oversight

Strategic Sourcing: Improved and Expanded Use Could Save Billions in Annual Procurement Costs

Published by the Government Accountability Office on 2012-09-20.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States Government Accountability Office

GAO              Report to Congressional Committees




September 2012
                 STRATEGIC
                 SOURCING
                 Improved and
                 Expanded Use Could
                 Save Billions in
                 Annual Procurement
                 Costs




GAO-12-919
                                                 September 2012

                                                 STRATEGIC SOURCING
                                                 Improved and Expanded Use Could Save Billions in
                                                 Annual Procurement Costs
Highlights of GAO-12-919, a report to
congressional committees




Why GAO Did This Study                           What GAO Found
GAO has reported that the government             Selected agencies leveraged only a fraction of their buying power through
is not fully leveraging its aggregate            strategic sourcing and achieved limited savings. In fiscal year 2011, the
buying power, and that strategic                 Departments of Defense (DOD), Homeland Security (DHS), Energy, and
sourcing, a process that moves a                 Veterans Affairs (VA) accounted for 80 percent of the $537 billion in federal
company away from numerous                       procurement spending, but reported managing about 5 percent or $25.8 billion
individual procurements to a broader             through strategic sourcing efforts. These agencies reported savings of $1.8
aggregate approach, allowed                      billion—less than one-half of one percent of procurement spending. While
companies to achieve savings of 10 to            strategic sourcing may not be suitable for all procurement spending, leading
20 percent. A similar savings rate
                                                 companies strategically manage about 90 percent of their procurements and
applied to the federal procurement
                                                 report annual savings of 10 percent or more. Further, most agencies’ efforts do
budget would equal more than $50
billion dollars. In 2005, the Office of
                                                 not address their highest spending areas such as services, which may provide
Management and Budget directed                   opportunities for additional savings.
agencies to use strategic sourcing and           Selected Agencies’ Strategic Sourcing Spending and Savings Reported in FY 2011
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—               Note: FY = fiscal year.
DOD, DHS, VA, and Energy—and
reviewed governmentwide FSSI
efforts. For each, GAO analyzed                  Most selected agencies and the Federal Strategic Sourcing Initiative (FSSI)
strategic sourcing data and policies,            program have not fully adopted a strategic sourcing approach. In prior work,
and interviewed responsible officials.           GAO found that sustained leadership and effective metrics are important factors
                                                 to implementing strategic sourcing. However, leaders at DOD have dedicated
What GAO Recommends                              limited resources to strategic sourcing, and leaders at VA and Energy are just
GAO recommends a number of actions               beginning to align resources for agencywide strategic sourcing efforts. A lack of
OMB, DOD, and VA can take to                     clear guidance on metrics for measuring success has also impacted the
achieve more savings, such as                    management of ongoing FSSI efforts as well as most selected agencies’ efforts.
applying strategic sourcing practices to         In contrast, DHS leaders stood up a centralized office and hold senior managers
their highest spending procurement               accountable to meet goals. DHS sets targets for use of strategic sourcing
categories, and setting targets for use          contracts, and reported that nearly 20 percent of its fiscal year 2011 procurement
of strategic sourcing contracts. All             spending was directed through strategically sourced contracts.
three agencies concurred with our
recommendations.                                 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
View GAO-12-919. For more information,           in savings. However, total spending through the program remains low, in part,
contact Cristina Chaplain at (202) 512-4841 or
chaplainc@gao.gov.
                                                 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.
                                                                                            United States Government Accountability Office
Contents


Letter                                                                                           1
                       Background                                                                3
                       Most Selected Agencies Leveraged Only a Fraction of Their Buying
                         Power and Achieved Limited Savings                                      7
                       Selected Agencies and the FSSI Program Continue to Face
                         Challenges in Implementing Strategic Sourcing                         21
                       Federal Strategic Sourcing Initiatives Managed a Small Amount of
                         Spending and Achieved Considerable Savings, but Greater
                         Savings Are Possible                                                  31
                       Conclusions                                                             37
                       Recommendations for Executive Action                                    38
                       Agency Comments and Our Evaluation                                      40

Appendix I             Scope and Methodology                                                   42



Appendix II            Top 50 Governmentwide Products and Services by Dollars Obligated,
                       Fiscal Year 2011                                                        46



Appendix III           Comments from the Department of Defense                                 49



Appendix IV            Comments from the Department of Homeland Security                       52



Appendix V             Comments from the Department of Veterans Affairs                        53



Appendix VI            GAO Contact and Staff Acknowledgments                                   57



Related GAO Products                                                                           58




                       Page i                                         GAO-12-919 Strategic Sourcing
Tables
          Table 1: Selected Agencies’ Goals for Spending Managed through
                   Strategic Sourcing                                             10
          Table 2: Implemented and Planned Federal Strategic Sourcing
                   Initiatives Managed by the FSSI Program Management
                   Office, Fiscal Year 2011                                       33


