STRATEGIC SOURCING

Improved and Expanded 

Use Could Provide 

Significant Procurement 

Savings

Statement of Cristina Chaplain, Director 

Acquisition and Sourcing Management

Testimony 

Before the Committee on Homeland 

Security and Governmental Affairs, 

U.S. Senate

For Release on Delivery 

Expected at 3:00 p.m. EST

Monday, July 15, 2013

GAO-13-765T

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-13-765T, a testimony 

before the Committee on Homeland Security 

and Governmental Affairs, U.S. Senate

July 15, 2013

STRATEGIC SOURCING

Improved and Expanded Use Could Provide 

Significant Procurement Savings

Why GAO Did This Study

GAO has reported that the government 

is not fully leveraging its aggregate 

buying power. Strategic sourcing, a

process that moves an organization 

away from numerous individual 

procurements to a broader aggregate 

approach, has allowed leading 

companies to achieve savings of 10 

percent or more. A savings rate of 10 

percent of total federal procurement 

spending would represent more than 

$50 billion annually. While strategic 

sourcing makes good sense and holds 

the potential to achieve significant 

savings, federal agencies have been 

slow to embrace it, even in a time of 

great fiscal pressure. 

This statement highlights GAO's recent 

findings related to the use of strategic 

sourcing across government, best 

practices leading companies are 

adopting to increase savings when 

acquiring services, and recent actions 

that could facilitate greater use of 

strategic sourcing. GAO’s testimony is 

based largely on GAO’s September 

2012 report on strategic sourcing and 

GAO's April 2013 report on leading 

practices for acquiring services, as well 

as other GAO reports on contracting 

and acquisition. 

What GAO Recommends

GAO is not making any new 

recommendations in this testimony. 

GAO has made recommendations to

OMB, DOD, VA, and other agencies on 

key aspects of strategic sourcing and 

acquisition of products and services in 

the past. These recommendations 

addressed such matters as setting 

goals and establishing metrics. OMB 

and the agencies concurred with the 

recommendations, and are in the 

process of implementing them.

What GAO Found

Most of the agencies GAO reviewed for its September 2012 report leveraged a 

fraction of their buying power. More specifically, in fiscal year 2011, the 

Departments of Defense (DOD), Homeland Security, Energy, and Veterans 

Affairs (VA) accounted for 80 percent of the $537 billion in federal procurement 

spending, but reported managing about 5 percent of that spending, or $25.8 

billion, through strategic sourcing efforts. Similarly, GAO found that the Federal 

Strategic Sourcing Initiative had only managed a small amount of spending 

through its four government-wide strategic sourcing initiatives in fiscal year 2011, 

although it reported achieving significant savings on those efforts. Further, we 

found that most selected agencies’ efforts did not address their highest spending 

areas, such as services, which may provide opportunities for significant savings.

Companies’ keen analysis of spending is key to their savings, coupled with 

central management and knowledge sharing about the services they buy. Their 

analysis of spending patterns comprises 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, 

and do not treat all services the same. 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 and make more informed contracting decisions. Like 

the federal government, leading companies have experienced growth in 

spending on services, and over the last 5 to 7 years have been examining ways 

to better manage spending. Officials from seven leading companies GAO spoke 

with reported saving 4 to 15 percent over prior year spending through 

strategically sourcing the full range of services they buy, including those very 

similar to what the federal government buys—for example, facilities 

management, engineering, and information technology. 

Agencies have not fully adopted a strategic sourcing approach but some have 

actions under way. For example, in April 2013, DOD was assessing the need for 

additional resources to support strategic sourcing efforts, and noted a more 

focused targeting of top procurement spending categories for supplies, 

equipment, and services. VA reported that it had taken steps to better measure 

spending through strategic sourcing contracts and was in the process of 

reviewing business cases for new strategic sourcing initiatives. In 2012, the 

Office of Management and Budget (OMB) released a Cross-Agency Priority Goal 

Statement, which 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 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 directed these agencies to promote 

strategic sourcing practices inside their agencies by taking actions including 

collecting data on procurement spending

View GAO-13-765T. For more information, 

contact Cristina Chaplain at (202) 512-4148 

or chaplainc@gao.gov.
Page 1 GAO-13-765T 

Chairman Carper, Ranking Member Coburn, and Members of the 

Committee:

I am pleased to be here today to testify on the value of strategic sourcing 

as an important tool to achieve greater savings and efficiencies in 

government procurements of products and services. Generally speaking, 

strategic sourcing is a procurement process that seeks to move an 

organization away from numerous individual procurements to a broader 

aggregate approach. The tools and techniques that come with strategic 

sourcing enable organizations to

• develop a better picture of what they are spending on goods and 

services,

• better understand cost drivers,

• prioritize their requirements,

• better manage suppliers,

• take advantage of market trends, and

• target savings.

