Strategic Sourcing: Improved and Expanded Use Could Save Billions in Annual Procurement Costs
Published: 2012-09-20T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: GAO has reported that the government is not fully leveraging its aggregate buying power, and that strategic sourcing, a process that moves a company away from numerous individual procurements to a broader aggregate approach, allowed companies to achieve savings of 10 to 20 percent. A similar savings rate applied to the federal procurement budget would equal more than $50 billion dollars. In 2005, the Office of Management and Budget directed agencies to use strategic sourcing and established the FSSI program to manage governmentwide efforts. GAO was asked to assess (1) the extent to which selected agencies managed spending and achieved savings through strategic sourcing, (2) key challenges selected agency and FSSI officials face in strategically sourcing products and services, and (3) the extent to which the FSSI program managed spending and achieved savings through strategic sourcing. To do this, GAO selected four agencies that were among the highest in fiscal year 2011 procurement obligations--DOD, DHS, VA, and Energy--and reviewed governmentwide FSSI efforts. For each, GAO analyzed strategic sourcing data and policies, and interviewed responsible officials.
section_title: What GAO Found
paragraphs: Selected agencies leveraged only a fraction of their buying power through strategic sourcing and achieved limited savings. In fiscal year 2011, the Departments of Defense (DOD), Homeland Security (DHS), Energy, and Veterans Affairs (VA) accounted for 80 percent of the $537 billion in federal procurement spending, but reported managing about 5 percent or $25.8 billion through strategic sourcing efforts. These agencies reported savings of $1.8 billion--less than one-half of one percent of procurement spending. While strategic sourcing may not be suitable for all procurement spending, leading companies strategically manage about 90 percent of their procurements and report annual savings of 10 percent or more. Further, most agencies' efforts do not address their highest spending areas such as services, which may provide opportunities for additional savings.
Most selected agencies and the Federal Strategic Sourcing Initiative (FSSI) program have not fully adopted a strategic sourcing approach. In prior work, GAO found that sustained leadership and effective metrics are important factors to implementing strategic sourcing. However, leaders at DOD have dedicated limited resources to strategic sourcing, and leaders at VA and Energy are just beginning to align resources for agencywide strategic sourcing efforts. A lack of clear guidance on metrics for measuring success has also impacted the management of ongoing FSSI efforts as well as most selected agencies' efforts. In contrast, DHS leaders stood up a centralized office and hold senior managers accountable to meet goals. DHS sets targets for use of strategic sourcing contracts, and reported that nearly 20 percent of its fiscal year 2011 procurement spending was directed through strategically sourced contracts.
The FSSI program managed little spending through strategic sourcing initiatives, but reported considerable savings. In fiscal year 2011, the program managed $339 million through several governmentwide initiatives and reported $60 million in savings. However, total spending through the program remains low, in part, because the FSSI contracts have low rates of use and the program has not yet targeted the products and services on which the government spends the most.
section_title: What GAO Recommends
paragraphs: GAO recommends a number of actions OMB, DOD, and VA can take to achieve more savings, such as applying strategic sourcing practices to their highest spending procurement categories, and setting targets for use of strategic sourcing contracts. All three agencies concurred with our recommendations.

section_title: Letter
paragraphs: In fiscal year 2011, the federal government obligated approximately $537  billion on products and services. Given the increasing fiscal pressures  facing the United States, there has been a renewed focus on maximizing  efficiencies in the procurement process to achieve cost savings. In prior  reports, we found that private industry best practices in strategic sourcing,  a process—sometimes led by a central procurement organization—that  moves a company away from numerous individual procurements to a  broader aggregate approach, allowed companies to achieve savings of  10 to 20 percent of total procurement costs. We have also reported that  because procurement within the federal government is generally  decentralized, the government is not fully leveraging its aggregate buying  power and could benefit from adoption of strategic sourcing practices. For  example, saving even 10 percent of the total federal procurement  spending would produce more than $50 billion in savings annually.
In 2005, the Office of Management and Budget (OMB) directed federal  agencies to develop and implement a strategic sourcing effort to help  control spending. A governmentwide strategic sourcing program—known  as the Federal Strategic Sourcing Initiative (FSSI)—was also established.  The FSSI Program Management Office is located within the General  Services Administration (GSA) and the program reports to OMB’s Office  of Federal Procurement Policy (OFPP). You requested that we review the  status of strategic sourcing efforts both at selected agencies and  governmentwide, and identify challenges, leading practices, and potential  for additional strategic sourcing savings. Accordingly, we assessed (1)  the extent to which selected agencies managed spending and achieved  savings through strategic sourcing, and whether buying power could be  better leveraged; (2) key challenges agency and FSSI officials face in  strategically sourcing products and services; and (3) the extent to which  FSSIs managed spending and achieved savings through strategic  sourcing, and whether governmentwide buying power could be better  leveraged.
To conduct our work, we reviewed strategic sourcing efforts at four  agencies—Department of Defense (DOD), Department of Homeland  Security (DHS), Department of Veterans Affairs (VA), and Department of  Energy (Energy)—that were among the 10 agencies with the highest  fiscal year 2011 procurement obligations. To more fully assess strategic  sourcing at DOD, we reviewed the efforts of four component agencies— Air Force, Army, Navy, and the Defense Logistics Agency (DLA)—which  accounted for 88 percent of DOD spending in fiscal year 2011, as well as  departmentwide efforts managed by DOD’s Program Acquisition and  Strategic Sourcing (PASS) office, which is within DOD’s Defense  Procurement and Acquisition Policy (DPAP) organization and reports to  the Under Secretary of Defense for Acquisition, Technology, and  Logistics (AT&L). We also examined governmentwide FSSI efforts  managed by the FSSI Program Office and overseen by OFPP. We  analyzed selected agencies’ policies and interviewed agency and  governmentwide strategic sourcing officials to determine the status of  current and planned strategic sourcing efforts, with a focus on key  challenges and leading practices. To identify the commodities (both  products and services) on which the most federal procurement dollars  were spent governmentwide and by our selected agencies, we analyzed  fiscal year 2011 data from the Federal Procurement Data System—Next  Generation (FPDS-NG). We determined that FPDS-NG data were  sufficiently reliable for the purposes of our review. Further, we analyzed  selected agencies’ fiscal year 2011 data on strategic sourcing to identify  current or planned strategic sourcing efforts addressing these  commodities. We also analyzed data from selected agencies on managed  spending—spending through their strategic sourcing contract vehicles— and savings and other benefits from current strategic sourcing efforts. We  did not independently validate agency spending or savings data reported  to us by the agencies; however, we did assess information from agency  officials about the reliability of the data and resolved some discrepancies.  We determined that these data were sufficiently reliable for the purpose of  reporting governmentwide spending on products and services, agency  spending, and savings reported by agencies. See appendix I for a more  in-depth description of our scope and methodology.
We conducted this performance audit from August 2011 to September  2012 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: 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.  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.
GAO-11-318SP. out the companies’ strategic approach.and practices.
section_title: Most Selected Agencies Leveraged Only a Fraction of Their Buying Power and Achieved Limited Savings
paragraphs: The four agencies we reviewed—DOD, DHS, Energy, and VA—together  accounted for 80 percent of the total $537 billion federal procurement  spending in fiscal year 2011, but reported managing less than 5 percent,  or $25.8 billion, through agencywide strategic sourcing contracts. From  these efforts, the four agencies reported achieving a combined savings of  $1.8 billion, or less than one-half of one percent of total federal  procurement spending. While strategic sourcing may not be suitable for  all procurement spending, this percentage of managed spending and  savings is very low compared to leading companies which generally  strategically manage about 90 percent of their procurement spending and  achieve savings of 10 to 20 percent of total procurements annually.  According to DOD officials, DOD procurement spending and savings  through strategic sourcing contracts in fiscal year 2011 may be  underreported, as DOD currently tracks departmentwide initiatives on an  ad hoc basis. When strategic sourcing contracts were used, selected  agencies generally reported savings ranging from 5 percent to over 20  percent of spending through strategically sourced contracts. Further, most  of the four agencies’ current and planned strategic sourcing efforts do not  address their highest spending areas, the majority of which exceed $1  billion and most of which are services. As a result, opportunities exist for  agencies to realize significant savings by applying strategic sourcing in  these areas.
subsections: section_title: Selected Agencies Reported Managing a Fraction of Their Procurement Spending through Strategic Sourcing
paragraphs: OMB directed agencies to implement strategic sourcing practices in 2005,  but taken together, the agencies we reviewed have leveraged only a  fraction of what could potentially be managed and saved through strategic  sourcing. DOD, DHS, Energy, and VA accounted for 80 percent of the  total federal procurement spending for fiscal year 2011, but reported  managing less than 5 percent, or $25.8 billion, through strategic sourcing  efforts, and achieving a combined savings of $1.8 billion. The four  agencies varied widely in the level of spending managed through  strategic sourcing. For example, in fiscal year 2011, of the agencies we  reviewed, DHS reported the highest percentage of its total procurement  spending, nearly 20 percent, being managed through strategic sourcing  contracts. By contrast, VA reported the lowest at 1.4 percent. Figure 3  compares spending and savings through strategic sourcing at the four  agencies.
