Most Selected Agencies Leveraged Only a Fraction of Their Buying Power and Achieved Limited Savings

The four agencies we reviewed—DOD, DHS, Energy, and VA—together  accounted for 80 percent of the total $537 billion federal procurement  spending in fiscal year 2011, but reported managing less than 5 percent,  or $25.8 billion, through agencywide strategic sourcing contracts. While strategic sourcing may not be suitable for  all procurement spending, this percentage of managed spending and  savings is very low compared to leading companies which generally  strategically manage about 90 percent of their procurement spending and  achieve savings of 10 to 20 percent of total procurements annually. Further, most  of the four agencies’ current and planned strategic sourcing efforts do not  address their highest spending areas, the majority of which exceed $1  billion and most of which are services. Selected agencies’ reported savings added up to $1.8 billion in fiscal year  2011—less than one-half of one percent of total federal procurement  spending. However, they did provide  information on a limited number of ongoing departmentwide initiatives. According to VA  officials, efforts were stymied by a lack of reliable data. Selected Agencies and the FSSI Program Continue to Face Challenges in Implementing Strategic Sourcing

Selected agencies and the FSSI program, which manages  governmentwide strategic sourcing initiatives, continue to face common  challenges which prevent them from fully adopting a strategic sourcing  approach to procurement. VA and Energy also reported this challenge. Agencies are equally challenged to produce other metrics—such as  spending through strategic sourcing contracts and savings—that can be  used to monitor progress. Energy officials  agreed with our recommendation and stated they have clarified their  guidance on developing savings estimates. 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 Managed a Small Amount of Fiscal Year 2011 Spending through Several Federal Strategic Sourcing Initiatives and Reported Achieving Considerable Savings

In fiscal year 2011, the FSSI program managed $339 million through  governmentwide initiatives and achieved approximately $60 million in  savings, or almost 18 percent of the procurement spending it managed  through these initiatives. Recommendations for Executive Action

To improve departmentwide strategic sourcing efforts at DOD, we  recommend that the Secretary of Defense direct the Office of Acquisition,  Technology, and Logistics to take the following five actions:  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,  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. 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. GAO-10-367. GAO-07-20.
Why GAO Did This Study

GAO has reported that the government is not fully leveraging its aggregate buying power, and that strategic sourcing, a process that moves a company away from numerous individual procurements to a broader aggregate approach, allowed companies to achieve savings of 10 to 20 percent. A similar savings rate applied to the federal procurement budget would equal more than $50 billion dollars. In 2005, the Office of Management and Budget directed agencies to use strategic sourcing and 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--DOD, DHS, VA, and Energy--and reviewed governmentwide FSSI efforts. For each, GAO analyzed strategic sourcing data and policies, and interviewed responsible officials.

What GAO Found

Selected agencies leveraged only a fraction of their buying power through strategic sourcing and achieved limited savings. In fiscal year 2011, the Departments of Defense (DOD), Homeland Security (DHS), Energy, and Veterans Affairs (VA) accounted for 80 percent of the $537 billion in federal procurement spending, but reported managing about 5 percent or $25.8 billion through strategic sourcing efforts. These agencies reported savings of $1.8 billion--less than one-half of one percent of procurement spending. While strategic sourcing may not be suitable for all procurement spending, leading companies strategically manage about 90 percent of their procurements and report annual savings of 10 percent or more. Further, most agencies' efforts do not address their highest spending areas such as services, which may provide opportunities for additional savings.
Most selected agencies and the Federal Strategic Sourcing Initiative (FSSI) program have not fully adopted a strategic sourcing approach. In prior work, GAO found that sustained leadership and effective metrics are important factors to implementing strategic sourcing. However, leaders at DOD have dedicated limited resources to strategic sourcing, and leaders at VA and Energy are just beginning to align resources for agencywide strategic sourcing efforts. A lack of clear guidance on metrics for measuring success has also impacted the management of ongoing FSSI efforts as well as most selected agencies' efforts. In contrast, DHS leaders stood up a centralized office and hold senior managers accountable to meet goals. DHS sets targets for use of strategic sourcing contracts, and reported that nearly 20 percent of its fiscal year 2011 procurement spending was directed through strategically sourced contracts.
The FSSI program managed little spending through strategic sourcing initiatives, but reported considerable savings. In fiscal year 2011, the program managed $339 million through several governmentwide initiatives and reported $60 million in savings. However, total spending through the program remains low, in part, because the FSSI contracts have low rates of use and the program has not yet targeted the products and services on which the government spends the most.

What GAO Recommends

GAO recommends a number of actions OMB, DOD, and VA can take to achieve more savings, such as applying strategic sourcing practices to their highest spending procurement categories, and setting targets for use of strategic sourcing contracts. All three agencies concurred with our recommendations.