Leading companies strategically manage 90 percent of their procurement 

spending, and report savings of 10 percent or more of total procurement 

costs. We have previously reported that leaders across the government 

need to embrace a strategic sourcing approach, and that saving 10 

percent of the total federal procurement spending would produce more

than $50 billion in savings annually.1

While strategic sourcing inherently makes good sense and holds the 

potential to achieve significant savings, federal agencies have been slow 

to embrace it, even in a time of great fiscal pressure. Reasons for this 

include a lack of leadership commitment within agencies, a desire on the 

part of agency officials to maintain control over their contracting, a lack of 

strategic sourcing expertise, data barriers, and perceptions about 

strategic sourcing that increase the hesitancy to use it, such as a fear that 

 1

GAO, 2013 Annual Report: Actions Needed to Reduce Fragmentation, Overlap, and 

Duplication and Achieve Other Financial Benefits, GAO-13-279SP (Washington D.C.: Apr.

9, 2013).
Page 2 GAO-13-765T 

reporting savings will lead to budget cuts. My testimony today will 

highlight GAO’s recent findings related to the use of strategic sourcing 

across government, best practices leading companies have been 

adopting to increase savings when acquiring services, and recent actions 

that could facilitate greater use of strategic sourcing.

This testimony is based largely on GAO’s September 2012 report on 

strategic sourcing and GAO’s April 2013 report on leading practices for 

acquiring services, as well as other GAO reports on contracting and 

acquisition.2 In conducting work on the government side, we spoke with 

four agencies and analyzed relevant data. On the company side, we 

visited seven companies and identified key practices. Details of the scope 

and methodology are available in the September 2012 and April 2013 

reports. All work on which this testimony is based was performed in 

accordance with generally accepted government auditing standards. 

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.3

Strategic sourcing can encompass a range of tactics for acquiring 

products and services more effectively and efficiently. In addition to 

leveraged buying, tactics include managing demand by changing 

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.

 2

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

Procurement Costs, GAO-12-919 (Washington, D.C.: Sept. 20, 2012); Strategic Sourcing: 

Leading Commercial Practices Can Help Federal Agencies Increase Savings When 

Acquiring Services, GAO-13-417 (Washington, D.C.: Apr. 15, 2013); and Strategic 

Sourcing: Improved and Expanded Use Could Provide Procurement Savings for Federal 

Information Technology, GAO-13-408T (Washington, D.C.: Feb. 27, 2013).

3

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

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

Background
Page 3 GAO-13-765T 

behavior, achieving efficiencies through standardization of the acquisition 

process, evaluating total cost of ownership, and better managing supplier 

relationships. We have particularly 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. 

Private sector companies are using spend analysis as a foundation for 

employing a strategic approach to procurement.

We have previously reported that because procurement at federal 

departments and agencies is generally decentralized, the federal 

government is not fully leveraging its aggregate buying power to obtain 

the most advantageous terms and conditions for its procurements.4

Agencies act more like many unrelated, medium-sized businesses and 

often rely on hundreds of separate contracts for many commonly used 

items, with prices that vary widely. Recognizing the benefits of strategic 

sourcing, the Office of Management and Budget (OMB) issued a 

memorandum in 2005 that implemented strategic sourcing practices.5

In addition to individual agency efforts, a government-wide strategic 

sourcing program—known as the Federal Strategic Sourcing Initiative 

(FSSI)—was established in 2005. FSSI was created to address 

government-wide opportunities to strategically source commonly 

purchased products and services and eliminate duplication of efforts 

across agencies. The FSSI mission is to encourage agencies to 

aggregate requirements, streamline processes, and coordinate purchases 

of like products and services to leverage spending to the maximum extent 

possible. At the time of our 2012 report, four FSSI efforts were ongoing—

focused on office supplies, domestic delivery of packages, 

telecommunications, and print management—and three were planned 

Agencies were directed to develop and implement strategic sourcing 

efforts based on the results of spend analyses.

