“Improved and Expanded Use Could Save Billions in Annual Procurement Costs,” a report released in September 2012 by the Government Accountability Office(GAO), finds that that selected agencies leveraged only a fraction of their buying power through strategic sourcing and achieved limited savings.
In 2005, the Office of Management and Budget directed agencies to use strategic sourcing and established the Federal Strategic Sourcing Initiative (FSSI) program to manage government-wide 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— the U.S. Departments of Defense (DOD), Homeland Security (DHS), Energy, and Veterans Affairs (VA)—and reviewed government-wide FSSI efforts. For each, GAO analyzed strategic sourcing data and policies, and interviewed responsible officials.
In fiscal year 2011, DOD, DHS, Energy, and the 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 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 agency-wide 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 government-wide 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.
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.