describe the 

most cost-effective sourcing vehicles and supplier selection criteria to be 

used for each category of service, depending on factors such as current 

and projected requirements, volume, cyclicality of demand, risk, the 

services that the market is able to provide, supplier base competition 

trends, the company’s relative buying power, and market price trends. For 

example, Dell’s Global Category Managers oversee teams that develop 

detailed sourcing strategies for each commodity. The major components 

of the sourcing strategies are (1) internal analyses which include spend 

analysis, stakeholder analysis, business requirements, and cost 

modeling; and (2) external analyses which include market research and 

supply market analysis. 

Company officials told us that category strategies help them conduct their 

sourcing according to a proactive strategic plan and not just on a reactive, 

contract-by-contract basis. One company’s CPO referred to the latter as a 

“three bids and a buy” mentality that can be very narrowly focused and 

result in missed opportunities such as not leveraging purchases across 

the enterprise or making decisions based only on short term 

requirements. For this reason, Boeing sometimes chooses to execute a 

short-term contract to buy time if market research shows a more 

competitive deal can be obtained later. 

“You cannot just go with a ‘three bids and a buy’ contracting approach.”

Category strategies also help companies choose sourcing tactics 

appropriate to their circumstances. For example, as one company noted, 

in one category it may be very beneficial to conduct competitive bidding 

via online reverse auctions, while in another category it may be wise to 

forego any competitive bidding and extend and lock in pricing based on 

Principle 3: Develop Category 

Strategies 
 

Page 13 GAO-13-417 Strategic Sourcing

market dynamics.9

Risk is an important consideration when developing category strategies 

and setting priorities. Dell considers factors such as data privacy and 

security, financial stability, continuity of supply, and geographic economic 

conditions to ensure the proper considerations and protections are in 

place prior to finalizing supplier selection decisions. Routine services 

such as store and parking lot maintenance services are critical to 

Walmart’s mission of retail, demanding a high level of attention. Delphi 

and Boeing have a policy of minimizing the risk of transitioning to new 

suppliers. For this reason, Boeing retains some staff with subject matter 

expertise to oversee contracts in each category and know how the 

supplier is meeting those requirements. This ensures flexibility for Boeing 

in case the company chooses to change suppliers in the future. 

In another instance, Delphi has global, company-wide

strategies for travel and information technology services in order to 

leverage purchases globally, but region-based strategies for services 

such as facilities management which are used by individual Delphi 

facilities. Companies develop strategies that identify the choice of 

sourcing vehicles and supplier selection criteria only after extensive 

consultation with internal users. This consultation helps procurement staff 

better understand user requirements as well as obtain their buy-in. 

According to one company CPO, user buy-in is critical; otherwise users 

may think that a desire to reduce cost is the only factor driving the choice 

of sourcing tactics. 

Companies focus on total cost of ownership—making a holistic purchase 

decision by considering factors other than price. At the strategic—or 

higher—level, managing internal demand is an important element of 

reducing total cost of ownership. For example, Humana closely examines 

services requirements in order to prevent unnecessary spending on 

services the company does not absolutely need. Boeing considers 

internal costs, such as the administrative cost per transaction or purchase 

order to determine price and efficiency trade-offs. Dell considers factors 

such as risk to the company’s mission, innovation, operational 

performance, and demand management. Dell and Delphi examine 

 

9

Reverse auctions are a type of procurement tool that, as the name suggests, are the 

reverse of traditional auctions—where buyers progressively submit higher bids on an item 

until the highest bidder wins that item. In reverse auctions, sellers submit bids and 

progressively lower them until someone wins the buyer’s business. Use of this 

procurement tool can help drive prices down for the buyer. 

Principle 4: Focus on Total 

Cost of Ownership
 

Page 14 GAO-13-417 Strategic Sourcing

suppliers’ management models for maturity, including how well they 

manage and train staff and use appropriate cost management tools. In 

fact, a Dell official said that the quality of a service is largely determined 

by the quality of the supplier’s management structure. 

“When purchasing a service, you are essentially paying for the quality of 

suppliers’ management processes.” 

At the transactional—or lower—level, incorporating non-price factors can 

be important inputs into decision making. For example, while Walmart 

may often award a contract to the lowest bidder, it takes other 

considerations into account—such as average invoice price, time spent 

on location, average time to complete a task, supplier diversity, and 

sustainability—when awarding contracts. Humana is developing internal 

rate cards for consulting services that would help the company evaluate 

contractors’ labor rates based on their skill level. Pfizer’s procurement 

organization monitors compliance with company processes and billing 

guidelines. The company considers its procurement professionals as 

essentially risk managers rather than contract managers because they 

need to consider what’s best for the company and how to minimize total 

cost of ownership while maintaining flexibility. 

Companies regularly review strategies and tactics to adapt to market 

trends. This provides room for flexibility in managing suppliers—

something companies we spoke with valued. Walmart officials 

emphasized the importance of frequently reviewing tactics in order to 

identify new opportunities for savings. For this reason, Walmart constantly 

evaluates new ways to invite bids and new types of pricing tiers by which 

to lower prices, such as by state or region or volume. Delphi’s strategies 

are formally reviewed and documented annually by Delphi’s strategic 

council comprised of senior company executives. These reviews may 

result in changing tactics or suppliers according to predetermined goals. 

For example, for a particular category, Delphi may not want to represent 

more than a certain percentage of any supplier’s revenue in order to 

minimize risk that the supplier may be overly dependent on Delphi for 

long-term viability. If the reviews highlight cases where the limit is 

exceeded, Delphi examines ways to bring in an additional supplier. 

Principle 5: Regularly Review 

Strategies and Tactics 
 

Page 15 GAO-13-417 Strategic Sourcing

“You must continually stay ahead of suppliers or they will figure you out.” 

Similarly, Dell regularly assesses whether to “make or buy” services, 

conducting objective evaluations of internal capability versus that of 

external providers. In some instances, although Dell may have the 

capability in-house, they may not have available resources at that point in 

time, and may therefore elect to purchase that particular service. In order 

to retain flexibility to adapt to market trends, companies view long-term 

contracts (generally over 3 years) as risky. For example, Pfizer will 

examine market conditions and unbundle contracts—use separate 

contracts for multiple services—for greater transparency and to bring 

more suppliers into the mix; later on Pfizer might bundle contracts to gain 

leverage as part of the strategy. Similarly, Delphi prefers contract lengths 

of under 3 to 4 years because of the difficulty of predicting the future price 

trends of key cost components—for example, fuel, which is a significant 

cost component of services involving travel. 