 4

GAO, Opportunities to Reduce Potential Duplication in Government Programs, Save Tax 

Dollars, and Enhance Revenue, GAO-11-318SP (Washington, D.C.: Mar. 1, 2011).

5

OMB, Memorandum for Chief Acquisition Officers, Chief Financial Officers, and Chief 

Information Officers, Subject: Implementing Strategic Sourcing (Washington, D.C.: May 

20, 2005).
Page 4 GAO-13-765T 

related to SmartBUY, Wireless plans and devices, and publication 

licenses.

In our September 2012 report, we found that most of the agencies we 

reviewed leveraged a fraction of their buying power through strategic 

sourcing. More specifically, in fiscal year 2011, the Department of 

Defense (DOD), Department of Homeland Security (DHS), Department of 

Energy, and Department of Veterans Affairs (VA) accounted for 80 

percent of the $537 billion in federal procurement spending, but reported 

managing about 5 percent of that spending, or $25.8 billion, through 

strategic sourcing efforts. Similarly, we found that the FSSI program had 

only managed a small amount of spending through its four governmentwide strategic sourcing initiatives in fiscal year 2011, although it reported 

achieving significant savings on those efforts. Further, we found that most 

selected agencies’ efforts did not address their highest spending areas, 

such as services, which provides opportunities for significant savings.

We found that when strategically sourced contracts were used, agencies 

generally reported achieving savings. For example, selected agencies 

generally reported savings ranging from 5 percent to over 20 percent of 

spending through strategically sourced contracts. In fiscal year 2011, 

DHS reported managing 20 percent of its spending and achieving savings 

of $324 million. At the government-wide level, the 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 through these initiatives. 

After strategic sourcing contracts are awarded, realizing cost savings and 

other benefits depends on utilization of these contracts. We found that 

only 15 percent of government-wide spending for the products and 

services covered by the FSSI program went through FSSI contracts in 

fiscal year 2011. Agencies cited a variety of reasons for not participating, 

such as wanting to maintain control over their contracting activities, or 

because the agency had unique requirements. FSSI use is not mandatory 

and agencies face no consequences for not using FSSI contract vehicles.

Expanded Use of 

Strategic Sourcing 

Could Save Billions in 

Federal Procurement 

Costs
Page 5 GAO-13-765T 

There are a variety of impediments to strategic sourcing in the federal 

setting but several stood out prominently in our 2012 review.6

• Data: Our reports have consistently found that the starting point for 

strategic sourcing efforts is having good data on current spending and 

yet this is the biggest stumbling block for agencies. A spending 

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 reducing the number of suppliers to meet needs. The FSSI 

program and selected agencies generally cited the Federal 

Procurement Data System-Next Generation (FPDS-NG)—the federal 

government’s current system for tracking information on contracting 

actions—as their primary source of data, and noted numerous 

deficiencies with these data for the purposes of conducting strategic 

sourcing research. Agencies reported that when additional data 

sources are added, incompatible data and separate systems often 

presented problems. We have previously reported extensively on 

issues agencies faced in gathering data to form the basis for their 

spend analysis.

Specifically, 

agencies faced challenges in obtaining and analyzing reliable and 

detailed data on spending as well as securing expertise, leadership 

support, and developing metrics.

7

 6

However, some agencies have been able to make 

progress on conducting enterprise-wide opportunity analyses despite 

flaws in the available data. For example, both the FSSI Program 

Management Office and DHS told us that current data, although 

imperfect, provide sufficient information for them to begin to identify 

high spend opportunities. DHS has in fact evaluated the majority of its 

GAO-12-919.