Figures
          Figure 1: Broad Principles and Practices of Leading Companies’
                   Strategic Approach                                               4
          Figure 2: Overview of the Strategic Sourcing Process                      6
          Figure 3: Total Procurement Spending, Spending through Strategic
                   Sourcing, and Total Savings Reported by Selected
                   Agencies, Fiscal Year 2011                                       9
          Figure 4: Total Procurement Spending, Spending Through Strategic
                   Sourcing, and Total Savings Reported by DOD
                   Components, Fiscal Year 2011                                   12
          Figure 5: DOD Components’ Initiatives Targeting Their Top 10
                   Products and Services                                          16
          Figure 6: FSSI Governance Structure                                     32




          Page ii                                        GAO-12-919 Strategic Sourcing
Abbreviations

AT&L              Acquisition, Technology, and Logistics
DHS               Department of Homeland Security
DLA               Defense Logistics Agency
DOD               Department of Defense
DPAP              Defense Procurement and Acquisition Policy
FPDS-NG           Federal Procurement Data System-Next Generation
FSSI              Federal Strategic Sourcing Initiative
GSA               General Services Administration
OFPP              Office of Federal Procurement Policy
OMB               Office of Management and Budget
OSD               Office of the Secretary of Defense
PASS              Program Acquisition and Strategic Sourcing
VA                Department of Veterans Affairs
VHA               Veterans Health Administration


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Page iii                                                    GAO-12-919 Strategic Sourcing
United States Government Accountability Office
Washington, DC 20548




                                   September 20, 2012

                                   The Honorable Joseph I. Lieberman
                                   Chairman
                                   The Honorable Susan M. Collins
                                   Ranking Member
                                   Committee on Homeland Security and Governmental Affairs
                                   United States Senate

                                   The Honorable Darrell E. Issa
                                   Chairman
                                   The Honorable Elijah E. Cummings
                                   Ranking Member
                                   Committee on Oversight and Government Reform
                                   House of Representatives

                                   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. 1 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. 2




                                   1
                                    GAO, Opportunities to Reduce Potential Duplication in Government Programs, Save Tax
                                   Dollars, and Enhance Revenue, GAO-11-318SP (Washington, D.C.: Mar. 1, 2011); Best
                                   Practices: Using Spend Analysis to Help Agencies Take a More Strategic Approach to
                                   Procurement, GAO-04-870 (Washington, D.C.: Sept. 16, 2004); Best Practices: Improved
                                   Knowledge of DOD Service Contracts Could Reveal Significant Savings, GAO-03-661
                                   (Washington, D.C.: June 6, 2003); and Best Practices: Taking a Strategic Approach Could
                                   Improve DOD’s Acquisition of Services, GAO-02-230 (Washington, D.C.: Jan. 18, 2002).
                                   2
                                    GAO-11-318SP.




                                   Page 1                                                   GAO-12-919 Strategic Sourcing
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


Page 2                                           GAO-12-919 Strategic Sourcing
             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.


             We have previously reported that because procurement at federal
Background   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. 3
             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.

             In the private sector, however, we have previously reported that an
             approach called strategic sourcing has been used since the 1980s to
             reduce procurement costs at companies with large supplier bases and
             high procurement costs. 4 Leading companies we reviewed found they
             could save billions of dollars and improve the quality of the products and
             services received by using strategic sourcing. The companies did not
             follow the exact same approach as they differed in the manner and
             degree to which they employed specific practices. However, in 2004, we
             identified four broad principles that were critical to successfully carrying


             3
             GAO-11-318SP.
             4
             GAO-11-318SP.




             Page 3                                             GAO-12-919 Strategic Sourcing
                                        out the companies’ strategic approach. 5 See figure 1 for the principles
                                        and practices.

Figure 1: Broad Principles and Practices of Leading Companies’ Strategic Approach




                                        We reported that the support and commitment of senior management was
                                        viewed as essential to facilitating the companies’ efforts to reengineer
                                        their approaches to acquisition. Once top leaders were committed to
                                        taking a strategic approach, the companies took a hard look at how much
                                        they were spending and with which vendors. By arming themselves with
                                        this knowledge, the companies could identify opportunities to leverage



                                        5
                                         GAO-04-870.




                                        Page 4                                            GAO-12-919 Strategic Sourcing
their buying power, reduce costs, and better manage their suppliers.
Companies also instituted a series of structural, procedural, and role
changes aimed at moving away from a fragmented acquisition process to
a more efficient and effective enterprisewide process. Recent work by
GAO and others has confirmed that these practices are still critical. For
example, a recent survey of leading commercial firms found that senior
leadership support remains key to ensuring that companies follow the
strategic sourcing process and take ownership of savings goals.
Companies we spoke with recently confirmed that knowledge of spending
and of the relevant markets continues to be very important, and that a
centralized procurement approach remains critical to their ability to
ensure knowledge sharing and consistent procurement tactics.