According to some agency officials, not all of their procurement spending  may be addressable through strategic sourcing. For example, DHS  considers some spending related to natural disasters such as hurricanes  and earthquakes to be unaddressable through strategic sourcing. In  another instance, Energy officials stated that they consider less than a  third of Energy’s total procurement spending to be addressable through  strategic sourcing. However, while some spending may not be suitable for  strategic sourcing, the percentage of spending selected agencies report  managing through strategic sourcing is small compared to the amount  leading companies are managing strategically. Industry groups recently  reported that leading companies they surveyed strategically manage  approximately 90 percent of their procurement spending centrally.  Moreover, leading companies we spoke with in 2012 reported that setting  goals and using metrics to measure managed spending is important. By  contrast, only a few of our selected agencies have set goals for the  amount of spending managed through strategic sourcing (see table 1).
At DOD—the federal government’s largest procurer of products and  services— the Army, Navy, Air Force, and DLA together reported  spending almost 6 percent, or $19 billion, through strategic sourcing  contracts. In addition, the Defense Program Acquisition and Strategic  Sourcing (PASS) office, which coordinates strategic sourcing efforts  across the department, was unable to provide us with a comprehensive  list of departmentwide strategic sourcing initiatives, and indicated that  there are likely more strategic sourcing initiatives that are not accounted  for because departmentwide initiatives are reported on an ad hoc basis.However, they provided information on a limited number of  departmentwide strategic sourcing initiatives that together represented  more than $1 billion of spending and over $900 million in savings in fiscal  year 2011.
The proportion of procurement spending being managed through  strategic sourcing varied widely among the military departments and DLA  (see fig. 4). For example, the Army spent more than $125 billion on  products and services in fiscal year 2011, but reported that only $280  million, or less than a quarter of one percent of procurement spending,  was strategically sourced. In contrast, DLA spent $36 billion on goods  and services in fiscal year 2011, and reported that 46 percent or $16  billion was strategically sourced. According to DOD officials, it is to be  expected that a high percentage of DLA’s spending is suitable for  strategic sourcing because DLA’s unique mission is to supply high  volume products that are bought across DOD, such as uniforms and food.  Although DLA’s spending represents only 10 percent of DOD’s total  procurement spending, DLA’s strategic sourcing efforts demonstrate that  when DOD approaches procurement from a departmentwide level, it can  achieve successful outcomes. In addition, PASS officials reported savings  of $889 million in fiscal year 2011 from one initiative that leveraged  departmentwide spending on enterprise software. Specifically, the  initiative consolidates DOD commercial software, information technology  hardware, and services requirements to obtain lower prices from  information technology providers. Figure 4 provides reported fiscal year  2011 procurement spending, and strategic sourcing information for the  military departments and DLA.
Selected agencies’ reported savings added up to $1.8 billion in fiscal year  2011—less than one-half of one percent of total federal procurement  spending. We previously reported that some companies achieved  reported savings of 10 percent to 20 percent of their total procurement  costs through the use of a strategic approach to buying products and  services. DHS reported fiscal year 2011 savings of $324 million. At DOD,  the military departments and DLA reported a total of $213 million in  savings for fiscal year 2011. The PASS office is just starting to collect  some data on departmentwide strategic sourcing savings and could not  definitively report savings through departmentwide strategic sourcing in  fiscal year 2011. However, based on information provided, DOD achieved  $900 million in savings from agencywide efforts. We have previously  reported that DOD has not fully collected and assessed cost savings and  other information from strategic sourcing initiatives. Energy and VA  officials reported $335 million and $56 million in savings respectively for  their strategic sourcing efforts in fiscal year 2011.
When strategic sourcing contracts were used, agencies generally  reported rates of savings ranging from 5 percent to over 20 percent of  spending through those contracts. For example, the Navy reported  spending $145 million and achieving savings of $30 million through  strategic sourcing in fiscal year 2011; these reported savings are almost  21 percent of the spending through strategic sourcing vehicles. However,  spending through strategic sourcing was a tiny fraction of the Navy’s total  procurement spending (0.1 percent). If the Navy were to direct even 10  percent of its total procurement spending of $105 billion through strategic  sourcing vehicles, and achieved savings equivalent to 21 percent of the  spending directed through strategic sourcing vehicles, it would save over  $2 billion. In another example, the Air Force reported spending $2.4  billion and achieving savings of $126 million through strategic sourcing in  fiscal year 2011. These reported savings are equal to 5 percent of the  spending through strategic sourcing. If the Air Force were to strategically  source even 10 percent of its total procurement spending of $65 billion,  and achieved savings equivalent to 5 percent of the spending through  strategic sourcing vehicles, it would save $339 million.
section_title: Strategic Sourcing Efforts at Most Agencies We Reviewed Are Not Addressing the Highest Spending Categories Offering the Most Potential for Savings
paragraphs: DOD training materials highlight the importance of prioritizing spending  categories by looking at total spending dollars, among other criteria;  specifying that a priority list can be developed by identifying those top  spend categories that comprise 80 percent of the organization’s total  procurement spending. While some agencies such as DHS have  implemented initiatives that address top spend categories, current and  planned initiatives at the other agencies we reviewed do not address the  categories that represent their highest spending, the majority of which  exceed $1 billion and most of which are for services rather than products.  Consequently, agencies are leaving large segments of spending  unmanaged, particularly in the area of services. We found that as the  amount of spending managed through strategic sourcing at selected  agencies increased, reported savings generally increased.
In fiscal year 2011, more than half of the procurement spending at the  four agencies we reviewed was used to acquire services. However, we  found that strategic sourcing efforts addressed products significantly more  often than services. Officials reported that they have been reluctant to  strategically source services for a variety of reasons, such as difficulty in  standardizing requirements or a decision to focus on less complex  commodities that can demonstrate success. Leading companies we  spoke with have focused their efforts on services in the past 5 to 7 years  because of the growth in spending in that area, and have achieved  significant savings. For example, officials at one leading company told us  that they developed standardized regional labor rates to allow strategic  sourcing of services. Strategic sourcing leading practices at private  companies suggest that it is critical to analyze all procurement spending  with equal rigor and with no categories that are off limits. In addition,  achieving savings requires a departure from the status quo. An industry  group recently surveyed companies and reported that companies have  successfully strategically sourced categories of services spending that  have been off limits or controversial for most procurement organizations,  such as information technology, professional services, technical services,  and facilities management. Selected agencies are procuring many of  the same types of services, such as professional services, and are  missing opportunities to coordinate efforts. For example, DOD conducted  a spend analysis in 2010 that identified knowledge-based services such  as engineering management services and logistics management services  as the largest portfolio of spending being procured by all the DOD  components.
Of the four agencies we reviewed, only DHS reported addressing the  majority of its top 10 spending categories of products and services. In  contrast, VA reported implemented initiatives in 3 of its top 10 spending  categories. Energy reported departmentwide initiatives for one of its top  10 categories of spending – operation of Government-Owned Contractor- Operated Research and Development Facilities, which comprises a large  percentage of the agency’s total procurement spending – but officials  noted that some of their components have strategic sourcing efforts in  those top 10 spending categories where virtually all of the spending is  concentrated at one component. Because of this concentration, Energy  officials did not believe greater efficiencies could be achieved by sourcing  those commodities at a departmentwide level. At DOD, PASS officials  could not provide a comprehensive list of departmentwide initiatives and  therefore, we could not fully assess their efforts to address the  department’s highest spending categories through departmentwide  strategic sourcing efforts.
The DOD components varied in the extent to which their efforts address  their top spending categories. Of the components we reviewed, only DLA  reported initiatives addressing the majority of their highest spending  categories (see fig. 5). According to Navy officials, they choose products  and services for strategic sourcing by examining their top spending  products and services and eliminating those that they do not consider to  be good candidates for strategic sourcing. Through this analysis, Navy  officials identified engineering and technical services as a good candidate  for strategic sourcing and stated they planned to create a commodity  team in the fourth quarter of fiscal year 2012 to develop an initiative in this  area. In addition, the Air Force reported completing multiple spend  analyses to identify and establish commodity councils, and also to  prioritize strategic sourcing initiatives within these commodity councils. Air  Force officials reported that strategic sourcing opportunities were  prioritized based on a value/complexity trade-off.
