Strategic Sourcing Could Save Billions without Harming Small Businesses

Published: July 17, 2013

OMBPolicy and LegislationStrategic Sourcing

Strategic sourcing, if implemented correctly, could save the federal government billions of dollars per year and not crowd out small businesses, according to a Homeland Security and Governmental Affairs Senate Committee Hearing earlier this week.

The committee heard testimony from Joe Jordan, Administrator of the Office of Federal Procurement Policy at OMB; Dan Tangherlini, GSA Administrator; and Cristina Chaplain, Director of Acquisition and Sourcing Management at GAO.

The federal government spends over $500 billion annually on goods and services.  According to GAO’s investigation of strategic sourcing best practices in the private sector, the federal government could stand to save 4 to 15% annually by buying in bulk.  That translates into $20 to $80 billion.  

However, according to the same strategic sourcing study conducted by GAO, the four federal agencies that account for 80% of all federal spending are only funneling 5% through strategic sourcing, as opposed to 90% in the private sector companies GAO examined.

The Federal Strategic Sourcing Initiative (FSSI) works.  Agencies saved $60 million in FY2011 by using FSSI.  However, only $339 million out of $537 billion in contract spending was funneled through the program.

Senator Johnson expressed concern that the wrong incentives were being used to stimulate strategic sourcing use among federal agencies.  In his opinion in the private sector, profit and loss are the biggest motivators for using strategic sourcing to lower costs.  He believes that budget cuts would be more effective to stimulate change at the agency level and drive acquisition shops to use strategic sourcing programs.  He asked those testifying if they believe the current incentives are enough to drive agencies to use strategic sourcing.  According to Jordan, what really stimulates agencies and contracting officers to pursue strategic sourcing is simply that, “It is the right thing to do.”  He believes the program will continue to build momentum with the incentives that have been established along with OMB and GSA advocacy.

Senator Carper asked if agencies require training in order to maximize the use of strategic sourcing.  Jordan replied that training is a key factor, especially in light of the fact that one third of the contracting work force is pushing up against retirement age and another third has less than four years of experience under their belts.  Chaplain commented that the private sector companies that GAO interviewed showed a strong commitment to training their staff to do this kind of work.

Carper also asked the participants’ opinions of the impact of strategic souring on small businesses.  Can the government widely implement strategic sourcing and still meet small business contracting goals?  According to Jordan and Tangherlini, “Yes.”  When they design a strategic sourcing vehicle, they will maximize small business participation upfront.  They will build awareness among the small business community.  Tangherlini has seen small business success in the strategic sourcing of office supplies.

The Strategic Sourcing Leadership Council (SSLC), made up of the largest buying agencies, is in the process of determining additional commodity areas for establishment of strategic sourcing vehicles over the next two years.  One of the areas under investigation is information technology.  In the short term, agencies have been tasked with strategically sourcing two commodities, one must be technology related, and showing 10% savings.