A strategic sourcing effort begins with an opportunity assessment—an
analysis of spending and the identification of products and services for
which strategic sourcing should be implemented. Spend analysis provides
knowledge about how much is being spent for which products and
services, who the buyers are, who the suppliers are, and where the
opportunities are for leveraged buying and other tactics to save money
and improve performance. Data on spending are analyzed on a continual
basis to support decisions on strategic sourcing and procurement
management in areas such as cost cutting, streamlining operations, and
reducing the number of suppliers. Based on this analysis, organizations
evaluate and prioritize commodities to create a list of top products or
services to target for strategic sourcing. This list typically includes the
products or services on which most of the organization’s spending is
focused. In addition to spending, criteria such as potential savings and
relative ease of implementation are considered.

Once a commodity—a product or service—is selected for strategic
sourcing, a standardized process is followed to develop, implement, and
manage the sourcing strategy for that product or service. See figure 2 for
key steps in the strategic sourcing process.




Page 5                                           GAO-12-919 Strategic Sourcing
Figure 2: Overview of the Strategic Sourcing Process




                                        Strategic sourcing can encompass a range of tactics for acquiring
                                        products and services more effectively and efficiently. In addition to
                                        leveraged buying, strategic sourcing tactics include managing demand by
                                        changing behavior, achieving efficiencies through standardization of the
                                        acquisition process, and managing supplier relationships. Private
                                        companies reported measuring the success of their strategic sourcing
                                        programs in various ways. For example, companies reported looking for
                                        reductions in the total cost of ownership and other forms of savings.

                                        Recognizing the benefits of strategic sourcing, OMB issued a
                                        memorandum in 2005 that implemented strategic sourcing practices. 6
                                        This memorandum defined strategic sourcing as the “collaborative and
                                        structured process of critically analyzing an organization’s spending and
                                        using this information to make business decisions about acquiring
                                        commodities and services more effectively and efficiently.” According to
                                        the memo, the process helps agencies optimize performance, minimize
                                        price, increase achievement of socio-economic acquisition goals,
                                        evaluate total life cycle management costs, improve vendor access to
                                        business opportunities, and otherwise increase the value of each dollar


                                        6
                                         Office of Management and Budget, Memorandum for Chief Acquisition Officers, Chief
                                        Financial Officers, and Chief Information Officers on Implementing Strategic Sourcing
                                        (Washington, D.C.: 2005).




                                        Page 6                                                     GAO-12-919 Strategic Sourcing
                       spent. Agencies were directed to develop and implement strategic
                       sourcing efforts based on the results of spend analyses and identify at
                       least three commodities that could be purchased more effectively and
                       efficiently through strategic sourcing.

                       In addition to individual agency efforts, a governmentwide strategic
                       sourcing program—known as the FSSI—was established in 2005, as a
                       direct result of the OMB memo. FSSI was created to address
                       governmentwide opportunities to strategically source commonly
                       purchased products and services and eliminate duplication of efforts
                       across agencies. OFPP—the office within OMB assigned to oversee the
                       FSSI program—is ultimately responsible for providing oversight and
                       guidance as well as ensuring the overall effectiveness of FSSI. The FSSI
                       mission is to encourage agencies to aggregate requirements, streamline
                       processes and coordinate purchases of like products and services to
                       leverage spending to the maximum extent possible. Federal strategic
                       sourcing contract vehicles can be based on the existing multiple award
                       schedules—contracts for similar or comparable goods and services,
                       established with more than one supplier, at varying prices—which are
                       available for use governmentwide and are managed by GSA and VA.
                       However, not all acquisitions using these schedules are considered
                       strategic sourcing; rather the FSSI program has identified specific
                       initiatives which follow the structured strategic sourcing process to be
                       included as FSSIs.


                       The four agencies we reviewed—DOD, DHS, Energy, and VA—together
Most Selected          accounted for 80 percent of the total $537 billion federal procurement
Agencies Leveraged     spending in fiscal year 2011, but reported managing less than 5 percent,
                       or $25.8 billion, through agencywide strategic sourcing contracts. From
Only a Fraction of     these efforts, the four agencies reported achieving a combined savings of
Their Buying Power     $1.8 billion, or less than one-half of one percent of total federal
and Achieved Limited   procurement spending. While strategic sourcing may not be suitable for
                       all procurement spending, this percentage of managed spending and
Savings                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


                       Page 7                                           GAO-12-919 Strategic Sourcing
                             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.