Of the top spending categories that DOD components reported targeting  through implemented strategic sourcing initiatives, only two are services.  However, leading companies and DHS have successfully tackled some  high-spend and complex services that are comparable to DOD’s high  spend services. For example, DHS has implemented a strategic sourcing  initiative for engineering and technical services, which is also in the top 10  spending categories for the Army, Air Force and Navy. DOD  acknowledges the need to better manage services spending. A DOD  instruction is in place that requires each service acquisition executive in  the military departments to collaborate with other senior officials to  determine key categories of services that can be strategically sourced,  and to dedicate full-time commodity managers to coordinate procurement  of these services. These officials are also responsible for conducting  periodic spend analyses of their procurement data. DOD officials told us  that the appointment of a senior manager for the acquisition of services at  each of the military departments and defense agencies is in progress, but  that it will take some time to fully achieve this change.
Agency officials stated that not all categories of spending are good  candidates for strategic sourcing. However, industry sources, government  guidance, and our prior work have identified a range of strategic sourcing  tactics that are appropriate for various types of government products and  services. For example, some military officials have cited weapon systems  as one category that they do not consider to be good candidates for  strategic sourcing. While weapon systems are highly specialized items  that have a long development cycle, we have identified where weapon  systems acquisition could benefit from some strategic sourcing practices,  such as supplier relationship management. In a 2005 memo on strategic  sourcing, DOD stated that enhancing relationships with suppliers  minimizes costs, as DLA has done through long-term contracts. Further,  DOD cited the need for improving long-term strategic relationships with  suppliers in its 2010 Better Buying Power memo, and directed  components to participate in an agencywide pilot to develop preferred  supplier relationships.
In addition, the Better Buying Power memo acknowledged a need for a  cohesive and integrated strategy for acquiring services, many of which  are among the highest spending categories for DOD. The memo cited the  use of more than 100,000 contract vehicles held by more than 32,200  contractors and also stated that contract support services spending at  DOD represented more than 50 percent of its total contract spending in  2009. However, the memo was not clear how strategic sourcing would be  incorporated into their ongoing efforts in this area. Similarly, the Defense  Business Board issued a report in January 2011 recommending that DOD  target high value areas for cross-military department coordination. The  report noted that strategic sourcing savings of even one percent at the  department would equate to billions of dollars.
section_title: Selected Agencies’ Strategic Sourcing Efforts Varied Widely
subsections: section_title: Initiatives Address a Range of Products and Services
paragraphs: Some of the four agencies have implemented many initiatives covering a  wide range of products or services, while others report only a few  initiatives that address a limited number of products or services. As of  fiscal year 2011, the four agencies we reviewed reported initiatives that  have been implemented or planned targeting nearly 750 products and  services—ranging from ammunition to architecture and engineering  services to seating. In addition to the initiatives that have already been  implemented at the four agencies, officials reported a total of 85 efforts  planned for fiscal years 2012 through 2016. Many initiatives include  multiple products or services. For example, DHS reported, for fiscal year  2011, 42 implemented departmentwide initiatives that covered  approximately 270 products and services, ranging from software to  professional and program management support services. By contrast, VA  reported 4 initiatives covering flags, hearing aids, wireless devices, and  affiliate negotiation teams. At the Department of Energy, the majority of  spending through strategic sourcing is led by the management and  operating contractors who operate and maintain most of their  government-owned facilities, such as national laboratories. Energy  officials told us that labs managed by the National Nuclear Security  Administration require their contractors to collaborate to produce  contracting vehicles for common products and services used across the  program. However, national labs managed by the Office of Science do  not. The Office of Environmental Management began implementing an  initiative modeled on National Nuclear Security Administration’s approach  in 2012.
At DOD, PASS officials were unable to definitively report how many  initiatives were ongoing as of fiscal year 2011. However, they did provide  information on a limited number of ongoing departmentwide initiatives.  Within DOD, the military departments and DLA varied in the number of  efforts that they have implemented and the types of products and  services that have been addressed. For example, the Air Force reported  17 implemented initiatives whereas the Army reported 8 and the Navy  reported 7 implemented initiatives. These initiatives include products,  such as taxiway lighting and maritime coatings, and services, such as  clinical support services and integrated logistics support services.
We found that agencies with more mature strategic sourcing programs— those with more implemented initiatives—managed more spending  through strategic sourcing than those with less mature efforts. For  example, DHS had the most initiatives and had the highest percentage of  spending through strategic sourcing of the four selected agencies we  reviewed. Conversely, VA officials reported the fewest initiatives and the  lowest amount of spending managed through strategic sourcing of the  agencies we reviewed. To support strategic sourcing efforts, DHS stood  up a strategic sourcing office at its headquarters to centralize strategic  sourcing efforts when the department was created in 2003, and its  strategic sourcing program has been operating under an implemented  management directive since 2004. We reported in 2004 that VA had  success with a few initiatives. However, since that time they do not  appear to have expanded their use of strategic sourcing. According to VA  officials, efforts were stymied by a lack of reliable data. However, they are  in the process of ramping up to add resources and increase their strategic  sourcing efforts.
Additionally, Energy’s major programs—National Nuclear Security  Administration, Office of Science, and Office of Environmental  Management—have ongoing strategic sourcing efforts and require some  contractors operating their facilities to strategically source; however,  Energy is still working to centralize its management of strategic sourcing  initiatives and create an agencywide strategic sourcing program. In 2010,  the Deputy Secretary of Energy cited further opportunities to leverage the  department’s buying power through a more centralized and less  fragmented approach, but according to Energy officials, steps have only  recently been taken to take advantage of those opportunities. For  example, the Office of Environmental Management created a partnership  in January 2012 with the National Nuclear Security Administration’s  Supply Chain Management Center. Under this partnership, the  Environmental Management contractors have begun working with the  Supply Chain Management Center to create a cooperative strategic  sourcing solution that achieves efficiencies and economies of scale, and  increases productivity and cost savings. In 2012, the Office of Science  conducted a review of the National Nuclear Security Administration’s  Supply Chain Management Center process and concluded that it does  not make financial or practical sense for their labs to leverage existing  efforts or establish a similar organization. They fulfill this function using  their previously established Integrated Contractor Purchasing Team. We  recently recommended that the Secretary of Energy assess whether the  National Nuclear Security Administration and the Office of Science are  taking the necessary steps to address challenges limiting implementation  of cost savings efforts. They agreed with our recommendation and are  taking steps to address it.
Efforts across DOD components varied but in general are not mature.  Army officials reported that the Army is currently aligning and allocating  strategic sourcing responsibilities in partnership with the Army’s Senior  Services Manager. In 2011, the Assistant Secretary of the Army issued a  memo establishing a strategic sourcing board structure and program. The  Air Force has been incorporating some aspects of strategic sourcing into  its procurement practices for over a decade and its efforts are the most  mature.
The Office of the Secretary of Defense (OSD) relies on each military  department to develop its own strategic sourcing efforts. The Defense  Business Board reported in 2011 that DOD had not incorporated  agencywide strategic sourcing into its operations and business practices.