7

GAO, Opportunities to Reduce Potential Duplication in Government Programs, Save Tax 

Dollars, and Enhance Revenue, GAO-11-318SP (Washington, D.C.: Mar. 1, 2011); 

Defense Acquisitions: Tailored Approach Needed to Improve Service Acquisition 

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

and Challenges in DHS’s Efforts to Create an Effective Acquisition Organization, 

GAO-05-179 (Washington, D.C.; Mar. 29, 2005); Best Practices: Using Spend Analysis to 

Help Agencies Take a More Strategic Approach to Procurement, GAO-04-870 

(Washington, D.C.: Sept. 16, 2004); and Best Practices: Improved Knowledge of DOD 

Service Contracts Could Reveal Significant Savings, GAO-03-661 (Washington, D.C.: 

June 6, 2003).

Barriers to Strategic 

Sourcing
Page 6 GAO-13-765T 

10 highest-spend commodities and developed sourcing strategies for 

seven of those based on its analysis of primarily FPDS-NG data. 

Further, we have previously reported that the General Services 

Administration estimated federal agencies spent about $1.6 billion 

during fiscal year 2009 purchasing office supplies from more than 

239,000 vendors.8

• Expertise: Officials at several agencies also noted that the lack of 

trained acquisition personnel made it difficult to conduct an 

opportunity analysis and develop an informed sourcing strategy. For 

example, Army officials cited a need for expertise in strategic sourcing 

and spend analysis data, and OMB officials echoed that a key 

challenge is the dearth of strategic sourcing expertise in government. 

VA and Energy also reported this challenge. A few agencies have 

responded to this challenge by developing training on strategic 

sourcing for acquisition personnel. For example, the Air Force noted 

that it instituted training related to strategic sourcing because it is 

necessary to have people who are very strong analytically to do the 

front-end work for strategic sourcing, and these are the hardest to 

find. The training course facilitates acquisition personnel in obtaining 

the strong analytical skills to perform steps like market evaluation. VA 

has also begun to develop training to address this challenge.

GSA used available data on spending to support 

development of the Office Supplies Second Generation FSSI, which 

focuses office supply spending to 15 strategically sourced contracts.

• Leadership commitment: We also found in 2012 that most of the 

agencies we reviewed were challenged by a lack of leadership 

commitment to strategic sourcing, although improvements were under 

way.9 We have reported that in the private sector, the support and 

commitment of senior management is viewed as essential to 

facilitating companies’ efforts to re-engineer their approaches to 

acquisition as well as to ensuring follow through with the strategic 

sourcing approach. However, we found in 2012 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.

 8

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

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

9

GAO-12-919.
Page 7 GAO-13-765T 

• Metrics: A lack of clear guidance on metrics for measuring success 

has also impacted the management of ongoing FSSI efforts as well as 

most selected agencies’ efforts. 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.

Agency officials also mentioned several disincentives that can discourage 

procurement and program officials from proactively participating in 

strategic sourcing, and at many agencies, these disincentives have not 

been fully addressed by leadership. Key disincentives identified by 

agency officials include the following:

• A perception that reporting savings due to strategic sourcing could 

lead to program budgets being cut in subsequent years,

• Difficulty identifying existing strategic sourcing contracts that are 

available for use as there is no centralized source for this information,

• A perception that strategically sourced contract vehicles may limit the 

ability to customize requirements,

• A desire on the part of agency officials to maintain control of their 

contracting,

• Program officials’ and contracting officers’ relationships with existing 

vendors, and

• The opportunity to get lower prices by going outside of strategically 

sourced contracts.

Leaders at some agencies have proactively introduced practices that 

address these disincentives to strategically source. For example, DHS 

and VA reported increasing personal incentives for key managers by 

adding strategic sourcing performance measures to certain executives’

performance evaluations. In addition, several agencies including DOD,

DHS, and VA have instituted policies making use of some strategic 

sourcing contracts mandatory or mandatory “with exception,” although the 

extent to which these policies have increased use of strategic sourcing 

vehicles is not yet clear. Some agencies have made use of automated 

systems to direct spending through strategic sourcing contracts. For 

example, FSSI issued a blanket purchase agreement through its office 
Page 8 GAO-13-765T 

supplies initiative that included provisions requiring FSSI prices to be 

automatically applied to purchases made with government purchase 

cards. VA reported that its utilization rate for the office supplies FSSI 

contracts increased from 12 percent to 90 percent after these measures 

took effect.