Selected Agencies            OMB directed agencies to implement strategic sourcing practices in 2005,
Reported Managing a          but taken together, the agencies we reviewed have leveraged only a
Fraction of Their            fraction of what could potentially be managed and saved through strategic
                             sourcing. DOD, DHS, Energy, and VA accounted for 80 percent of the
Procurement Spending         total federal procurement spending for fiscal year 2011, but reported
through Strategic Sourcing   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.




                             Page 8                                            GAO-12-919 Strategic Sourcing
Figure 3: Total Procurement Spending, Spending through Strategic Sourcing, and
Total Savings Reported by Selected Agencies, Fiscal Year 2011




Note: Overall spending for DOD in fiscal year 2011 was $375 billion. DOD procurement spending
total as shown is based on Army, Navy, Air Force, and DLA spending only, which together accounted
for 88 percent of DOD total spending.


According to some agency officials, not all of their procurement spending
may be addressable through strategic sourcing. For example, DHS



Page 9                                                          GAO-12-919 Strategic Sourcing
                               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).

                               Table 1: Selected Agencies’ Goals for Spending Managed through Strategic
                               Sourcing

                                   Agency                                 Goal
                                   Department of Defense                  None specified
                                       Air Force                          50 percent of Installation Operations and
                                                                          Maintenance spending (approximately $12 billion
                                                                          annually) by 2015
                                       Army                               None specified
                                       Navy                               None specified
                                       Defense Logistics Agency           None specified
                                   Department of Homeland Security        None specifieda
                                   Department of Veterans Affairs         None specified
                                   Department of Energy                   2.5 percent of the anticipated $10 billion of
                                                                          contractor spending for fiscal year 2012
                               Source: Selected agencies.
                               a
                                In fiscal year 2011, DHS set a utilization goal of 35 percent, which resulted in achieving 20 percent of
                               procurement spending through strategic sourcing contracts.


Managed Spending and Savings   At DOD—the federal government’s largest procurer of products and
Varied Greatly within DOD      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



                               Page 10                                                              GAO-12-919 Strategic Sourcing
for because departmentwide initiatives are reported on an ad hoc basis. 7
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.




7
 PASS officials told us that for fiscal years 2005 through 2008, they collected information
on departmentwide and component initiatives in the course of preparing annual reports on
strategic sourcing to OMB; however they do not currently have a process in place to
identify and track DOD-wide initiatives.




Page 11                                                     GAO-12-919 Strategic Sourcing
Figure 4: Total Procurement Spending, Spending Through Strategic Sourcing, and
Total Savings Reported by DOD Components, Fiscal Year 2011




Page 12                                             GAO-12-919 Strategic Sourcing
Savings Reported from        Selected agencies’ reported savings added up to $1.8 billion in fiscal year
Limited Strategic Sourcing   2011—less than one-half of one percent of total federal procurement
Efforts Indicate Potential   spending. We previously reported that some companies achieved
                             reported savings of 10 percent to 20 percent of their total procurement
for Generating Additional    costs through the use of a strategic approach to buying products and
Savings                      services. 8 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. 9 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.



                             8
                             GAO-03-661.
                             9
                              GAO, 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.; Feb. 28, 2012).




                             Page 13                                              GAO-12-919 Strategic Sourcing
Strategic Sourcing Efforts    DOD training materials highlight the importance of prioritizing spending
at Most Agencies We           categories by looking at total spending dollars, among other criteria;
Reviewed Are Not              specifying that a priority list can be developed by identifying those top
                              spend categories that comprise 80 percent of the organization’s total
Addressing the Highest        procurement spending. While some agencies such as DHS have
Spending Categories           implemented initiatives that address top spend categories, current and
Offering the Most Potential   planned initiatives at the other agencies we reviewed do not address the
for Savings                   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. 10 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



                              10
                                Resources Global Professionals Supply Chain Management briefing presented at the
                              Institute of Supply Management conference, May 2012.




                              Page 14                                                 GAO-12-919 Strategic Sourcing
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.




Page 15                                             GAO-12-919 Strategic Sourcing
Figure 5: DOD Components’ Initiatives Targeting Their Top 10 Products and Services




                                        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


                                        Page 16                                            GAO-12-919 Strategic Sourcing
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. 11 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. 12 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. 13

In addition, the Better Buying Power memo acknowledged a need for a
cohesive and integrated strategy for acquiring services, many of which


11
  DOD Instruction 5000.02, issued in 2008, establishes a simplified and flexible
management framework for translating capability needs and technology opportunities
based on approved capability needs into stable, affordable, and well-managed acquisition
programs that include weapon systems, services, and automated information systems.
12
  GAO, Best Practices: DOD Can Help Suppliers Contribute More to Weapon Systems
Programs, GAO/NSIAD-98-87 (Washington, D.C.: Mar. 17, 1998).
13
  On September 14, 2010, the Undersecretary for Acquisition, Technology, and Logistics
issued a memo called Better Buying Power: Guidance for Obtaining Greater Efficiency
and Productivity in Defense Spending.