Rather, PASS officials told us that they conduct a detailed and  comprehensive spending analysis, which they provide to the military  departments so that they may determine which products and services  they should address. Using this detailed spend analysis to select  commodities that could be strategically sourced across DOD is not their  primary goal; instead, PASS officials told us that they used it to identify  and develop goals set forth in the Better Buying Power memo, which  addresses productivity and efficiency initiatives such as increasing  competition and reducing the use of high-risk contract vehicles. DOD  guidance has not made clear how efforts related to the Better Buying  Power memo link specifically to strategic sourcing initiatives. Military  service officials told us that they would welcome guidance on strategic  sourcing efforts from the PASS office, which is the organization  responsible for championing strategic sourcing policy and initiatives for  the department. The PASS office is currently updating its departmentwide  strategic sourcing concept of operations, and is revising additional  guidance which will include a process for regular review of DOD  component and departmentwide proposed strategic sourcing initiatives.  PASS officials stated that additional direction from DPAP or AT&L may be  needed.
section_title: Selected Agencies and the FSSI Program Continue to Face Challenges in Implementing Strategic Sourcing
paragraphs: Selected agencies and the FSSI program, which manages  governmentwide strategic sourcing initiatives, continue to face common  challenges which prevent them from fully adopting a strategic sourcing  approach to procurement. A lack of leadership investment has prevented  several agencies from transforming their procurement organizations to  allow for enterprisewide strategic sourcing, as leading companies have  done. For example, leaders at DOD and the Army have not devoted  resources to set up the necessary organizational structures for strategic  sourcing. In addition, agencies are still challenged to obtain and analyze  reliable and detailed agencywide spending data, which hinders their  ability to identify and study the strategic sourcing opportunities offering  the most potential benefits. Finally, the FSSI program and selected  agencies face challenges in communicating information for new and  ongoing initiatives as well as establishing and meeting utilization goals to  measure the effectiveness of these efforts and to realize cost savings.  Where agencies have overcome some of these challenges, strategic  sourcing results have improved. For example, DHS has established a  centralized strategic sourcing office, identified opportunities in high spend  areas despite data deficiencies, and taken steps to manage and monitor  ongoing efforts. DHS is currently managing nearly 20 percent of its total  procurement spending through strategic sourcing contracts and in fiscal  year 2011 met its goal of 35 percent of spending on relevant products and  services directed through the strategic sourcing contracts.
subsections: section_title: Except for DHS, Leadership Commitment Has Been Lacking, but Improvements Are Under Way
paragraphs: Leaders at DOD and Energy have not committed to creating a  procurement organization that views spending and makes strategic  sourcing decisions at an agencywide level. DHS has created a  centralized strategic sourcing organization and VA has initiated some  reorganization in 2012, but it is too early to tell whether recent  realignment efforts within VA will be successful. Each of these four  agencies must overcome challenges posed by insufficient leadership  support, including failure to dedicate resources and lack of management  action to address disincentives to strategic sourcing. However, all four  agencies reported they have begun to adopt some practices aimed at  addressing these challenges.
At a few agencies, leadership has not devoted sufficient resources to  allow for strategic sourcing to be conducted at a departmentwide level.  Strategic sourcing programs can be structured in various ways that  require varying levels of resources. For example, DHS established a  strategic sourcing program office, located in the Office of the Chief  Procurement Officer, which includes DHS’s Director of Strategic Sourcing  and nine additional staff members. This office coordinates with the  components to identify opportunities and develop agencywide contracts  that apply strategic sourcing principles. VA reported that in response to a  proposal from Veterans Health Administration (VHA) personnel, VA  leadership has recently committed to support the VHA in hiring  approximately 150 full time personnel who will establish commodity  management teams to identify departmentwide strategic sourcing  opportunities and develop improved requirements packages, among other  duties. Similarly, the Air Force reported that roughly 125 employees within  its Enterprise Sourcing Group are involved in cross-functional strategic  sourcing that leverages installation spending across 71 sites.
The structure of an agency’s strategic sourcing program will determine  the amount of dedicated resources that are needed; however, in two  cases we found large agencies with only one or two full time employees  who were expected to coordinate strategic sourcing across the entire  organization. The Army, which managed more annual procurement  spending than any other government agency in fiscal year 2011, currently  does not have a formal strategic sourcing program office. The strategic  sourcing function presently lies within the Policy and Oversight  Directorate under the Deputy Assistant Secretary of the Army for  Procurement, which has committed only one staff person at a quarter  time to managing its strategic sourcing. Moreover, at the OSD level, DOD  has allocated one Deputy Director and one full-time staff member to its  PASS office. The failure of agency leaders to devote resources to  strategic sourcing has been a recurring issue. For example, in 2009, the  FSSI program reported that many strategic sourcing staff cited resource  constraints as the main barrier to implementation of strategic sourcing in  their organizations. During our review we observed that agencies that  have committed more resources to managing departmentwide strategic  sourcing efforts were better able to maintain data on their agencies’  current strategic sourcing initiatives. This is a necessary step for  coordinating and managing purchases agencywide—identified in our prior  work as critical to taking a strategic approach to procurement. For  example, DHS maintains a published list of available departmentwide  strategic sourcing vehicles, while Army officials told us it was difficult for  them to supply information on all initiatives because strategic sourcing  data—even on Army-wide efforts—are not kept centrally and would  require a data call.
Agency officials mentioned several disincentives that can discourage  procurement and program officials from proactively participating in  strategic sourcing, and at many agencies, these disincentives have not  been fully addressed by leadership. Key disincentives identified by  agency officials include the following:
A perception that reporting savings due to strategic sourcing could  lead to program budgets being cut in subsequent years,
Difficulty identifying existing strategic sourcing contracts that are  available for use as there is no centralized source for this information,
A perception that strategically sourced contract vehicles may limit the  ability to customize requirements,
A desire on the part of agency officials to maintain control of their
Program officials’ and contracting officers’ relationships with existing
The opportunity to get lower prices by going outside of strategically  sourced contracts.
For example, a key disincentive to implementing efforts and tracking and  reporting savings is a perception that program budgets may be cut as a  result of producing savings. Agency officials stated that a reluctance to  track and report savings for fear of budget reductions contributes to  underreporting of savings. Military officials reported a perception that any  money saved will be taken from the next year’s budget. Navy officials  stated that several of their commands have expressed concerns that  tracking and reporting savings could trigger another round of budget  reductions and that the issue is frequently raised during their meetings  with Navy senior management. DOD leadership has not yet addressed  this perception for strategic sourcing efforts.
Leaders at some agencies have proactively introduced practices that  address these disincentives to strategically source. For example, DHS  and VA reported increasing personal incentives for key managers by  adding strategic sourcing performance measures to certain executives’  performance evaluations. In addition, several agencies including DOD,  DHS, and VA have instituted policies making use of some strategic  sourcing contracts mandatory or mandatory “with exception,” although the  extent to which these policies have increased use of strategic sourcing  vehicles is not yet clear. Some agencies have made use of automated  systems to direct spending through strategic sourcing contracts. For  example, FSSI issued a blanket purchase agreement through its office  supplies initiative which included provisions requiring FSSI prices to be  automatically applied to purchases made with government purchase  cards. VA reported that its utilization rate for the office supplies FSSI  contracts increased from 12 percent to 90 percent after these measures  took effect. Officials from a number of agencies reported that they  expected shrinking budgets will prompt leadership to provide additional  requirements or incentives to strategically source. In fact, VA and Navy  officials reported renewed attention to strategic sourcing as a potential  tool to deal with budget cuts.
section_title: A Few Agencies Have Conducted Opportunity Analyses Despite a Lack of Reliable Agencywide Spending Data
subsections: section_title: Obtaining and Analyzing Spending Data
paragraphs: The FSSI program and selected agencies generally cited the Federal  Procurement Data System—Next Generation (FPDS-NG)—the federal  government’s current system for tracking information on contracting  actions—as their primary source of data, and noted numerous  deficiencies with this data for the purposes of conducting strategic  sourcing research. Agencies reported that when additional data sources  are added, incompatible data and separate systems often presented  problems. We have previously reported extensively on issues agencies  faced in gathering data to form the basis for their spend analysis.  However, some agencies have been able to make progress on  conducting enterprisewide opportunity analyses despite flaws in the  available data. For example, both the FSSI Program Management Office  and DHS told us that current data, although imperfect, provide sufficient  information for them to begin to identify high spend opportunities. DHS  has in fact evaluated the majority of its 10 highest-spend commodities  and developed sourcing strategies for seven of those based on its  analysis of primarily FPDS-NG data.
Officials at several agencies noted that the lack of trained acquisition  personnel made it difficult to conduct an opportunity analysis and develop  an informed sourcing strategy. For example, Army officials cited a need  for expertise in strategic sourcing and spend analysis data, and OMB  officials echoed that a key challenge is the dearth of strategic sourcing  expertise in government. VA and Energy also reported this challenge. A  few agencies have responded to this challenge by developing training on  strategic sourcing for acquisition personnel. For example, the Air Force  noted that they instituted training related to strategic sourcing because it  is necessary to have people who are very strong analytically to do the  front end work for strategic sourcing, and these are the hardest to find.  The training course gives acquisition personnel strong analytical skills to  perform steps like market evaluation. VA has also begun to develop  training to address this challenge.
section_title: Agencies Report Challenges in Executing Individual Strategic Sourcing Initiatives
subsections: section_title: Developing the Sourcing Strategy
paragraphs: Agency officials listed several challenges that they commonly face in  developing the sourcing strategy for a product or service. As with the  opportunity analysis stage, imperfect data and a lack of expertise also  pose challenges to agencies when developing a sourcing strategy. This  phase requires study of various types of information; for example, data on  the agency’s requirements and historical and projected demand for the  product or service. Some agencies have found additional information on  existing suppliers and contracts to also be important in identifying  commodities to target for strategic sourcing. For example, the Air Force  also considers data on the number of contracts, the number of purchasing  locations, the number of transactions, the number of suppliers, and  estimated total cost savings for each potential commodity, among other  factors. Several agencies have historically turned to contractors to  perform this step; however some have recently decided to increase  internal expertise in this area. For example, the FSSI Program  Management Office reported hiring two new staff with relevant expertise  to help with this process.