By following the foundational principles to improve knowledge about their 

procurement environment, companies are well positioned to choose 

procurement tactics tailored to each service. While companies emphasize 

the importance of observing the principles, including category strategies, 

they do not take a one-size-fits-all approach to individual service 

purchase decisions. Two factors—the degree of complexity of the service 

and the number of available suppliers—determine the choice of one of 

four general categories of procurement tactics appropriate for that 

service: leveraging scale, standardizing requirements, prequalifying 

suppliers, and understanding cost drivers. Figure 2 below shows how the 

two factors help companies categorize different services and select 

appropriate tactics. 

Companies Tailor Their 

Procurement Tactics to 

Each Type of Service 

Depending on Complexity 

and Availability of 

Suppliers 
 

Page 16 GAO-13-417 Strategic Sourcing

Figure 2: Companies’ Transactional Framework

Complexity is defined as the relative difficulty of defining performance 

requirements, and varies for different types of services. Less complex 

services—referred to as commodity services—are those where 

requirements are relatively easy to define and performance more clearly 

measured; for example, housekeeping, telecommunications, and 

maintenance services. More complex services—referred to as 

knowledge-based services—are those where requirements are more 

complex, performance more difficult to measure, and where service 

provider staff skill levels are paramount; for example, research and 

development, engineering and management support, and legal services. 

The number of suppliers that can fulfill a service varies depending on 

market conditions and whether specialized skills and knowledge are 

required. Based on our discussions with companies, table 3 shows how 

different services may be categorized according to these two factors. For 

illustration purposes, the table shows the two factors at the extremes of 

their range of possibilities. 

Complexity and Supplier 

Availability Vary by Service 
 

Page 17 GAO-13-417 Strategic Sourcing

Table 3: Examples of Services Based on Complexity and Number of Suppliers

Commodity services Knowledge-based services

Few suppliers • Certain types of security

• Specialized logistics

• Specialized maintenance and repair

• Utilities

• Engineering and management support

• High-end consulting

• Intelligence

• Research and development

• Specialty legal

• Specialty training

Many suppliers • Administrative support

• Automated data processing

• Contract and contingent labor

• Facilities construction and operations

• General maintenance and repair

• Housekeeping and janitorial

• Landscaping

• Telecommunications

• Travel and transportation

• Advertising and marketing

• Education and training

• Financial

• Health care

• Human resources

• Information technology

• Legal

• Public relations

Source: GAO analysis based on company interviews. 

Companies we reviewed are not content to remain limited by their 

environment; over the long term, they generally seek to reduce the 

complexity of requirements and bring additional suppliers into the mix in 

order to commoditize services and leverage competition. This dynamic, 

strategic approach has helped companies demonstrate annual, sustained 

savings. Companies generally aim to commoditize services over the long 

term as much as possible because, according to them, the level of 

complexity directly correlates with cost. Companies also aim to increase 

competition, whether by developing new suppliers or reducing 

requirements complexity, which could allow more suppliers to compete. In 

doing so, companies can leverage scale and competition to lower costs. 

“Complexity drives cost.”

Figure 3 below depicts most companies’ overall goal of commoditizing 

services over the long term, as depicted by the goal of moving services to 

the lower-left quadrant of companies’ transactional framework shown 

earlier. 

Long-Term Goal Is to 

Commoditize All Services
 

Page 18 GAO-13-417 Strategic Sourcing

Figure 3: Companies’ Long-Term Goal Is to Commoditize Services to the Extent 

Possible

The two factors—complexity and supplier availability—influence what 

tactics are best suited to each quadrant of services as shown in table 4 

below. 

Choice of Procurement Tactics 

Varies Based on Complexity 

and Supplier Availability 
 

Page 19 GAO-13-417 Strategic Sourcing

Table 4: Key Tactics by Quadrant

Commodity services Knowledge-based services

Few suppliers • Look for the “90 percent” solution

• Standardize requirements in line with commercial 

specifications

• Temporarily dual-source to maintain competitive 

industrial base

• Develop new suppliers

• Understand individual element cost drivers to negotiate 

better rates

• Streamline requirements to reduce complexity

• Recruit skilled procurement talent

• Increase senior management visibility to ensure 

progress against goals and metrics

• Target executive-level relationships with suppliers to 

improve influence and collaboration

• Develop new suppliers

• Utilize third-parties to benchmark supplier rates against 

comparable suppliers

Many suppliers • Leverage scale and volume across organization

• Develop procurement catalog with pre-negotiated 

prices

• Use fixed price contracts

• Retain some expert staff to minimize future risk of 

changing suppliers

• Identify market trends to target savings 

opportunities

• Utilize a variety of bidding methods to find ways to 

lower cost

• Determine near term savings opportunities to gain 

organizational buy-in

• Prequalify suppliers by skill-level, risk, and rates to 

eliminate non-competitive companies

• Prioritize suppliers based on effectiveness and 

efficiency to maintain informed database and obtain 

better rates

• Collaboratively determine point at which reduction in 

price may diminish quality of performance

• Continually measure, track, and manage suppliers to 

ensure optimal performance

Source: GAO analysis based on company interviews. 

Note: Some tactics may be used across multiple categories.

For commodity services with many suppliers, such as administrative 

support, facilities maintenance, and housekeeping, companies generally 

focus on leveraging scale and competition to lower cost. The figure on the 

left shows the companies’ transactional framework discussed earlier and 

highlights the quadrant represented by commodity services that are 

served by many suppliers. Typical tactics applicable to this quadrant of 

services include consolidating purchases across the organization; using 

fixed price contracts; developing procurement catalogs with prenegotiated prices for some services; and varying bidding parameters such 

as volume and scale in order to find new ways to reduce costs. For 

example, Walmart continually lowers costs on store maintenance services 

such as parking lot maintenance by inviting bids on a regional or national 

basis. Bidders are required to submit quotes based on a variety of options 
 

Page 20 GAO-13-417 Strategic Sourcing

that are thoroughly discussed ahead of time, such as the number of 

stores or regions and contract length. This helps Walmart identify new 

contract parameters by which to reduce costs. Boeing has begun 

developing procurement catalogs for commonly acquired routine and lowdollar services. The catalogs list approved suppliers and negotiated 

prices to allow users to directly execute contracts up to a certain amount. 

