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. 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. 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. 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.