A few agencies also reported challenges specifically with meeting  requirements unique to government procurements. Government  procurements must meet specified socioeconomic goals; for example,  agencies are expected to award a certain portion of their contracts to  small businesses. Organizations representing small businesses have  expressed concern that federal strategic sourcing reduces contracting  opportunities for small businesses. However, while acknowledging that  reducing the number of vendors providing a product or service means  that some vendors will be unable to participate, agency officials reported  finding ways to conduct strategic sourcing efforts that allow for maximum  feasible small business participation. For example, DHS, VA, and Air  Force officials told us they collaborated with small business advocates  early in the acquisition planning stage to ensure they conducted market  research that would help determine how to maximize small business  participation. In addition, Federal Strategic Sourcing Initiatives to date  have generally awarded a number of contracts to small businesses. For  example, of 15 contracts awarded for an initiative focusing on office  supplies, 13 were awarded to small businesses, and these businesses  received over 70 percent of office supplies spending through that initiative  in fiscal year 2011. Another initiative targeting print management services  awarded 5 of 11 contracts to small businesses. Several agency small  business utilization officials with whom we spoke were generally satisfied  with FSSI and agency efforts to involve small businesses in strategic  sourcing.
Officials at all of our four selected agencies discussed challenges in  getting buy-in among those who would be using the strategic sourcing  contracts to purchase products or services. Buyers can face a number of  disincentives to using strategic sourcing vehicles, as outlined above. In  addition to creating structures that provide incentives for participation in  strategic sourcing, several agencies incorporate practices into individual  strategic sourcing efforts to increase stakeholder buy-in. OMB, DHS, and  Air Force officials reported that one such practice is involving  stakeholders early in the process. For example, Air Force officials said  that in order for strategic sourcing to be successful, the cross-functional  commodity team must include the organization that is funding the  acquisition. DHS officials added that in order to have support with all  levels of personnel involved, it is important to have the end users in the  room when making procurement decisions. Similarly, the program  manager for GSA’s planned FSSI covering wireless rate plans and  devices personally conducted extensive outreach with agencies to  understand their technical requirements and encourage customer  involvement. In response, agencies have sent representatives from  offices of both the Chief Information Officer and the Chief Acquisition  Officer to work with the team in developing the acquisition strategy.
After strategic sourcing contracts are awarded, realizing cost savings and  other benefits depends on utilization of these contracts. Agency officials  indicated that a key challenge with strategic sourcing is communicating  new contracting options. For example, Navy officials expressed that even  though they have templates for communication that can be used when  rolling out an initiative, it is really people who determine whether the  communication will be effective. In addition to putting together a  communication plan to alert government purchase card users that use of  the office supplies FSSI was now required, Air Force officials conducted  random telephone calls to ensure these users knew of the existence of  the policy. Air Force officials believed that these communication efforts  led to a 50 percent increase in FSSI usage from March to April 2011.
To improve the existing FSSI efforts, GSA applied lessons learned from  previous initiatives to increase buy-in and utilization. The first generation  of the office supplies initiative did not have a high utilization rate, and  officials attributed this, in part, to a failure to publicize the effort. As a  result, GSA increased its outreach efforts for the second iteration of the  initiative and developed an implementation kit—a pre-packaged  communications campaign to help implement the FSSI. The kit included a  five-step implementation process, sample communications and policy  memos, and reporting templates. In fiscal year 2011, an estimated 13  percent of governmentwide spending on office supplies went through  second generation office supplies initiative contracts, up from less than 1  percent of similar spending through first generation contracts in fiscal year  2009.
Failure to set goals and difficulty in measuring the utilization of strategic  sourcing contracts also present a critical challenge. A lack of detailed  data on spending makes it difficult for agencies to track utilization of  existing strategic sourcing contracts. FPDS-NG provides spending data  by product service code, but the products and services targeted by most  strategic sourcing initiatives are only a subset of these much broader  categories. Further, FPDS-NG lacks information on transactions below a  certain dollar threshold. Even where agencies have improved their data  on spending through strategically sourced contracts—for example, a FSSI  blanket purchase agreement requires vendors to provide detailed line  item data on spending—they continue to lack data that allows them to  reliably identify spending on these products and services that go to  contractors outside of strategically sourced contracts. Inability to track this  spending makes tracking utilization imprecise, but the FSSI program, VA,  and DHS have all begun tracking utilization data—though imperfect—and  are using utilization rates as one metric to manage strategic sourcing  efforts. VA officials acknowledged that regular monitoring of strategically  sourced spending is what creates the incentive to stabilize savings  following the initial drop in spending, which is crucial to continued  success.
Agencies are equally challenged to produce other metrics—such as  spending through strategic sourcing contracts and savings—that can be  used to monitor progress. However, agencies will be increasingly called  upon to produce metrics as the use of strategic sourcing expands. For  example, in 2012 OMB issued a new cross-cutting management  improvement goal, which calls for agencies to strategically source at least  two new products or services in both 2013 and 2014 that yield at least 10  percent savings. Agencies will need to measure savings to document  their progress toward this goal. However, although recognizing the need  for guidance on how agencies are to measure savings, OMB has not yet  issued such guidance.
The strategic sourcing savings figures reported to us by agency officials  were calculated using a variety of savings methodologies; for example,  the difference in the paid price versus the price from ordering the same  product or service from GSA schedule contracts. Other examples for  calculating savings include totaling GSA management fees avoided  because GSA schedules were not used for the procurement, and  comparison of the prices paid on the contracts before strategic sourcing  and after. Often several methodologies were used even within agencies.  We recently reported that Energy’s guidance on calculating procurement  cost savings gave its maintenance and operations contractors  considerable flexibility in choosing the methods for estimating savings,  and therefore estimates could vary widely. For example, one laboratory  estimated a $9 million savings from a software purchase in 2010 using its  preferred estimation method. By other methods used elsewhere in  Energy, however, the site estimated that its savings could have been as  high as $35 million. We recommended that Energy clarify its guidance on  estimating cost savings from streamlining efforts. Energy officials  agreed with our recommendation and stated they have clarified their  guidance on developing savings estimates. In addition, our recent reports  highlighted the difficulties that agencies face when calculating acquisition  savings. Specifically, we found that agencies reported billions of dollars in  overstated and questionable savings in response to OMB’s Acquisition  Savings Initiative due to differing methods of calculating savings as well  as confusion as to what should be included as savings. We also found  that when calculating savings from various efforts including strategic  sourcing, VA had double counted savings on different efforts and had not  accounted for the cost of implementing other efforts.
In addition to savings, leading companies that we spoke with have  identified a variety of metrics they use to measure return on strategic  sourcing investments, such as the spending under management,  reductions in total cost of ownership, and efficiencies due to streamlined  processes. Agency officials have identified, but have not quantified, some  of these other benefits to strategic sourcing. Officials acknowledge that  strategic sourcing efforts can produce administrative cost savings, but  they are difficult to quantify. For example, DHS reported that  consolidating procurements using agencywide contracts streamlines the  acquisition process and saves the department significant administrative  costs; however, DHS does not quantify these savings. Strategic sourcing  efforts can also achieve efficiencies by changing buying behavior and  managing demand for products and services. For example, OSD officials  reported the Navy has been innovative in incorporating demand  management into its approach for buying wireless services. Navy’s  wireless effort is down to eight plans and eight devices, and the service is  now doing demand analysis.