Page 17                                                   GAO-12-919 Strategic Sourcing
                                 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. 14 The
                                 report noted that strategic sourcing savings of even one percent at the
                                 department would equate to billions of dollars.


Selected Agencies’
Strategic Sourcing Efforts
Varied Widely
Initiatives Address a Range of   Some of the four agencies have implemented many initiatives covering a
Products and Services            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



                                 14
                                   Defense Business Board Report to the Secretary of Defense on Strategic Sourcing,
                                 January 2011.




                                 Page 18                                                  GAO-12-919 Strategic Sourcing
                             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.

Agencies’ Management of      We found that agencies with more mature strategic sourcing programs—
Strategic Sourcing Efforts   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. 15 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,



                             15
                              GAO-04-870.




                             Page 19                                            GAO-12-919 Strategic Sourcing
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. 16 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.


16
  GAO, Department of Energy: Additional Opportunities Exist to Streamline Support
Functions at NNSA and Office of Science Sites, GAO-12-255 (Washington D.C.: Jan. 31,
2012).




Page 20                                                 GAO-12-919 Strategic Sourcing
                        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.


                        Selected agencies and the FSSI program, which manages
Selected Agencies and   governmentwide strategic sourcing initiatives, continue to face common
the FSSI Program        challenges which prevent them from fully adopting a strategic sourcing
                        approach to procurement. A lack of leadership investment has prevented
Continue to Face        several agencies from transforming their procurement organizations to
Challenges in           allow for enterprisewide strategic sourcing, as leading companies have
                        done. For example, leaders at DOD and the Army have not devoted
Implementing            resources to set up the necessary organizational structures for strategic
Strategic Sourcing      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


                        Page 21                                            GAO-12-919 Strategic Sourcing
                          year 2011 met its goal of 35 percent of spending on relevant products and
                          services directed through the strategic sourcing contracts.


Except for DHS,           Leaders at DOD and Energy have not committed to creating a
Leadership Commitment     procurement organization that views spending and makes strategic
Has Been Lacking, but     sourcing decisions at an agencywide level. DHS has created a
                          centralized strategic sourcing organization and VA has initiated some
Improvements Are Under    reorganization in 2012, but it is too early to tell whether recent
Way                       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.

Dedication of Resources   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


                          Page 22                                          GAO-12-919 Strategic Sourcing
                           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.

Management Action to       Agency officials mentioned several disincentives that can discourage
Counteract Disincentives   procurement and program officials from proactively participating in
                           strategic sourcing, and at many agencies, these disincentives have not
                           been fully addressed by leadership. Key disincentives identified by
                           agency officials include the following:

                           •   A perception that reporting savings due to strategic sourcing could
                               lead to program budgets being cut in subsequent years,
                           •   Difficulty identifying existing strategic sourcing contracts that are
                               available for use as there is no centralized source for this information,
                           •   A perception that strategically sourced contract vehicles may limit the
                               ability to customize requirements,
                           •   A desire on the part of agency officials to maintain control of their
                               contracting,
                           •   Program officials’ and contracting officers’ relationships with existing
                               vendors, and
                           •   The opportunity to get lower prices by going outside of strategically
                               sourced contracts.
                           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


                           Page 23                                            GAO-12-919 Strategic Sourcing
                             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.


A Few Agencies Have
Conducted Opportunity
Analyses Despite a Lack of
Reliable Agencywide
Spending Data
Obtaining and Analyzing      The FSSI program and selected agencies generally cited the Federal
Spending Data                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




                             Page 24                                           GAO-12-919 Strategic Sourcing
                            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. 17
                            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.

Availability of Strategic   Officials at several agencies noted that the lack of trained acquisition
Sourcing Expertise          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.




                            17
                              GAO, Opportunities to Reduce Potential Duplication in Government Programs, Save
                            Tax Dollars, and Enhance Revenue, GAO-11-318SP (Washington, D.C.: Mar. 1, 2011);
                            Defense Acquisitions: Tailored Approach Needed to Improve Service Acquisition
                            Outcomes, GAO-07-20 (Washington, D.C.: Nov. 9, 2006); Homeland Security: Successes
                            and Challenges in DHS’s Efforts to Create an Effective Acquisition Organization,
                            GAO-05-179 (Washington, D.C.; Mar. 29, 2005); Best Practices: Using Spend Analysis to
                            Help Agencies Take a More Strategic Approach to Procurement, GAO-04-870,
                            (Washington, D.C.: Sept. 16, 2004); and Best Practices: Improved Knowledge of DOD
                            Service Contracts Could Reveal Significant Savings, GAO-03-661 (Washington, D.C.:
                            June 6, 2003).