For commodity services with few suppliers, such as specialized logistics 

and utilities, companies focus on standardizing requirements. Typical 

tactics applicable to this quadrant of services include paring back 

requirements in order to bring them more in line with standard industry 

offerings, and developing new suppliers to maintain a competitive 

industrial base. For example, Walmart holds pre-bid conferences with 

suppliers such as those supplying store security for “Black Friday”—the 

major shopping event on the day after Thanksgiving—to discuss 

requirements and what suppliers can provide. Delphi makes an effort to 

maintain a competitive industrial base by dual-sourcing certain services in 

order to minimize future risk—a cost trade-off. 

For knowledge-based services with many suppliers, such as information 

technology, legal, and financial services, companies prequalify and 

prioritize suppliers to highlight the most competent and reasonable 

suppliers. Typical tactics applicable to this quadrant of services include 

prequalifying suppliers by skill level and labor hour rates; and tracking 

supplier performance over time in order to inform companies’ prioritization 

of suppliers based on efficiency. For example, Pfizer Legal Alliance was 

created to channel the majority of legal services to pre-selected firms. 

Delphi only awards contracts to companies on their Category Approved 

Supplier List. The list is approved by Delphi leadership and is reviewed 

annually. 

For knowledge-based services with few suppliers, such as engineering 

and management support and research and development services, 

companies aim to maximize value by better understanding and 

negotiating individual components that drive cost. Typical tactics 

applicable to this quadrant of services include negotiating better rates on 

the cost drivers for a given service; closely monitoring supplier 

performance against pre-defined standards; benchmarking supplier rates 

against industry averages in order to identify excess costs; and improving 

collaboration with suppliers. Some companies leverage their knowledge 

of cost drivers in order to use time and materials contracts—a contract 

type that we have reported as high-risk, mainly because of inadequate 

oversight—because that allows them to negotiate individual rates. For 
 

Page 21 GAO-13-417 Strategic Sourcing

example, Dell’s forensic costing process breaks down service costs to the 

smallest component—for example, labor rates and even raw materials 

such as fuel. Cost knowledge is shared throughout Dell’s procurement 

organization, providing an advantage in negotiating contracts. Boeing 

uses benchmark clauses in some contracts, requiring that supplier rates 

be within a specified percentage of the benchmarked average as 

determined by third-party research firms such as Gartner Group. To 

improve collaboration with suppliers, Pfizer aims to build a single global 

account management team in order to have one point of contact globally 

that can solve issues and manage the Pfizer relationship holistically.

Federal agencies have opportunities to leverage leading companies’ 

practices for purchasing services in order to lower costs and maximize 

the value of the services they buy. In our September 2012 report on 

strategic sourcing, we found that most of the agencies we reviewed 

leveraged only a fraction of their buying power. Specifically, we found that 

four agencies—DOD, Department of Homeland Security (DHS), 

Department of Energy (Energy), and Department of Veterans Affairs

(VA)—accounted for 80 percent of federal procurement spending in fiscal 

year 2011, but managed only 5 percent, or $25.8 billion, of the $537 

billion spent on federal procurement through strategic sourcing contracts. 

Their strategic sourcing efforts resulted in $1.8 billion in savings. When 

strategic sourcing contracts were used, selected federal agencies 

generally reported achieving savings between 5 and 20 percent. 

However, we reported that many agencies did not address the categories 

that represented their highest spending, the majority of which exceeded 

$1 billion and most of which were services. Agencies also continued to 

face challenges in obtaining and analyzing reliable and detailed data on 

spending, securing leadership support, and acquiring services through 

strategic sourcing.

10

 

10GAO, Strategic Sourcing: Improved and Expanded Use Could Save Billions in Annual 

Procurement Costs, 

Adoption of leading companies’ practices could help 

agencies increase the portion of and types of services they strategically 

source. For example, leading company practices show how agencies 

could adopt tailored tactics to better target services that have been 

considered too difficult to strategically source, such as professional 

services. Moreover, leading companies have saved between 4 and 15 

percent annually—over prior year spending—on services using these 

GAO-12-919 (Washington, D.C.: Sept. 20, 2012). 

Opportunities Exist 

for Federal Agencies 

to Adopt Commercial 

Practices 
 

Page 22 GAO-13-417 Strategic Sourcing

practices. A savings rate of 4 percent applied to the $307 billion spent by 

federal agencies on services in fiscal year 2012 would equate to $12

billion in savings. In December 2012, OMB directed agencies to take 

actions to better coordinate and gain more visibility into spending to 

overcome these challenges. 

In September 2012, GAO reported that many large procurement agencies

were in the early stages of implementing strategic sourcing and had 

achieved limited results. For example, in fiscal year 2011, DOD, DHS, 

Energy, and VA accounted for 80 percent of the $537 billion in federal 

procurement spending, but reported managing only about 5 percent of 

that spending, or $25.8 billion, through strategic sourcing efforts. These 

agencies reported savings of $1.8 billion—less than one-half of 1 percent 

of federal procurement spending.11

Further, most of these agencies’ strategic sourcing efforts did not address 

their highest spending areas—including services—which may have 

provided opportunities for additional savings. For example, we reported 

that VA had efforts underway to address only 3 of its top 10 spending 

categories as of September 2012. As discussed later in this report, we 

recommended that selected agencies identify strategic sourcing 

opportunities for their highest spending categories, and agencies 

concurred. By contrast, DHS reported that nearly 20 percent of its fiscal 

year 2011 procurement spending was directed through strategically 

sourced contracts which included the majority of its top ten products and 

services. While strategic sourcing may not be suitable for all 

procurements, industry groups have reported that leading companies they 

surveyed strategically manage about 90 percent of their procurements.