Several agencies mentioned a need for sustained leadership support and  additional resources in order to more effectively monitor ongoing  initiatives. For example, DOD’s PASS office—with only two people to  advocate strategic sourcing policy and coordinate communication of  component initiatives—does not track current strategic sourcing efforts at  the component or departmentwide level. Some agencies that have  developed metrics such as contract utilization rates report using those  metrics to increase ongoing communication with leadership and maintain  leadership investment. For example, VA officials said that they collect  utilization metrics for the FSSIs and brief the Deputy Secretary on those  metrics monthly.
section_title: Federal Strategic Sourcing Initiatives Managed a Small Amount of Spending and Achieved Considerable Savings, but Greater Savings Are Possible
paragraphs: The FSSI program has adopted some leading practices for strategic  sourcing, such as creating the structure and processes necessary to  implement and monitor efforts. Through the end of fiscal year 2011, the  program had only managed a small amount of spending through its four  governmentwide strategic sourcing initiatives; however it reported  achieving significant savings on those efforts. In fiscal year 2011, the  FSSI program managed $339 million through these governmentwide  initiatives and reported achieving $60 million in savings. However, the  program faces key challenges in obtaining agency commitments to use  new FSSIs and in increasing the level of agency spending directed  through FSSI vehicles. For example, only 15 percent of governmentwide  spending for the products and services covered by the FSSI initiatives  went through the FSSI contracts in fiscal year 2011. Successfully  addressing these challenges could help the FSSI program achieve  greater governmentwide savings and efficiencies. In addition, the FSSI  program has not yet targeted any of the government’s 50 highest spend  products and services for strategic sourcing, and therefore is missing the  potential for more significant strategic sourcing savings and other benefits  governmentwide.
subsections: section_title: The FSSI Program Governance Structure Allows for Interagency Collaboration on FSSIs
paragraphs: The FSSI program reports to OMB’s Chief Acquisition Officers Council  through its Strategic Sourcing Working Group. The Working Group,  comprised of representatives of various agencies, vets and approves  initiatives and sourcing strategies, and establishes the standards,  processes, and policies governing FSSI. The FSSI Program Management  Office supports the Working Group and coordinates the efforts of  executive agents to implement individual FSSI initiatives. See figure 6 for  the FSSI program governance structure.
The FSSI Program Management Office is located within the GSA’s  Federal Acquisition Service. In addition, each of the four implemented  strategic sourcing initiatives is also managed by GSA’s Federal  Acquisition Service staff. The FSSI Program Management Office provides  guidance and oversight, reviews information and recommendations, and  makes strategic program decisions. This structure has allowed the FSSI  program to assess opportunities for procuring certain products and  services, develop and implement sourcing strategies to leverage  governmentwide buying power, and manage the strategic sourcing  efforts. Agency representatives participate in developing and managing  FSSIs through membership in commodity teams.
section_title: The FSSI Program Managed a Small Amount of Fiscal Year 2011 Spending through Several Federal Strategic Sourcing Initiatives and Reported Achieving Considerable Savings
paragraphs: In fiscal year 2011, the FSSI program managed $339 million through  governmentwide initiatives and achieved approximately $60 million in  savings, or almost 18 percent of the procurement spending it managed  through these initiatives. As of fiscal year 2011, four initiatives had been  implemented. The domestic delivery services and office supply  initiatives—originally implemented in 2006 and 2007, respectively - are in  their second iterations. The wireless telecommunications expense  management initiative has been in place since 2008. The first print  management initiative contracts were awarded near the end of fiscal year  2011, and initial efforts focused on assessing agencies’ use of print  output devices. Given the timing of the first contract award in late fiscal  year 2011, FSSI Program Management Officials reported that no  spending was yet managed through the contracts in that fiscal year. The  number of agencies participating in the initiatives varied widely. For  example, the FSSI Program Management Office reported that as of fiscal  year 2011, five agencies participated in the Wireless Telecommunications  Expense Management Services initiative, while 95 participated in the  Domestic Delivery Services II initiative. Table 2 describes four  implemented and two planned governmentwide strategic sourcing  initiatives.
SmartBUY is an existing federal procurement vehicle that was started in  2003 and leverages the government’s buying power to reduce the cost of  commercial off-the-shelf software and services. As of the end of fiscal  year 2011, SmartBUY was not classified as a Federal Strategic Sourcing  Initiative, but the Strategic Sourcing Working Group in June 2012 formally  accepted it as an FSSI Initiative. The FSSI Program Management Office  plans that going forward, the FSSI SmartBUY will develop strategies to  address as many large software publishers as possible. The planned  initiative targeting wireless rate plans and devices will aim to deliver  acquisition savings due to lower purchasing costs as well as operational  savings through improvement of processes and information.
section_title: The FSSI Program Faces Challenges in Getting Top Spending Agencies to Commit to Governmentwide Strategic Sourcing Contracts
paragraphs: FSSI program officials that manage the governmentwide strategic  sourcing initiatives told us that before contracts are awarded, obtaining  spending commitments—especially from top spending agencies—is  important in negotiating discounted prices and implementing a successful  strategic sourcing effort. However, they noted that getting agency  commitments to use the FSSI initiatives sometimes can be a challenge.  Even agencies that are part of strategic sourcing commodity teams  sometimes do not commit to using the resulting FSSI contracts. For  example, DOD representatives participated in the commodity team for the  Office Supplies II effort, and DOD spending represented a large portion of  the total federal government spending on office supplies. However, prior  to Office Supplies II implementation, DOD committed only to continue  support of the FSSI for office supplies, but did not specifically commit to  using Office Supplies II contracts. By contrast, other agencies such as VA  provided the FSSI program with letters of intent that committed the  agencies to use the Office Supplies II contracts once awarded. This  information was used by the FSSI program to negotiate better prices with  vendors.
PASS officials acknowledged that although DOD participates in  commodity teams for the Federal Strategic Sourcing Initiatives, the  department has not fully committed to certain FSSI contracts for a variety  of reasons, including having more sophisticated requirements or different  mission needs than those of civilian agencies, and having existing  contract vehicles in place when some FSSI initiatives were implemented.  A PASS official said that the department would more likely commit to  current and planned FSSI contracts if those contracts showed significant  savings/best value over established DOD contracts, to include the cost of  administration, fees, and transition. Officials added that they may also be  more likely to commit to FSSI contracts if FSSI initiatives addressed  products or services not previously addressed by DOD, or if the FSSI  program selected products or services with more significant spending.
section_title: The FSSI Program Faces Challenges to Achieve Greater Governmentwide Savings and Efficiencies through Increased Use of Strategic Sourcing Contracts
paragraphs: Although reported spending through FSSI vehicles has increased from  fiscal year 2009 to fiscal year 2011, spending through the vehicles  continues to be limited. Only $339 million, or 15 percent, of  governmentwide spending for the products and services covered by the  FSSIs went through the vehicles in fiscal year 2011. However, where  spending went through FSSI vehicles, the program reported savings  equivalent to almost 18 percent of the spending through those vehicles.  Although not all spending is suitable for strategic sourcing, if even 1  percent of total federal procurement spending were directed through the  FSSIs and achieved savings equivalent to 18 percent of that spending,  the federal government could save over $900 million.
Agencies cited a variety of reasons for not participating in the  governmentwide FSSI initiatives. Some agencies told us they were more  likely to engage in agencywide strategic sourcing than to participate in a  governmentwide effort because they want to maintain control over their contracting, have unique requirements, or can get lower prices outside of the FSSI contract vehicles.
For example, Energy officials told us their buyers are purchasing some  items through Office Supplies II, but also have gotten lower prices on  other items from current vendors by comparing prices.
FSSI use is not mandatory and agencies face no consequence for not  using the FSSI contract vehicles. According to OFPP and GSA officials,  they have not made use of FSSI contracts mandatory governmentwide— preferring instead to establish FSSI contract vehicles that agencies will  want to use. However, though GSA is the sponsoring agency, only 28  percent of its own office supply spending in fiscal year 2011 went through  Office Supplies II. Agencies can mandate FSSI use agencywide, and the  Air Force, Navy, DHS, and VA have issued policies making at least  consideration of some FSSI use mandatory. GSA officials indicated that  they are revisiting whether mandatory use policies would benefit the  current FSSI initiatives.
In 2012, OMB released a Cross-Agency Priority Goal Statement which  requires agencies to increase their agencywide strategic sourcing efforts  and also requires agencies to increase their use of FSSI contracts by at  least 10 percent in both fiscal years 2013 and 2014, unless they can  establish that their current spending patterns on related products are  more cost-effective. This is a positive step and may help to increase  agency use of FSSI contracts; however, the guidance does not include  information on how agencies will be held accountable for meeting these  goals and it is too early to tell what effect the establishment of this goal  will have.
section_title: The FSSI Program Has Not Targeted High Spending Categories of Products and Services Offering the Most Potential for Savings Governmentwide
paragraphs: Many of the governmentwide highest-spending categories of products  and services exceed $10 billion, and therefore offer great opportunities for  savings if they can be strategically sourced successfully. In fiscal year  2011, federal spending on the top 50 products and services was $283  billion, or 53 percent of total government procurement spending.  Appendix II identifies the fiscal year 2011 highest governmentwide  spending categories.