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

acquire services ranging from the management and operations of 

government facilities, to information technology services, to research and 

development. This represents over half of all government procurements.

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. Moreover, our reports have shown that agencies have 

difficulty managing services acquisition and have purchased services 

inefficiently, which places them at risk of paying more than necessary.10

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.

11

Third, agencies have missed opportunities to increase competition for 

services due to overly restrictive and complex requirements; a lack of 

access to proprietary, technical data; and supplier preferences.12

We found that strategic sourcing efforts addressed products significantly 

more often than services and that agencies were particularly reluctant to 

apply strategic sourcing to the purchases of services.13

 10GAO, Defense Acquisition: Actions Needed to Ensure Value for Service Contracts, 

For example, of 

the top spending categories that DOD components reported targeting 

through implemented strategic sourcing initiatives, only two are services.

Officials reported that they have been reluctant to strategically source 

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

11Contract types include time-and-materials contracts, performance-based contracts, and 

undefinitized contracts.

12GAO, Defense Contracting: Competition for Services and Recent Initiatives to Increase 

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

13GAO-12-919.

Agencies Are Reluctant to 

Apply Strategic Sourcing 

to Purchase of Services
Page 9 GAO-13-765T 

services for a variety of reasons, such as difficulty in standardizing 

requirements or a decision to focus on less complex commodities that 

can demonstrate success. Yet, like the commercial sector, federal 

agencies can be strategic about buying services. For example, DHS has 

implemented a strategic sourcing initiative for engineering and technical 

services, which is also in the top 10 spending categories for the Army, Air 

Force, and Navy.

The reluctance of federal agencies to apply strategic sourcing to services 

stands in sharp contrast to leading companies. As described below, 

leading companies perceive services as prime candidates for strategic 

sourcing, though they tailor how they acquire these services based on 

complexity and availability.

Given the trend of increased federal government spending on services 

and today’s constrained fiscal environment, this Committee asked that we 

identify practices used by large commercial organizations in purchasing 

services. We reported on the results of this review in April 2013.14

 14

Like 

the federal government, leading companies have experienced growth in 

spending on services, and over the last 5 to 7 years, have been 

examining ways to better manage them. Officials from seven leading 

companies GAO spoke with reported saving 4 to15 percent over prior 

year spending through strategically sourcing the full range of services 

they buy, including services very similar to what the federal government 

buys: facilities management, engineering, and information technology, for 

example. Leading company practices suggest that it is critical to analyze 

all procurement spending with equal rigor and with no categories that are 

off limits. Achieving savings can require a departure from the status quo.

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. In our 2013 report, we highlighted quotes from 

company officials that illuminate what their approach to increasing 

procurement efficiency means to them (see table 1).

GAO-13-417.

Leading Company 

Practices Generate 

Significant Savings by 

Strategically Sourcing 

Services
Page 10 GAO-13-765T 

Table 1: Quotes from Company Officials about Increasing Procurement Efficiency

• “If you measure it, savings will happen”

• “Savings is in our DNA”

• “Unmanaged spend equals inefficiency”

• “Centralize the knowledge, not the activity”

• “You must eliminate rogue buying”

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

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

suppliers’ management processes”

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

• “Complexity drives cost”

Source: Interviews with company officials.

Leading companies generally agreed that the following foundational 

principles are all important to achieving successful services acquisition 

outcomes:

• maintaining spend visibility,

• centralizing procurement,

• developing category strategies,

• focusing on total cost of ownership, and 

• regularly reviewing strategies and tactics. 

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.

For example, 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 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 
Page 11 GAO-13-765T 

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. This is 

important because there is a perception in the federal community that 

strategic sourcing requires the creation of a large, monolithic buying 

organization.

Companies also 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. 

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 Chief Procurement Officer 

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. Similarly, Boeing says it sometimes 

chooses to execute a short-term contract to buy time if market research 

shows a more competitive deal can be obtained later.

In addition, companies focus on total cost of ownership—making a holistic 

purchase decision by considering factors other than price. This is also 

contrary to a perception that strategic sourcing can lose a focus on best 

value. 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 is best for the 

company and how to minimize total cost of ownership while maintaining 

flexibility.
Page 12 GAO-13-765T 

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 1 below shows how the 

two factors help companies categorize different services and select 

appropriate tactics.