 

12

When strategic sourcing contracts were used, federal agencies generally 

reported achieving savings between 5 and 20 percent. For example, at 

the government-wide level, the Federal Strategic Sourcing Initiative 

(FSSI) program reported managing $339 million through several 

government-wide initiatives in fiscal year 2011 and achieving $60 million 

in savings, or almost 18 percent of the procurement spending it managed 

Moreover, officials from leading companies we spoke with reported that 

their annual savings for services are between 4 and 15 percent.

 

11GAO-12-919.

12GAO-12-919. 

Federal Strategic Sourcing 

Efforts for Services Have

Been Limited, but Results 

Show Potential for 

Additional Savings
 

Page 23 GAO-13-417 Strategic Sourcing

through these initiatives. The FSSI mission is to encourage agencies to 

aggregate requirements, streamline processes, and coordinate purchases 

of like products and services in order to leverage spending to the 

maximum extent possible. Additionally, the Navy reported spending $145 

million and achieving savings of $30 million through its strategic sourcing 

efforts in fiscal year 2011; the reported savings was almost 21 percent of 

the spending that went through strategic sourcing vehicles.13

Agencies also continued to face challenges in obtaining and analyzing 

reliable and detailed data on spending, securing leadership support for 

strategic sourcing, and applying this approach to acquiring services. In 

2012, we reviewed the use of strategic sourcing across agencies with the 

largest procurement budgets in fiscal year 2011 and found that they were 

reluctant to apply strategic sourcing techniques to services, especially 

more complex ones. Additionally, these agencies did not sufficiently 

support strategic sourcing efforts with staff and other resources. These 

challenges make it difficult for agencies to identify opportunities for 

strategic sourcing or measure the success of ongoing initiatives.

 

In our strategic sourcing report, we found that agencies and federal 

strategic sourcing programs generally continued to rely on the 

government’s current system for tracking contracting information data, 

and noted numerous deficiencies with this data for the purposes of 

conducting strategic sourcing research.14

 

13

Conducting spend analysis to 

obtain knowledge of procurement spending is a foundational component 

of an effective strategic approach. The analysis reveals how much is 

spent each year, what was bought, from whom it was bought, and who 

was purchasing it. The analysis also identifies where numerous suppliers 

are providing similar goods and services—often at varying prices—and 

where purchasing costs can be reduced and performance improved by 

better leveraging buying power and streamlining the number of suppliers 

to meet needs. For example, in a report on the use of strategic sourcing 

for office supplies, we reported that the General Services Administration 

(GSA) estimated federal agencies spent about $1.6 billion during fiscal 

year 2009 purchasing office supplies from more than 239,000 vendors. 

GSA used available data on spending to support development of the 

Office Supplies Second Generation FSSI, which focuses office supply 

GAO-12-919.

14GAO-12-919. 

Agencies Need to 

Overcome Key Challenges 

to Improve Strategic 

Sourcing Efforts

Spending Data 
 

Page 24 GAO-13-417 Strategic Sourcing

spending to 15 strategically sourced contracts. Agencies and the federal 

strategic sourcing program generally continued to rely on the 

government’s current system for tracking contracting information data, 

FPDS-NG, and noted numerous deficiencies with this data for the 

purposes of conducting strategic sourcing research. Although we noted 

that some agencies had been able to identify some strategic sourcing 

opportunities despite flaws in the available data, the difficulty of obtaining 

reliable and detailed data on spending hindered their ability to assess 

which strategic sourcing opportunities offered the most potential 

benefits.15 Additionally, we have made recommendations in the past to 

improve government-wide contracting data systems, such as electronic 

submission of data and greater controls to help improve the accuracy and 

completeness of FPDS-NG. Agencies generally concurred with these 

recommendations and have taken actions to improve the system.

16

We reported in our strategic sourcing report that most of the agencies we 

reviewed were challenged by a lack of leadership commitment to strategic 

sourcing, though improvements were under way. Leading companies we 

previously spoke with stated that the support and commitment of senior 

management is essential to facilitating companies’ efforts to re-engineer 

their approaches to acquisitions as well as to ensuring follow through with 

the strategic sourcing approach. However, we have found that leaders at 

some agencies were not dedicating the resources and providing the 

incentives that were necessary to build a strong foundation for strategic 

sourcing. In addition, a lack of clear guidance on metrics for measuring 

success had also impacted the management of ongoing FSSI efforts as 

well as most selected agencies’ efforts. For example, we found that 

agencies were challenged to produce utilization rates and other metrics—

such as spending through strategic sourcing contracts and savings 

achieved—that could be used to monitor progress. Several agencies also 

mentioned a need for sustained leadership support and additional 

resources in order to more effectively monitor their ongoing initiatives. We 

recommended that the Secretaries of Defense and VA evaluate whether 

 

15GAO, Strategic Sourcing: Office Supplies Pricing Study Had Limitations, but New 

Initiative Shows Potential for Savings, GAO-12-178 (Washington, D.C.: Dec. 20, 2011).

16GAO, Federal Contracting: Slow Start to Implementation of Justifications for 8(a) SoleSource Contracts, GAO-13-118 (Washington, D. C.: Dec. 12, 2012); and Federal 

Contracting: Observations on the Government’s Contracting Data Systems, GAO-09-

1032T (Washington, D.C.: Sept. 29, 2009). 

Leadership Commitment 
 

Page 25 GAO-13-417 Strategic Sourcing

there are sufficient resources to fulfill strategic sourcing missions and 

develop metrics; the agencies concurred.17

Additionally, as we previously reported, agency officials noted that they 

have been reluctant to strategically source services (as opposed to 

goods) for a variety of reasons, such as difficulty in standardizing 

requirements or a decision to focus on less complex commodities that 

can demonstrate success. Agency officials also stated several 

disincentives that can discourage strategic sourcing efforts, such as a 

perception that reporting savings due to strategic sourcing could lead to 

program budgets being cut in subsequent years.18

An industry group surveyed companies and reported that companies are 

able to strategically buy the majority of their procurements, including 

services, in part because they targeted services that have been off-limits 

or controversial for most organizations, such as professional services.