                            Page 25                                                 GAO-12-919 Strategic Sourcing
Agencies Report
Challenges in Executing
Individual Strategic
Sourcing Initiatives

Developing the Sourcing   Agency officials listed several challenges that they commonly face in
Strategy                  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


                          Page 26                                           GAO-12-919 Strategic Sourcing
                             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.

Implementing and Managing    Challenges in Ensuring Utilization
Strategic Sourcing Efforts
                             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.




                             Page 27                                            GAO-12-919 Strategic Sourcing
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.

Using Goals and Metrics to Measure Progress

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


Page 28                                             GAO-12-919 Strategic Sourcing
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. 18 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. 19 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. 20 We also found
that when calculating savings from various efforts including strategic




18
 GAO-12-255.
19
 GAO-12-255.
20
  GAO, Federal Contracting: OMB’s Acquisition Savings Initiative Had Results, but
Improvements Needed, GAO-12-57 (Washington, D.C.: Nov. 15, 2011).




Page 29                                                   GAO-12-919 Strategic Sourcing
sourcing, VA had double counted savings on different efforts and had not
accounted for the cost of implementing other efforts. 21

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.




21
 GAO, VA Health Care: Methodology for Estimating and Process for Tracking Savings
Need Improvement, GAO-12-305 (Washington, D.C.: Feb. 27, 2012).




Page 30                                                GAO-12-919 Strategic Sourcing
                         The FSSI program has adopted some leading practices for strategic
Federal Strategic        sourcing, such as creating the structure and processes necessary to
Sourcing Initiatives     implement and monitor efforts. Through the end of fiscal year 2011, the
                         program had only managed a small amount of spending through its four
Managed a Small          governmentwide strategic sourcing initiatives; however it reported
Amount of Spending       achieving significant savings on those efforts. In fiscal year 2011, the
and Achieved             FSSI program managed $339 million through these governmentwide
                         initiatives and reported achieving $60 million in savings. However, the
Considerable Savings,    program faces key challenges in obtaining agency commitments to use
but Greater Savings      new FSSIs and in increasing the level of agency spending directed
                         through FSSI vehicles. For example, only 15 percent of governmentwide
Are Possible             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.


The FSSI Program         The FSSI program reports to OMB’s Chief Acquisition Officers Council
Governance Structure     through its Strategic Sourcing Working Group. The Working Group,
Allows for Interagency   comprised of representatives of various agencies, vets and approves
                         initiatives and sourcing strategies, and establishes the standards,
Collaboration on FSSIs   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.




                         Page 31                                           GAO-12-919 Strategic Sourcing
Figure 6: FSSI 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.




Page 32                                       GAO-12-919 Strategic Sourcing
The FSSI Program                          In fiscal year 2011, the FSSI program managed $339 million through
Managed a Small Amount                    governmentwide initiatives and achieved approximately $60 million in
of Fiscal Year 2011                       savings, or almost 18 percent of the procurement spending it managed
                                          through these initiatives. As of fiscal year 2011, four initiatives had been
Spending through Several                  implemented. The domestic delivery services and office supply
Federal Strategic Sourcing                initiatives—originally implemented in 2006 and 2007, respectively - are in
Initiatives and Reported                  their second iterations. The wireless telecommunications expense
Achieving Considerable                    management initiative has been in place since 2008. The first print
Savings                                   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.

Table 2: Implemented and Planned Federal Strategic Sourcing Initiatives Managed by the FSSI Program Management Office,
Fiscal Year 2011

                                                                                                            Savings
                                                                   Governmentwide        Spending           reported by FSSI
                                                                   spending on           through            Program
                                                    Date           applicable products   strategic          Management
Initiative           Description                    implemented    and services          sourcing           Office
Office Supplies—     Offers a catalogue of          June 2010      $1.6 billion          $202 million       $24 million
Second Generation    consumable office supplies
Domestic Delivery    Offers delivery service for    August 2009    $505 million          $109 million       $31 million
Services—Second      small packages
Generation
Telecommunications   Optimizes wireless rate        January 2008   $100 million          $28 million        $5 million
Expense              plans, reduces billing errors,
Management           and increases visibility into
Services             spending
Print Management     Reduces equipment needed September 2011       Spending not yet      Spending not       Spending not yet
                     for printing, copying,                        under management in   yet under          under
                     scanning, and faxing, and                     fiscal year 2011      management in      management in
                     includes print behavior and                                         fiscal year 2011   fiscal year 2011
                     continuous process
                     improvement components