Figure 1: Companies’ Transactional Framework

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. Typical tactics 

applicable to this quadrant of services include consolidating purchases 

across the organization; using fixed price contracts; developing 

procurement catalogs with pre-negotiated prices for some services; and 

Companies Tailor Their 

Procurement Tactics to 

Each Type of Service 

Depending on Complexity 

and Availability of 

Suppliers
Page 13 GAO-13-765T 

varying bidding parameters such as volume and scale in order to find new 

ways to reduce costs.

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 (see table 2).
Page 14 GAO-13-765T 

Table 2: 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.
Page 15 GAO-13-765T 

OMB and other agencies have recently taken actions to expand the use 

of strategic sourcing. In September 2012, GAO recommended that the 

Secretary of Defense, the Secretary of Veterans Affairs, and the Director 

of OMB take a series of detailed steps to improve strategic sourcing 

efforts.15

• DOD evaluate the need for additional guidance, resources, and 

strategies, and focus on DOD’s highest spending categories;

More specifically, we recommended that

• VA evaluate strategic sourcing opportunities, set goals, and establish 

metrics; and

• OMB issue updated government-wide guidance on calculating 

savings, establish metrics to measure progress toward goals, and 

identify spending categories most suitable for strategic sourcing.

In commenting on the September 2012 report, DOD, VA, and OMB 

concurred with the recommendations and stated they would take action to 

adopt them. We reported in April 2013 that DOD and VA had not fully 

adopted a strategic sourcing approach but had actions under way.16

In 2012, OMB released a Cross-Agency Priority Goal Statement, which 

called for agencies to strategically source at least two new products or 

services in both 2013 and 2014 that yielded at least 10 percent savings. 

At least one of these new initiatives is to target information technology 

commodities or services. 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 

For 

example, at that time, DOD had developed a more comprehensive list of 

the department’s strategic sourcing efforts, was creating additional 

guidance that includes a process for regular review of proposed strategic 

sourcing initiatives, noted a more focused targeting of top procurement 

spending categories for supplies, equipment, and services, and was 

assessing the need for additional resources to support strategic sourcing 

efforts. VA reported that it had taken steps to better measure spending 

through strategic sourcing contracts and was in the process of reviewing 

business cases for new strategic sourcing initiatives, and adding 

resources to increase strategic sourcing efforts.

 15GAO-12-919.

16GAO-13-279SP.

Recent Actions May 

Facilitate Agencies’

Greater Use of 

Strategic Sourcing
Page 16 GAO-13-765T 

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. OMB directed these agencies to promote strategic sourcing 

practices inside their agencies by taking actions including collecting data 

on procurement spending.

In closing, current fiscal pressures and budgetary constraints have 

heightened the need for agencies to take full advantage of strategic 

sourcing. These practices drive efficiencies and yield benefits beyond 

savings, such as increased business knowledge and better supplier 

management. Government-wide strategic sourcing efforts have been 

initiated, and federal agencies have improved and expanded upon their 

use of strategic sourcing to achieve cost savings and other benefits. 

However, little progress has been made over the past decade and much 

more needs to be done to better incorporate strategic sourcing leading 

practices, increase the amount of spending through strategic sourcing, 

and direct more efforts at high spend categories, such as services. 

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 have devised 

strategies and tactics to manage sophisticated services. Companies have 

also shown that savings come over a wide base and that results can be 

achieved with leadership, shared data, and a focus on strategic 

categories that is dynamic rather than static. Strategic sourcing efforts to 

date have targeted a small fraction of federal procurement spending. As 

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

agencies change. Adopting leading practices can enable agencies to 

provide more for the same budget.

Chairman Carper, Ranking Member Coburn, and Members of the

Committee, this concludes my statement. I would be pleased to answer 

any questions at this time.

(121167)
Page 17 GAO-13-765T 

For future questions about this statement, 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 statement. Individuals making key contributions to this statement

include W. William Russell, Assistant Director; Peter Anderson; Leigh Ann 

Haydon; John Krump; Roxanna Sun; Molly Traci; Ann Marie Udale; 

Alyssa Weir; and Rebecca Wilson.

GAO Contact and 

Staff 

Acknowledgments

(121167)
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