Professional services represented the federal government’s highestspend service category and accounted for almost $50 billion of the federal 

procurement obligations in fiscal year 2012. For complex services, such 

as professional services, engineering, and research and development, 

agencies could apply company tactics to understand cost drivers and 

prequalify suppliers. Specifically, agencies could address knowledgebased services by using third-parties to benchmark supplier rates against 

comparable suppliers to ensure best price, develop new suppliers, and 

prioritize suppliers based on effectiveness and efficiency in order to 

ensure they are getting the best value. For less complex services, such 

as housekeeping and telecommunications, agencies could consolidate 

purchases to leverage buying power. Standardizing requirements could 

also help drive down costs. Leading companies reported that they applied 

However, officials from 

leading companies stated they have focused their efforts on services, 

such as telecommunications and information technology services, over 

the past 5-7 years because of the growth in spending in that area, and 

have achieved significant savings. Leading companies employ more 

sophisticated strategic sourcing techniques, using spend analyses and indepth market research to tailor their acquisition approaches to the 

complexity and availability of the particular good or service they are 

acquiring. 

 

17GAO-12-919. 

18GAO-12-919. 

Purchasing Services 
 

Page 26 GAO-13-417 Strategic Sourcing

this type of tactic for specialized maintenance and repair, specialized 

logistics, utilities, and certain types of security.

Officials from leading companies also stated that there is not one right 

path for developing a strategic approach. However, as we previously 

discussed, leading companies’ foundational principles show that 

leveraging knowledge, developing services category strategies, and 

measuring success based on reducing costs and maximizing value are 

necessary steps. For example, leading companies reported beginning 

with different principles as they adopted a more strategic approach for 

purchasing services. Some began by conducting a spend analysis, while 

others began by implementing an enterprise-wide centralized 

procurement approach and setting savings goals. While their first steps 

may vary, agencies could gather enough knowledge to allow them to 

tailor their tactics to different types of services in order to achieve savings 

and maximize value.

We have recommended that selected agencies and OMB take actions to 

increase the use of strategic sourcing. For example, in our 2012 strategic 

sourcing report, we recommended that the Secretaries of Defense and 

VA, and the Director of OMB take a series of detailed steps to improve 

strategic sourcing efforts. More specifically, we recommended that:

• the Secretary of Defense evaluate the need for additional 

guidance, resources, and strategies, and focus on DOD’s highest 

spending categories;

• the Secretary of VA evaluate strategic sourcing opportunities, 

including opportunities for VA’s highest spending categories, set 

goals, and establish metrics; and

• the Director of OMB issue updated government-wide guidance on 

calculating savings, establish metrics to measure progress 

towards goals, and identify spending categories most suitable for 

strategic sourcing.

Recent Agency and OMB 

Actions Could Improve 

and Expand Strategic 

Sourcing of Services 
 

Page 27 GAO-13-417 Strategic Sourcing

In commenting on the 2012 strategic sourcing report, DOD, VA, and OMB 

concurred with the recommendations and stated that they would take 

action to adopt them.

19

In 2012, as part of establishing crosscutting goals to improve 

management across the federal government, OMB called for agencies to 

strategically source at least two new products or services in both 2013 

and 2014 that yield at least 10 percent savings. In December 2012, OMB 

further directed certain agencies to reinforce senior leadership 

commitment by designating an official responsible for coordinating the 

agency’s strategic sourcing activities. In addition, OMB identified 

agencies that should take a leadership role on strategic sourcing. OMB 

called upon these agencies to lead government-wide strategic sourcing 

efforts by taking steps such as recommending management strategies for 

specific goods and services to ensure that the federal government 

receives the most favorable offer possible. Additionally, OMB directed 

these agencies to promote strategic sourcing practices inside their 

agencies by taking actions including collecting data on procurement 

spending. The memo also asks GSA to increase the transparency of 

prices paid for services that other agencies buy in order to inform market 

research and contract negotiations.

 

20 This effort has the potential to 

improve the federal government’s access to detailed pricing information 

and visibility into spending. Improved visibility may also help the federal 

government better measure the success of its strategic sourcing 

initiatives. While it is too early to tell whether OMB’s actions will result in 

future savings, this initiative is a step in the right direction.

Services, which have traditionally proven difficult for agencies to manage, 

have quickly become the majority of federal government procurement 

spending. Making services procurement more efficient is particularly 

relevant given the current fiscal environment, as any savings from this 

area can help agencies mitigate the adverse effects of potential budget 

reductions on their mission. Companies have shown that it is possible to 

save money by strategically managing services. They have done so not 

just by consolidating purchases of simple, commodity-like services; they 

 

19GAO-12-919. 

20OMB, Memorandum M-13-02, Improving Acquisition through Strategic Sourcing, 

(Washington, D.C.: Dec. 5, 2012).

Concluding 

Observations 
 

Page 28 GAO-13-417 Strategic Sourcing

have devised strategies and tactics to manage sophisticated services. In 

addressing these categories, companies have shown that savings in 

service procurements come over a wide base. Also, such results need not 

require the creation of monolithic procurement organizations—these 

results can be achieved with leadership, shared data, and a focus on 

strategic categories that is dynamic rather than static.

Clearly, the cost culture endemic to leading commercial practices is tied 

to the private sector’s focus on profits. In federal agencies, profit is not a 

motivator. And there are disincentives to identifying and pursuing new 

strategic sourcing opportunities, such as the perception that doing so 

could lead to unanticipated budget cuts. This could contribute to why 

federal agency efforts to manage the purchase of services strategically 

are limited to small, commodity-like segments of spending. Similarly, 

agency tactics tend to be slow-moving and static once put in place. As 

budgets decline, however, it is important that the cost culture in federal 

agencies change. The simple dynamic is that adopting leading 

commercial practices can enable agencies to provide more service for the 

same budget or the same service with a smaller budget.

Because this report focuses on leading company practices rather than 

agency operations, we provided relevant sections of a draft of this report 

to the leading companies we interviewed. They generally agreed with our 

findings and provided technical comments, which were incorporated as 

appropriate. 

As agreed with your offices, unless you publically 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 appropriate congressional 

committees, the Secretary of Defense; the Administrator for GSA; the 

Administrator for the Office of Federal Procurement Policy; and other 

interested parties. 