                                          Page 33                                              GAO-12-919 Strategic Sourcing
                                                                                                               Savings
                                                                      Governmentwide        Spending           reported by FSSI
                                                                      spending on           through            Program
                                              Date                    applicable products   strategic          Management
Initiative    Description                     implemented             and services          sourcing           Office
SmartBUY      Leverages buying of             Planned for fiscal      Not managed under     Not managed        Not managed
              commercial off-the-shelf        year 2012               the FSSI program in   under the FSSI     under the FSSI
              software and services                                   fiscal year 2011      program in         program in fiscal
                                                                                            fiscal year 2011   year 2011
Wireless      Offers rate plans and           Planned for fourth Not applicable as          Not applicable     Not applicable as
              wireless devices                quarter, fiscal    contracts were not yet     as contracts       contracts were
                                              year 2012          awarded in fiscal year     were not yet       not yet awarded
                                                                 2011                       awarded in         in fiscal year 2011
                                                                                            fiscal year 2011
                                  Source: GAO analysis of GSA data.



                                  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.


The FSSI Program Faces            FSSI program officials that manage the governmentwide strategic
Challenges in Getting Top         sourcing initiatives told us that before contracts are awarded, obtaining
Spending Agencies to              spending commitments—especially from top spending agencies—is
                                  important in negotiating discounted prices and implementing a successful
Commit to                         strategic sourcing effort. However, they noted that getting agency
Governmentwide Strategic          commitments to use the FSSI initiatives sometimes can be a challenge.
Sourcing Contracts                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



                                  Page 34                                                         GAO-12-919 Strategic Sourcing
                           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.


The FSSI Program Faces     Although reported spending through FSSI vehicles has increased from
Challenges to Achieve      fiscal year 2009 to fiscal year 2011, spending through the vehicles
Greater Governmentwide     continues to be limited. Only $339 million, or 15 percent, of
                           governmentwide spending for the products and services covered by the
Savings and Efficiencies   FSSIs went through the vehicles in fiscal year 2011. However, where
through Increased Use of   spending went through FSSI vehicles, the program reported savings
Strategic Sourcing         equivalent to almost 18 percent of the spending through those vehicles.
Contracts                  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.




                           Page 35                                           GAO-12-919 Strategic Sourcing
                             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.


The FSSI Program Has Not     Many of the governmentwide highest-spending categories of products
Targeted High Spending       and services exceed $10 billion, and therefore offer great opportunities for
Categories of Products and   savings if they can be strategically sourced successfully. In fiscal year
                             2011, federal spending on the top 50 products and services was $283
Services Offering the Most   billion, or 53 percent of total government procurement spending.
Potential for Savings        Appendix II identifies the fiscal year 2011 highest governmentwide
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,


                             Page 36                                            GAO-12-919 Strategic Sourcing
              •   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.


              Current fiscal pressures and budgetary constraints have heightened the
Conclusions   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



              Page 37                                             GAO-12-919 Strategic Sourcing
                      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. 22 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.


                      To improve departmentwide strategic sourcing efforts at DOD, we
Recommendations for   recommend that the Secretary of Defense direct the Office of Acquisition,
Executive Action      Technology, and Logistics to take the following five actions:

                      •     Issue direction that
                            •   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,


                      22
                          GAO-12-255.




                      Page 38                                           GAO-12-919 Strategic Sourcing
    •     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:



Page 39                                            GAO-12-919 Strategic Sourcing
                     •   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.

                     We sent copies of a draft of this report to DOD, Energy, DHS, VA, GSA,
Agency Comments      and OMB. In its written comments (reproduced in appendix III), DOD
and Our Evaluation   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.




                     Page 40                                            GAO-12-919 Strategic Sourcing
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.




Cristina Chaplain
Director
Acquisition and Sourcing Management




Page 41                                             GAO-12-919 Strategic Sourcing
Appendix I: Scope and Methodology
             Appendix I: Scope and Methodology




             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)
                 Product Service Codes associated with the initiatives
             •   spending through their strategic sourcing vehicles
             •   amount of savings achieved
             •   amount of any savings through means other than cost reduction or
                 avoidance 1
             •   methods for calculating savings


             1
              Other means of achieving savings—often referred to as soft savings—include demand
             management, changes in buying behavior, process improvements, or use of less
             resources (including staff time) in processing transactions.




             Page 42                                                 GAO-12-919 Strategic Sourcing
Appendix I: Scope and Methodology




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



Page 43                                           GAO-12-919 Strategic Sourcing
Appendix I: Scope and Methodology




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. 2
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.



2
GAO-12-178.




Page 44                                            GAO-12-919 Strategic Sourcing
Appendix I: 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.