Current governmentwide strategic sourcing initiatives do not address any  of the top 50 governmentwide products and services, in part because the  FSSI program excludes some of them from consideration for  governmentwide strategic sourcing. The FSSI program evaluates  products and services based on savings potential, diversity of customer  pool, and ease of implementation. In its fiscal year 2011 analysis of  spending, before considering products and services for a  governmentwide initiative, the program removed those considered  unsuitable for strategic sourcing, including mission-critical products and services, products and services for which DOD alone or two or fewer  departments accounted for 80 percent or greater of funding, and  construction, architect/engineering, and building maintenance  services.
Consequently, only about one quarter of total spending—or $129 billion— remained open for consideration for a governmentwide initiative.
Officials told us that where spending on a product or service is  concentrated among just a few agencies, a better approach would be for  these agencies to collaborate to strategically source it rather than  establish a governmentwide effort. However, many high-spending  categories of services with spending spread more broadly across  agencies are also not currently being targeted. FSSI Program  Management Officials acknowledged that services comprise a high  volume of governmentwide procurement spending, and that the FSSI  program cannot ignore them for much longer.
Current FSSI contracts address products and services that have relatively  low spending when compared to those that are among the top 50. For  example, all products procured under the Office Supplies II FSSI  combined would rank 134th in fiscal year 2011 federal procurement  spending. FSSI officials reported that they selected FSSI products and  services for reasons other than a high spending level, which included  agency adoption and standard purchase requirements across  government. For example, FSSI officials explained that the current FSSIs,  including Office Supplies II, were selected to demonstrate that strategic  sourcing could be successful with simpler commodities before they  pursued more complicated products and services. They also may select a  product or service that an agency has already been considering to build  on momentum. For example, an upcoming FSSI initiative for publication  licenses was chosen because of interest by the Library of Congress. The  Library of Congress will also lead the initiative, which will be the first time  that GSA will not be the executive agent for an FSSI effort, but this FSSI  only addresses an estimated $500 million to $600 million in federal  procurement spending.
section_title: Conclusions
paragraphs: Current fiscal pressures and budgetary constraints have heightened the  need for agencies to take full advantage of strategic sourcing and other  efficiencies. Government agencies and commercial firms tend to have  more spending managed through strategic sourcing efforts when they  incorporate leading practices such as using their spend analysis to inform  their selection of products and services for strategic sourcing, devoting  resources to strategic sourcing efforts, and measuring the benefits of  ongoing efforts. These practices drive efficiencies and yield benefits  beyond savings, such as increased business knowledge.  Governmentwide strategic sourcing efforts have been initiated, and the  four federal agencies we reviewed have improved and expanded upon  their use of strategic sourcing to achieve cost savings and other benefits,  but some agencies’ leaders, such as OSD and the Army, have not made  a sufficient commitment to strategic sourcing, investing limited resources  and failing to establish goals and performance metrics. Energy’s  experience has been similar to DOD’s, and we have recently made  related recommendations to the Secretary of Energy. DHS and DLA  have shown that agencies can successfully target high spend  commodities for strategic sourcing. Despite these examples, selected  agencies’ current efforts and the FSSIs fall well short of addressing most  of the federal procurement spending. Perennial high spend areas such as  services offer the biggest potential for savings but have been largely  ignored in strategic sourcing efforts. Focusing only on low risk, low return  strategic sourcing strategies diminishes the government’s ability to fully  leverage its enormous buying power and achieve other efficiencies. Until  top-spending federal entities, especially DOD and the FSSI program,  better incorporate strategic sourcing leading practices, increase the  amount of spending through strategic sourcing, and direct more efforts at  high spend categories, billions of dollars in potential savings may be  missed, denying agencies a valuable tool for maximizing their ability to  carry out critical missions under tight budgets.
section_title: Recommendations for Executive Action
paragraphs: To improve departmentwide strategic sourcing efforts at DOD, we  recommend that the Secretary of Defense direct the Office of Acquisition,  Technology, and Logistics to take the following five actions:  sets goals for spending managed through strategic sourcing  vehicles, establishes procedures for the identification and tracking of  departmentwide and component strategic sourcing efforts through  the PASS office,  implements the PASS office strategic sourcing guidance,  links strategic sourcing to its Better Buying Power memorandum,  and establishes metrics, such as utilization rates, to track progress  toward these goals.
Evaluate whether the current resources of OSD’s PASS office are  sufficient to enable the office to fulfill its strategic sourcing mission.
Evaluate existing acquisition strategies for DOD’s current  departmentwide acquisitions, and where these represent a strategic  sourcing approach, ensure that data on these programs are submitted  to the PASS office.  Identify and evaluate the best way to strategically source DOD’s  highest spending categories of products and services (e.g.,  governmentwide vehicles, interagency collaboration, departmentwide  vehicles).  Identify and submit to the FSSI program a list of products and  services that, if developed as FSSIs, present the best opportunities for  future DOD participation.
To improve strategic sourcing efforts at the Army, and in light of  significant potential savings and performance improvements, we  recommend that the Secretary of Defense take the following action:
Evaluate whether the resources that the Army’s Policy and Oversight  Directorate has allocated to strategic sourcing are sufficient to enable  the Directorate to fulfill its strategic sourcing mission.
To help ensure that VA’s strategic sourcing efforts further reflect leading  practices, and in light of significant potential savings and performance  improvements, we recommend that the Secretary of Veterans Affairs  direct strategic sourcing staff to take the following two actions:
Based on analysis of agencywide spending, evaluate the best way to  strategically source VA’s highest spending categories of products and  services (e.g., governmentwide vehicles, interagency collaboration,  agencywide vehicles).
Set goals for spending managed through strategic sourcing, and  establish metrics, such as utilization rates, to monitor progress toward  these goals.
To help ensure that government strategic sourcing efforts further reflect  leading practices, and in light of significant potential savings and  performance improvements, we recommend that the Director of OMB  direct the Administrator of OFPP to take the following two actions:  Issue an updated memorandum or other direction to federal agencies  that includes guidance on calculating savings (including administrative  cost savings) and establishes additional metrics to measure progress  toward goals.
Direct the FSSI Program to report on the program’s assessment of  whether each top spend product and service governmentwide is  suitable for an FSSI, with a plan to address those products or services  that are suitable for strategic sourcing.
section_title: Agency Comments and Our Evaluation
paragraphs: We sent copies of a draft of this report to DOD, Energy, DHS, VA, GSA,  and OMB. In its written comments (reproduced in appendix III), DOD  concurred with our recommendations and stated it would take action to  adopt them. DHS comments (reproduced in appendix IV) emphasized the  agency’s commitment to improving and expanding its use of strategic  sourcing. In its written comments (reproduced in appendix V), VA  concurred with our recommendations and gave additional information on  its strategic sourcing activities. As acknowledged in VA’s letter, it did not  provide this data in response to requests made during our review, and  therefore we were unable to evaluate this additional data.
OMB staff provided oral comments concurring with our recommendations  and stated they are developing guidance designed to accomplish the  intended results in collaboration with a new senior level interagency  governance group. In their oral comments, OMB staff also noted that our  report compares the percent of spending through strategic sourcing to  total procurement spending, rather than to spending on the products and  services for which strategic sourcing is applicable. In response, we  revised our draft report to more explicitly acknowledge that not all  spending is suitable for strategic sourcing. However, during our review we  observed that agencies held different views on whether certain categories  of products and services are addressable through strategic sourcing, and  our recommendations aim to encourage agencies to make this  determination for each high spend product or service through a structured  analysis.
DOD also provided technical comments which we considered and  incorporated into the report as appropriate. Energy and GSA provided  only technical comments, which we considered and incorporated into the  report as appropriate.
As agreed with your offices, unless you 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 the Director of OMB; the  Administrator of OFPP; the Administrator of General Services; and the  Secretaries of the Departments of Homeland Security, Energy, Veterans  Affairs, and Defense, as well as the Secretaries of the Air Force, Army,  and the Navy, and the Director of DLA. This report will also be available  at no charge on GAO’s website at http://www.gao.gov.
If you or your staff have any questions about this report or need additional  information, please contact me at (202) 512-4841 or chaplainc@gao.gov.  Contact points for our Offices of Congressional Relations and Public  Affairs may be found on the last page of this report. Staff  acknowledgments are provided in appendix VI.
section_title: Appendix I: Scope and Methodology
paragraphs: We were asked to review the status of strategic sourcing efforts both at  selected agencies and governmentwide, and identify challenges, leading  practices, and potential for additional strategic sourcing savings.  Accordingly, we assessed: (1) the extent to which selected agencies  managed spending and achieved savings through strategic sourcing, and  whether buying power could better be leveraged, (2) key challenges  agency and Federal Strategic Sourcing Initiative (FSSI) officials face in  strategically sourcing products and services, (3) the extent to which  FSSIs managed spending and achieved savings through strategic  sourcing, and whether governmentwide buying power could better be  leveraged.