Third-Party 

Comments
 

Page 29 GAO-13-417 Strategic Sourcing

This report will also be available at no charge on GAO’s website at 

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 III.

Cristina Chaplain

Director

Acquisition and Sourcing Management
Appendix I: Objectives, Scope, and 

Methodology

Page 30 GAO-13-417 Strategic Sourcing

We were asked to identify practices used by large commercial 

organizations for purchasing services. Accordingly, we (1) assessed key 

practices used by leading companies in purchasing services, and (2) 

examined potential opportunities for federal agencies to incorporate these 

practices.

To determine leading companies’ practices for acquiring services, we 

selected a nongeneralizable sample of companies based on a literature 

search and recommendations from experts. We conducted a literature 

search of industry-recognized companies that have had success with 

services acquisition practices, including reviewing our prior leading 

practices reports on services acquisition. We also met with the Defense 

Business Board, Defense Science Board, and industry experts to discuss 

their recent studies on services acquisition and to obtain 

recommendations on which leading companies to contact. Based on this 

approach, we identified and interviewed the following organizations:

• Seven companies: Boeing, Dell, Delphi, Humana, MasterCard, Pfizer, 

and Walmart.

• An industry group: Institute for Supply Management.

• A consulting organization: A.T. Kearney.

Based on interviews with these organizations, we identified key practices 

reported by each company, including procurement organization 

structures, services procurement history and strategies, initiatives and 

resultant savings, and contracting methods. To maximize the applicability 

of our findings to the federal government, we identified top categories of 

services that the government acquires from the Federal Procurement 

Data System–Next Generation (FPDS-NG)—the government’s system for 

tracking contracting information—and interviewed companies about their 

practices in those categories. We compared companies’ procurement 

practices with those identified in our prior work. We identified common 

themes, including developing a transactional framework depicting our 

analysis of how companies tailor their procurement tactics, and confirmed 

with the companies. To assess the reliability of companies’ data on 

acquisition savings, we requested information on data quality control 

procedures and system safeguards from company officials. In addition we 

provided relevant sections of a draft of this report to companies for review 

and comment. We determined that the data were sufficiently reliable for 

the purposes of this report.

To identify opportunities for federal agencies to adopt leading company 

practices, we determined that agencies purchase services similar to those 

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 31 GAO-13-417 Strategic Sourcing

that the selected leading companies purchase. Specifically, to compare 

purchased services, we identified the top services leading companies

purchase through interviews and reviewed FPDS-NG data from fiscal 

years 2010 and 2012 to identify the top ten services purchased by the 

federal government. To assess the reliability of 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 

government-wide and agency spending on products and services. 

Additionally, to determine the federal government’s spending trend on 

services since fiscal year 2000, we relied on information we previously 

reported as well as FPDS-NG data between fiscal years 2008 and 2012. 

We reported then-year dollars for this analysis.

To determine the extent to which the government plans to target its 

highest spend service categories, we reviewed Office of Management 

and Budget strategic sourcing initiatives, but did not assess the results of 

these initiatives.

We also reviewed our previous reports related to federal strategic 

sourcing, acquisition, contract management, government streamlining, 

and duplication, overlap and fragmentation to identify (1) agency efforts to 

establish a strategic approach that reflected leading companies’ 

foundational principles; (2) procurement tactics that agencies have used 

to purchase a variety of services; and (3) challenges that agencies face 

when establishing a strategic approach. We also 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.

We conducted this performance audit from December 2011 to April 2013 

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.
Appendix II: Profiles of Leading Companies

Page 32 GAO-13-417 Strategic Sourcing

Procurement Organization (Shared Services Group)

Boeing’s centralized Shared Services Group is responsible for the global 

purchase of non-production goods and services. It is organized into 

Strategic Contracting and Category Management, Procurement 

Operations, and Procurement Support and Integration components. 

Beginning of Focus on Improvement to Services Procurement

Boeing began implementing its current enterprise procurement model in 

2006, with its Chief Executive Officer (CEO) subsequently making nonproduction procurement efficiency a priority. 

Visibility into Services Spend

The company has one system that provides visibility into its services 

spend, called the Shared Service Procurement/Payables Network. The 

quality and quantity of data provided by this system allows for improved 

spend analysis. 

Overall Procurement Strategy

Boeing’s enterprise procurement model aggregates demand by 

standardizing requirements in order to obtain pricing power. The company 

is currently implementing a Strategic Contracting and Category 

Management strategy with a focus on reducing total cost of ownership. 

This strategy involves category planning, strategic sourcing, contract 

management, and supplier relationship management. 

Examples of Procurement Tactics

Boeing uses a four step process to ensure it is achieving the best value 

for each service: (1) define requirements; (2) define performance 

parameters; (3) define minimum acceptable performance standards; and 

(4) define service level agreements to measure success. Other tactics 

include standardizing requirements to reduce complexity, including 

benchmarking clauses in contracts to ensure competitive rates, and 

conducting business and market intelligence to help formulate future 

procurement strategies. 

Metrics Used to Manage Services

Boeing manages supplier performance by establishing rating criteria with 

both the business partner and the supplier. An example of an internal 

metric is percentage goals for unit price reduction. 

Appendix II: Profiles of Leading Companies

Boeing
Appendix II: Profiles of Leading Companies

Page 33 GAO-13-417 Strategic Sourcing

Procurement Organization (Worldwide Procurement)

Dell’s procurement operation is structured as a centralized model. They 

have a Chief Procurement Officer (CPO). Cost knowledge is shared 

throughout Dell with everyone having access to the same data source. 

Dell uses Global Category Managers (GCMs), who are responsible for 

knowing all the requirements, delivery needs, and contracting 

requirements for each service (or good). Under the GCM are Regional 

GCMs, responsible for knowing local markets. 

Visibility into Services Spend

Dell has a centralized database and reporting process. 

Overall Procurement Strategy

Each commodity (good or service) is managed by a unique commodity 

team that is tasked with developing detailed sourcing strategies. The 

commodity team conducts research in both the marketplace and the 

supplier base for a given commodity. Technological issues are 

considered in order to understand any risks and deficiencies in regards to 

how the commodity can best be utilized for programs and projects. 

