Good directions for strategic sourcing

Steve Kelman assesses recommendations in a recent GAO report on strategic sourcing.

FCW’s Matthew Weigelt “obtained” (i.e. somebody leaked to him) a copy of a draft report from the Government Accountability Office about strategic sourcing, which he wrote about on FCW.com, with a follow-up here.

Strategic sourcing – taking advantage of an organization’s combined buying power to get better prices and service from vendors than would be obtainable by each part of the organization buying on its own – is sort of Procurement 101, certainly in the private sector, where it is a major way that purchasing organizations justify their existence in corporate America. The basic idea is no more complicated than the observation that you pay a lower price per unit when you buy the giant economy size than when you buy single-serving containers. I preached this as far back as when I was the Office of Federal Procurement Policy Administrator 15 years ago.

Looking at progress made on strategic sourcing at the Defense Department, Veterans Affairs, Homeland Security and Energy, the GAO report concludes that the government hasn’t moved fast enough, especially compared with big private companies, which, GAO states, buy 90 percent of what they purchase using strategic sourcing, saving a whopping 10 percent to 20 percent of their total purchasing bill (which, if it could be duplicated in the federal government, would imply up to $100 billion a year of savings, a huge number).

I like the idea of comparing what big companies are doing here to what the government is doing, because procurement is a business function, and if the government isn’t doing it as well as big companies, that’s a problem. At the same time, the GAO conclusion is a little unfair, for two different reasons. First, much of what big companies buy is commodities (such as steel or component parts) that are used in the firm’s production, while a larger percentage of what the government buys is services and unique items such as weapons system. Second, strategic sourcing in the government has been politically controversial, with the very concept denounced by small business lobbyists as “bundling.” My own efforts in the government in support of strategic sourcing earned me the frenzied enmity of these lobbyists, who defended the government paying retail rather than wholesale prices.

I like two of the directions the GAO report takes in its recommendations. First, they argue more use should be made of existing strategic sourcing contracts. I agree. Although use of the General Services Administration’s office supplies strategic sourcing contract has been greater than any of the previous similar contracts – and by the way GSA has been able to include some small business suppliers on this contract – it still accounts for less than half of office supply sales to the government. In these tough budget times, why doesn’t somebody (the Office of Management and Budget perhaps?) just bite the bullet and say use of this contract should be mandatory unless there is a good reason – hopefully filled with a lot of stupid paperwork to discourage applications -- for an exemption. This is exactly what many big companies do. (There is a fair worry about prices on these big contracts deteriorating over time and not responding to spot market changes, as well as a worry about GSA gaining a procurement monopoly that will make them lazy. Partly, the multiple-award nature of these contracts counteracts that, but agencies can also do second-stage reverse auctions for larger buys under the contracts that would help keep prices low and deal with spot-market bargains or temporary discounts.)

The GAO’s other recommendation involves applying strategic sourcing more to services. As the report notes, many agencies push back that these are much harder to standardize than the commodities on strategic sourcing contracts. However, I would love to see GSA re-establish some of the earlier service-specific governmentwide contracts they once had (such as for data centers or IT recovery services) that are easier to standardize. And, as a first step, agencies should look at who their two or three biggest service contractors are, and try to manage the relationship more strategically, including obtaining quantity discounts or other favorable treatment.

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.