OMB may add 'strategic sourcing' to management agenda
Idea is to get agencies to leverage their buying power to get better deals on specific commodities.
The Office of Management and Budget is considering adding "strategic sourcing," a technique aimed at improving agencies' purchasing processes, to the President's Management Agenda.
OMB's Office of Federal Procurement Policy is drafting guidance that asks agencies to identify three commodities that could be purchased using strategic sourcing, said OFPP chief David Safavian. Strategic sourcing involves keeping track of how purchases are made, identifying how they could be made in a better way, and then negotiating contracts to fit those goals.
"Private sector experience tells us that when companies conduct spend analyses and use strategic sourcing, they cut commodity costs by as much as 30 percent," said Safavian. If OMB does decide to add strategic sourcing as an initiative, it would join improper payments, management of real property and others as a management focus for President Bush's second term.
Some agencies already have implemented strategic sourcing on their own. After analyzing the money it was spending on office supplies, the Agriculture Department negotiated a deal with office supply provider BCOP Federal.
"We said, 'Look, we're a big customer, we know how much we buy, we spend $28 million a year on office supplies. If you want our business, give us a better price,' " said David Shea, chief of procurement policy at Agriculture. He estimates the agreement saves the department $2.5 million a year.
"The potential is in the billions and billions of dollars," said David Cooper, a director of acquisition and sourcing management at the Government Accountability Office. He has studied strategic sourcing at agencies, and GAO has published multiple reports on the topic.
"We've tried to put the message out there, and the concept is starting to be embraced throughout the federal government," Cooper said.
Safavian offered rubber bands as one example of successful strategic sourcing. "The Postal Service found that instead of buying a thousand rubber bands here and a thousand rubber bands there, if they bought them all at the same time, they could save $600,000. Even more impressive, the Postal Service saved nearly $15 million by using strategic sourcing when buying office products last year," he said.
Still, the federal government is three to five years behind private sector companies, many of which have embraced strategic sourcing as a way to reduce costs, said Bob Welch, a partner at Acquisition Solutions Inc., which consults with federal agencies on acquisition issues.
Some government suppliers say they also benefit from strategic sourcing. While price is often negotiated to lower levels, companies can predict orders more easily and ship multiple orders together. "It's much easier to do business with one large customer," said Mark Heuer, federal business manager for BCOP Federal.
Small companies sometimes are concerned that strategic sourcing will knock them out of the marketplace, because agencies will look for a small number of large vendors that can provide large quantities. Agencies, including the Internal Revenue Service, address this issue by encouraging large vendors to subcontract with small companies.
BCOP Federal, for example, distributes many products from small, disadvantaged, minority and women-owned businesses in its catalog.