To evaluate agency strategic sourcing efforts, we selected for review four  agencies—Department of Defense (DOD), Department of Homeland  Security (DHS), Department of Veterans Affairs (VA), and Department of  Energy (Energy)—among the top ten in fiscal year 2011 procurement  obligations that accounted for 80 percent of total federal procurement  spending. In addition, to more fully assess strategic sourcing at DOD, we  reviewed the efforts of four component agencies—Air Force, Army, Navy,  and the Defense Logistics Agency (DLA)—which accounted for 88  percent of DOD fiscal year 2011 spending, as well as departmentwide  efforts managed by DOD’s Defense Program Acquisition and Strategic  Sourcing (PASS) office, which reports to the Under Secretary of Defense  for Acquisition, Technology, and Logistics (AT&L).
We requested and analyzed data on active and planned agencywide  strategic sourcing initiatives, and any other efforts they might have begun,  but discontinued. We asked the agencies for fiscal years 2009 through  2011 information on:
Federal Procurement Data System—Next Generation (FPDS-NG) amount of savings achieved amount of any savings through means other than cost reduction or  Product Service Codes associated with the initiatives  spending through their strategic sourcing vehicles methods for calculating savings  To avoid double counting, we excluded agency data on spending and  savings achieved through FSSIs, and limited our analysis to the data  provided on their agencywide initiatives. We did not independently verify  this information that agencies reported to us, but we did assess  information from agency officials about the reliability of the data and  resolved some discrepancies. We determined that these data were  sufficiently reliable for the purposes of analyzing agency-reported  strategic sourcing spending and savings data.
To identify the products and services with the highest federal  procurement spending—both governmentwide and by our selected  agencies—we analyzed fiscal year 2011 data from the FPDS-NG. To  assess the reliability of the FPDS-NG, we reviewed existing  documentation and electronically tested the data to identify obvious  problems with completeness or accuracy. We determined that these data  were sufficiently reliable for the purpose of reporting governmentwide and  agency spending on products and services.
At the selected agencies and the General Services Administration (GSA),  we interviewed strategic sourcing officials to determine the status of  current and planned governmentwide and agencywide strategic sourcing  efforts, with a focus on key challenges and leading practices. Specifically,  we asked about governance structure, obstacles to strategic sourcing, enablers or good practices in strategic sourcing, agencywide initiatives, participation in governmentwide initiatives, spend analysis, and  savings and potential other benefits from strategic sourcing efforts.
We also obtained and reviewed agency strategic sourcing policies and  other documentation, including spend analyses, where applicable. In  addition, we reviewed previous GAO reports on leading company  practices for strategic sourcing as well as related reports on acquisition,  contract management, government streamlining, and duplication, overlap,  and fragmentation in the federal government. We also reviewed work  papers from a 2012 engagement on best commercial practices for  acquiring services. In addition, we examined related testimony before  various congressional committees. Furthermore, we reviewed the  Defense Business Board 2011 Report to the Secretary of Defense on  Strategic Sourcing, as well as literature from industry sources on  successful strategic sourcing efforts. To examine how agencies consider  small businesses in the strategic sourcing process, we interviewed  personnel at DHS and VA Offices of Small and Disadvantaged Business  Utilization and the Air Force Office of Small Business. We also analyzed  selected data to determine the number of small businesses participating  in strategic sourcing efforts and the level of spending directed to small  business contractors.
To evaluate governmentwide strategic sourcing, we examined the FSSI  efforts led by GSA and overseen by the Office of Federal Procurement  Policy (OFPP). We interviewed strategic sourcing officials at GSA to  determine the status of current and planned FSSI initiatives, again looking  at challenges and leading practices. We sought information on topics  similar to those discussed with officials at our selected agencies, and  obtained and reviewed FSSI documentation, including spend analysis.  Similarly to the selected agencies, we requested and analyzed GSA fiscal  years 2009-2011 information on Product Service Codes, governmentwide  spending, and governmentwide savings associated with the FSSIs. In  addition, we used the results of prior work on the Office Supplies II FSSI.
We did not independently verify the FSSI information GSA reported to us,  but we did assess information from agency officials about the reliability of  the data and resolved some discrepancies. We determined that these  data were sufficiently reliable for analyzing reported governmentwide  FSSI spending and savings data.
To assess OFPP’s oversight of strategic sourcing, we met with OFPP  officials to discuss  the agency’s role in advancing the FSSIs,  the agency’s role in facilitating agency participation in the FSSIs,  consistency across agencies in estimating strategic sourcing savings,  and  selection of goods and services for future FSSIs.
We also obtained and reviewed OFPP documentation, including  memoranda promoting increased use of strategic sourcing, and observed  a monthly meeting of OFPP’s Chief Acquisition Officers Council, Strategic  Sourcing Working Group.
We conducted this performance audit from August 2011 to September  2012 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix II: Top 50 Governmentwide Products and Services by Dollars Obligated, Fiscal Year 2011
section_title: Appendix III: Comments from the Department of Defense
section_title: Appendix IV: Comments from the Department of Homeland Security
section_title: Appendix V: Comments from the Department of Veterans Affairs
section_title: Appendix VI: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, W. William Russell, Assistant  Director; Joseph Fread; Laura Greifner; Julia Kennon; John Krump; Leigh  Ann Nally; Michael Palinkas; Ralph Roffo; Roxanna Sun; and Ann Marie  Udale made key contributions to this report.
section_title: Related GAO Products
paragraphs: Managing for Results: GAO’s Work Related to the Interim Crosscutting  Priority Goals under the GPRA Modernization Act. GAO-12-620R.  Washington, D.C.: May 31, 2012.
Follow-up on 2011 Report: Status of Actions Taken to Reduce  Duplication, Overlap, and Fragmentation, Save Tax Dollars, and Enhance  Revenue. GAO-12-453SP. Washington, D.C.: February 28, 2012.
VA Health Care: Methodology for Estimating and Process for Tracking  Savings Need Improvement. GAO-12-305. Washington, D.C.: February  27, 2012.
Department of Energy: Additional Opportunities Exist to Streamline  Support Functions at NNSA and Office of Science Sites. GAO-12-255.  Washington D.C.: January 31, 2012.
Strategic Sourcing: Office Supplies Pricing Study Had Limitations, but  New Initiative Shows Potential for Savings. GAO-12-178. Washington,  D.C.: December 20, 2011.
Federal Contracting: OMB’s Acquisition Savings Initiative Had Results,  but Improvements Needed. GAO-12-57. Washington, D.C.: November 15,  2011.
Streamlining Government: Key Practices from Select Efficiency Initiatives  Should Be Shared Governmentwide. GAO-11-908. Washington, D.C.:  September 30, 2011.
Opportunities to Reduce Potential Duplication in Government Programs,  Save Tax Dollars, and Enhance Revenue. GAO-11-318SP. Washington,  D.C.: March 1, 2011.
Contracting Strategies: Data and Oversight Problems Hamper  Opportunities to Leverage Value of Interagency and Enterprisewide  Contracts. GAO-10-367. Washington, D.C.: April 29, 2010.
Defense Acquisitions: Tailored Approach Needed to Improve Service  Acquisition Outcomes. GAO-07-20. Washington, D.C.: November 9,  2006.
Homeland Security: Successes and Challenges in DHS’s Efforts to  Create an Effective Acquisition Organization. GAO-05-179. Washington,  D.C.: March 29, 2005.
Best Practices: Using Spend Analysis to Help Agencies Take a More  Strategic Approach to Procurement. GAO-04-870. Washington, D.C.:  September 16, 2004.
Contract Management: High-Level Attention Needed to Transform DOD  Services Acquisition. GAO-03-935. Washington, D.C.: September 10,  2003.
Best Practices: Improved Knowledge of DOD Service Contracts Could  Reveal Significant Savings. GAO-03-661. Washington, D.C.: June 9,  2003.
Best Practices: Taking a Strategic Approach Could Improve DOD’s  Acquisition of Services. GAO-02-230. Washington, D.C.: January 18,  2002.
Best Practices: DOD Can Help Suppliers Contribute More to Weapon  Systems Programs, GAO/NSIAD-98-87. Washington, D.C.: March 17,  1998.