Procurement scenarios are analyzed so that teams can evaluate how 

suppliers react to Dell’s purchasing needs. 

Examples of Procurement Tactics

The ability and will to invest time and effort in capability management—

highly trained employees, value creation process, and supplier 

relationship management—are the primary keys to procurement success. 

Teams continually aim to reduce costs by reducing complexity through 

reusing commodities for new products, bringing in outside expertise, and 

trusting commodity teams. 

Metrics Used to Manage Services

Savings goals and metrics for success are determined from the bottom up 

and evaluated on a quarterly basis. Financial, operational, and 

organizational aspects of each commodity have their own set of 

performance metrics and means to measure improvement and success. 

This allows procurement officials to understand the “what” aspect that 

drives success. 

Dell 
Appendix II: Profiles of Leading Companies

Page 34 GAO-13-417 Strategic Sourcing

Procurement Organization (Global Supply Management)

Delphi’s procurement organization is centralized, with a Senior Vice 

President of Global Supply Management as the equivalent of a CPO. For 

indirect spend, each of Delphi’s four global regions has a director with 

category managers for its major spend areas: Corporate Services, 

Facilities Management, Information Technology, Industrial Supplies, 

Materials Management, and Machinery and Equipment. 

Beginning of Focus on Improvement to Services Procurement

Delphi centralized indirect procurement between 2005 and 2007 in order 

to improve efficiency and drive savings. 

Visibility into Services Spend

Company tracks spending through a central database integrated with its 

financial systems, and monitors its savings through a separate, selfdeveloped information technology tool, Indirect Material Cost 

Improvement Process. 

Overall Procurement Strategy

Service categories are overseen by category team managers who utilize 

a three-level strategy for procurement: industry knowledge strategy, 

internal corporate strategy, and supply base strategy. These strategies 

are formally reviewed and documented annually. Decision criteria for 

determining service providers include price, total cost of ownership, 

company viability, company maturity, and management structure. 

Examples of Procurement Tactics

Delphi maintains a Category Approved Supplier List for primary service 

suppliers, which is reviewed annually. Companies on this list provide 

goods and services in accordance with Delphi’s respective category 

strategies. The companies are approved by the Category Managers and 

Strategy Council of Delphi’s Supply Management Leadership. Delphi will 

also dual source certain services in order to minimize future risk. 

Metrics Used to Manage Services

Cost, delivery, technology, quality, optimization of supply base, and 

localization to the region are the primary metrics used to measure 

services. Other performance indicators can include on-time delivery, 

interruptions, and safety. Suppliers are measured weekly or monthly, 

depending on the service, and review meetings are held at least 

quarterly. Savings are centrally tracked and only counted after validation 

by the financial department. 

Delphi 
Appendix II: Profiles of Leading Companies

Page 35 GAO-13-417 Strategic Sourcing

Procurement Organization (Corporate Procurement)

Humana‘s Corporate Procurement department is centralized with a CPO. 

Within Corporate Procurement category managers coordinate with 

internal customers to clarify business requirements, engage with 

suppliers to satisfy business needs, and develop strategic plans across its 

six procurement categories. While all purchases associated with 

government-related contracts are managed through Corporate 

Procurement, there are two additional procurement teams managing 

certain non-government-related supplier purchases within Humana: 

Global Sourcing, focused on business process outsourcing; and 

Information Technology Strategic Vendor Management, dedicated to 

software, non-commodity hardware, and technical consulting. 

Beginning of Focus on Improvement to Services Procurement

In 2004, Humana hired a new CPO tasked with centralizing the overall 

Corporate Procurement process. The CPO has since developed spend 

analytics, results and process measures, and worked to value-driven 

annual goals and objectives. Category teams were introduced in 2004 yet 

did not mature to the full team structure, as it exists today, until 2007. 

Visibility into Services Spend

Humana has an established centralized enterprise business suite, a fully 

integrated, comprehensive suite of business applications for the 

enterprise. These tools cover the procure-to-pay activity for supplierrelated spend. Additionally, the team has an established centralized data 

source to capture key results and process measures. 

Overall Procurement Strategy

Humana’s six-step procurement process is applied to the purchase of 

both goods and services. The procurement process is focused on 

obtaining best value for the enterprise through coordinated category 

planning and supplier relationship management. The six category teams 

formally review and refresh their category strategic plans annually, at a 

minimum, with updates through the course of the year in response to 

material business change. 

Examples of Procurement Tactics

Humana conducts make-versus-buy analysis when determining the ideal 

source for services. If requirements cannot be met in-house, the company 

leverages purchases across the organization to create a fully informed 

view of requirements and a competitive, best value award. Humana relies 

on bench marking studies, past performance data, and prior customer 

references. Based on this information and approach, Humana is 

Humana 
Appendix II: Profiles of Leading Companies

Page 36 GAO-13-417 Strategic Sourcing

progressing toward establishing internal rate cards for consulting services 

to assess the value of proposed hourly rates based on contractor skill 

level. Humana adjusts the number of suppliers as needed. Humana 

steadily brought down the number of suppliers between 2004 and 2012. 

Currently, 4 percent of the supply base claims 80 percent of Humana’s 

spend. Humana is now engaging small, diverse, and emerging suppliers 

in order to achieve the right balance of supplier to spend. 

Metrics Used to Manage Services

Humana is in the process of scoping out requirements to build a 

scorecard process to standardize the scoring of vendors’ performance, 

including keeping track of past performance. Inflation and deflation are 

measured based on year-over-year change in price on a per unit basis. 

Humana currently tracks cost avoidance and productivity—price and 

usage. Productivity is a key measure for executives and is incorporated 

into established performance measures. 
Appendix II: Profiles of Leading Companies

Page 37 GAO-13-417 Strategic Sourcing

Procurement Organization (Global Supply Chain)

The CPO has worked since 2009 to reduce silos within MasterCard’s 

business units, and established a centralized model with a category 

focus. 

Beginning of Focus on Improvement to Services Procurement

Prior to the CPO’s arrival in 2009, MasterCard’s sourcing organization 

focused primarily on traditional procurement and tactical sourcing. The 

company recognized the value of advancing from a tactical procurement 

approach to a strategic one. 