Page 45                                         GAO-12-919 Strategic Sourcing
Appendix II: Top 50 Governmentwide
              Appendix II: Top 50 Governmentwide Products
              and Services by Dollars Obligated, Fiscal Year
              2011


Products and Services by Dollars Obligated,
Fiscal Year 2011
              1. Aircraft, Fixed Wing

              2. Engineering and Technical Services

              3. Other Automatic Data Processing and Telecommunications Services

              4. Other Professional Services

              5. Logistics and Support Services

              6. Drugs and Biologicals

              7. General Health Care Services

              8. Operation of Government-Owned Facilities: Government-Owned
              Contractor-Operated Research and Development Facilities

              9. Liquid Propellants and Fuels, Petroleum Base

              10. Aircraft, Rotary Wing

              11. Program Management/Support Services

              12. Construction of Structures and Facilities: Miscellaneous Buildings

              13. Destroyers

              14. Guided Missiles

              15. Combat, Assault, and Tactical Vehicles, Tracked

              16. Airframe Structural Components

              17. Automatic Data Processing Software

              18. Guard Services

              19. Gas Turbines and Jet Engines, Aircraft, Prime Moving; and
              Components

              20. Construction of Structures and Facilities: Office Buildings

              21. Miscellaneous Aircraft Accessories and Components


              Page 46                                           GAO-12-919 Strategic Sourcing
Appendix II: Top 50 Governmentwide Products
and Services by Dollars Obligated, Fiscal Year
2011




22. Systems Engineering Services

23. Other Management Support Services

24. Submarines

25. Defense Aircraft: Operational Systems Development

26. Facilities Operations Support Services

27. Fuel Oils

28. Precious Metals Primary Forms

29. Technical Assistance

30. Dairy Food and Eggs

31. Construction of Structures and Facilities: Other Non-Building Facilities

32. Miscellaneous Communications Equipment

33. Automated Information System Design and Integration Services

34. Maintenance Repair and Rebuilding of Equipment: Aircraft and
Airframe Structural Components

35. Medical and Surgical Instruments, Equipment, and Supplies

36. Lease or Rental of Facilities: Office Buildings

37. Space Vehicles

38. Automatic Data Processing Systems Development and Services

39. Other Administrative Support Services

40. Trucks and Truck Tractors, Wheeled

41. Ground Effect Vehicles

42. Defense Missile and Space Systems: Advanced Development



Page 47                                               GAO-12-919 Strategic Sourcing
Appendix II: Top 50 Governmentwide Products
and Services by Dollars Obligated, Fiscal Year
2011




43. Maintenance, Repair or Alteration of Real Property: Miscellaneous
Buildings

44. Combat, Assault, Tactical Vehicles, Wheeled

45. Other Research and Development: Applied Research and Exploratory
Development

46. Air Charter for Things

47. Nuclear Reactors

48. Passenger Air Charter Service

49. Other Research and Development: Basic Research

50. Maintenance Repair and Rebuilding of Equipment: Communication,
Detection and Coherent Radiation Equipment




Page 48                                           GAO-12-919 Strategic Sourcing
Appendix III: Comments from the
              Appendix III: Comments from the Department
              of Defense



Department of Defense




              Page 49                                      GAO-12-919 Strategic Sourcing
Appendix III: Comments from the Department
of Defense




Page 50                                      GAO-12-919 Strategic Sourcing
Appendix III: Comments from the Department
of Defense




Page 51                                      GAO-12-919 Strategic Sourcing
Appendix IV: Comments from the
             Appendix IV: Comments from the Department
             of Homeland Security



Department of Homeland Security




             Page 52                                     GAO-12-919 Strategic Sourcing
Appendix V: Comments from the Department
             Appendix V: Comments from the Department
             of Veterans Affairs



of Veterans Affairs




             Page 53                                    GAO-12-919 Strategic Sourcing
Appendix V: Comments from the Department
of Veterans Affairs




Page 54                                    GAO-12-919 Strategic Sourcing
Appendix V: Comments from the Department
of Veterans Affairs




Page 55                                    GAO-12-919 Strategic Sourcing
Appendix V: Comments from the Department
of Veterans Affairs




Page 56                                    GAO-12-919 Strategic Sourcing
Appendix VI: GAO Contact and Staff
                  Appendix VI: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  Cristina Chaplain, (202) 512-4841, or chaplainc@gao.gov
GAO Contact
                  In addition to the contact named above, W. William Russell, Assistant
Staff             Director; Joseph Fread; Laura Greifner; Julia Kennon; John Krump; Leigh
Acknowledgments   Ann Nally; Michael Palinkas; Ralph Roffo; Roxanna Sun; and Ann Marie
                  Udale made key contributions to this report.




                  Page 57                                        GAO-12-919 Strategic Sourcing
Related GAO Products
             Related GAO Products




             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.


             Page 58                                         GAO-12-919 Strategic Sourcing
           Related GAO Products




           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.




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           Page 59                                        GAO-12-919 Strategic Sourcing
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