Visibility into Services Spend

MasterCard uses a centralized database for procurement operations, 

which provides transparency into their global spend. They may use other 

tools to track supplier performance, risk management, and to conduct esourcing. 

Overall Procurement Strategy

MasterCard employs a category management strategy that is comprised 

of a six-step model: (1) analyze internal and external spend; (2) define 

requirements and develop strategy; (3) execute strategy; (4) negotiate 

and award contracts; (5) implement and manage contracts; and (6) 

manage supplier performance. 

Examples of Procurement Tactics

MasterCard emphasizes the importance of understanding the nature of 

requirements. Some categories are more complex than others and the 

approach for each category differs. Procuring services in the 

contingent/temporary labor space is driven by competition and achieving 

process efficiencies; procuring services in the legal services space is 

driven by custom requirements and increased complexity. 

Metrics Used to Manage Services

Cost savings are always important and MasterCard uses standard 

definitions to measure those savings, such as year-over-year change.

Other metrics such as productivity savings and budget savings allow for 

innovation and investment. 

MasterCard 
Appendix II: Profiles of Leading Companies

Page 38 GAO-13-417 Strategic Sourcing

Procurement Organization (Global Procurement) 

Pfizer has “category teams” with a global reach for broad groupings of 

services with category managers assigned to each category. The global 

category zone leads are managed by Vice-Presidents who report directly 

to the head of the procurement organization and work with internal 

business partners, who execute contracts on a company-wide basis or 

locally as needed. 

Beginning of Focus on Improvement to Services Procurement

Pfizer undertook a spend analysis effort in 2007, which revealed 

increased spending on legal, consulting, and financial services, as well as 

opportunities for improving the efficiency of their processes. 

Example of a Procurement Tactic

Pfizer will examine market conditions and unbundle contracts for greater 

transparency and to bring more suppliers into the mix; later on Pfizer 

might bundle contracts to gain leverage as part of the strategy. 

Compliance

Pfizer has a policy that procurement transactions over $100,000 must be 

competitively bid with limited, documented exceptions. Pfizer 

Procurement monitors compliance with company processes and billing 

guidelines. The company considers its procurement professionals as 

essentially risk managers rather than contract managers because they 

need to consider what is best for the company and how to minimize total 

cost of ownership while maintaining flexibility. 

Pfizer 
Appendix II: Profiles of Leading Companies

Page 39 GAO-13-417 Strategic Sourcing

Procurement Organization (Realty Procurement Services)

Walmart’s procurement function is decentralized. Realty Procurement 

Services, led by a Realty Vice President, provides sourcing support for 

facilities maintenance which includes outside services such as snow 

removal, roofing, and parking lot maintenance. Realty Procurement 

Services provides complete procurement, project management, and 

sourcing support for Walmart capital projects. 

Beginning of Focus on Improvement to Services Procurement

Focus on procurement improvement began in approximately 2008. 

However, the services spend is not fully leveraged as different divisions 

within Walmart procure services such as human resources, information 

technology, legal, and marketing separately. 

Visibility into Services Spend

Walmart does not have one system that provides visibility into the 

services procurement spend. It utilizes one system as a contract bidding 

tool and is currently implementing another to provide increased spend 

visibility into maintenance services. 

Overall Procurement Strategy

Walmart’s procurement strategy is focused on the reduction of total cost 

of ownership. While the lowest bidder may often be awarded a contract, it 

is important to take into account other considerations such as diversity 

and sustainability. 

Examples of Procurement Tactics

Walmart employs craft managers for the major categories of services they 

acquire. These managers provide expert advice to the procurement 

organization. Walmart uses a performance management system that 

includes “score-carding” to rank suppliers based on various criteria. The 

company also applies a tiered pricing strategy, where a supplier offers 

different rates depending on the size of the contract. 

Metrics Used to Manage Services

Average invoice price, hourly rate, time spent on location, and average 

time to complete a task are examples of the metrics Walmart uses to 

evaluate performance. 

Walmart 
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 40 GAO-13-417 Strategic Sourcing

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

In addition to the contact named above, W. William Russell, Assistant 

Director; Peter Anderson; Raj Chitikila; Laura Greifner; Julia Kennon; 

Amber N. Keyser; Stephen V. Marchesani; Jean McSween; Brian Mullins; 

Michael Palinkas; Sylvia Schatz; Roxanna Sun; Ann Marie Udale; Alyssa 

Weir; Sally Williamson; and Rebecca A. Wilson made key contributions to 

this report.

Appendix III: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 
Related GAO Products

Page 41 GAO-13-417 Strategic Sourcing

Federal Contracting: Slow Start to Implementation of Justifications for 

8(a) Sole-Source Contracts, GAO-13-118. Washington, D.C.: Dec. 12, 

2012.

Strategic Sourcing: Improved and Expanded Use Could Save Billions in 

Annual Procurement Costs, GAO-12-919. Washington, D.C.: Sep. 20, 

2012.

Defense Contracting: Competition for Services and Recent Initiatives to 

Increase Competitive Procurements, GAO-12-384. Washington, D.C.: 

Mar. 15, 2012.

Strategic Sourcing: Office Supplies Pricing Study Had Limitations, but 

New Initiative Shows Potential for Savings, GAO-12-178. Washington, 

D.C.: Dec. 20, 2011.

Federal Contracting: Observations on the Government’s Contracting Data 

Systems, GAO-09-1032T. Washington, D.C. Sept. 29, 2009.

Defense Acquisition: Actions Needed to Ensure Value for Service 

Contracts, GAO-09-643T. Washington, D.C.: Apr. 23, 2009.

Defense Acquisitions: Tailored Approach Needed to Improve Service 

Acquisition Outcomes, GAO-07-20. Washington, D.C: Nov. 9, 2006.

Best Practices: Improved Knowledge of DOD Service Contracts Could 

Reveal Significant Savings, GAO-03-661. Washington, D.C.: Jun. 9. 

2003.

Best Practices: Taking a Strategic Approach Could Improve DOD’s 

Acquisition of Services, GAO-02-230. Washington, D.C: Jan. 18, 2002.

Related GAO Products

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