The Need for More
Government
and Industry
Collaboration
on the
Application
and Implementation
of Strategic Sourcing
The benefits of
strategic sourcing
through increased
government and
industry collaboration—
promoting more
collaboration will
produce more efficient
programs.
BY JENNIFER
ARMSTRONG
64
Contract Management | June 2012
Strategic sourcing offers several solutions to U.S.
government operational and procurement needs. In
a May 2005 memo, the Office of Management and
Budget (OMB) set the foundation for the government's strategic sourcing program.
The memo, titled “Implementing Strategic
Sourcing,” 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.”1 However, strategic sourcing has the potential to be so much more. A
principal problem with the overall context
of this memo is that it does not identify
the government’s need to collaborate and
utilize industry resources in an effective,
cohesive manner.
Effect on the Bottom Line
The current state of the U.S. economy
demands government and industry collaboration in not only addressing the
application and implementation of strategic
sourcing, but also improving and streamlining processes. With a national debt of
approximately $15 trillion as of April 1, 2012,
it is imperative that the government find
ways to deliver products and services more
efficiently. Effectively collaborating with
industry to address its buying and spending practices is one way to achieve these
objectives.
Strategic sourcing services and commodities
include:
ƒƒ
IT and telecommunications,
ƒƒ
Professional and office area support
services,
Strategic Sourcing at the
Department of Homeland
Security
ƒƒ
Security,
ƒƒ
Facilities and construction,
ƒƒ
Industrial products and services,
ƒƒ
Office management and miscellaneous
products,
One agency that has made great strides
toward implementing strategic sourcing
across the agency is the Department of
Homeland Security (DHS). DHS created an
agency-wide process for implementation
and has incorporated over 30 strategically
sourced programs as of this writing. Its
major objectives in implementing strategic
sourcing include:
ƒƒ
Logistics operations and package delivery services,
ƒƒ
Travel and lodging,
ƒƒ
Aviation,
ƒƒ
Boats,
ƒƒ
Fleet vehicles,
ƒƒ
Professional services,
ƒƒ
Training,
ƒƒ
Uniforms,
ƒƒ
Weapons and ammunition, and
ƒƒ
Energy.
Touching so many functional areas, strategic
sourcing has the potential to have a significant impact on the national bottom line.
ƒƒ
Enhancing component mission performance through coordinated cross
functional commodity strategies,
ƒƒ
Reducing the total cost of ownership
for purchased goods and services
through improved acquisition and business processes,
ƒƒ
Establishing and institutionalizing
standards of practice for a consistent
strategic sourcing process,
ƒƒ
Improving fulfillment of socioeconomic
acquisition goals, and
ƒƒ
Improving the skills of the acquisition
community.2
On June 26, 2009, DHS issued a management directive to increase DHS-wide usage
of blanket purchase agreements (BPA) for
office supplies and to ensure that all new
Contract Management | June 2012
65
The Need for More Government and Industry Collaboration on the Application and Implementation of Strategic Sourcing
purchase card buys and task orders for
office supplies used the DHS-wide office
supply BPA. A BPA is a simplified method
of filling anticipated, repetitive needs for
supplies or services by establishing “charge
accounts” with qualified sources of supply.3
As a result of the management directive,
four vendors were awarded BPAs. DHS later
joined forces with the General Services
Administration (GSA), Office of Federal Procurement Policy (OFPP), and other federal
agencies for a second round of awards.
On June 1, 2010, 15 vendors providing a
full range of office supply products were
awarded BPAs, providing an opportunity for
the government to get better pricing under
the Second Generation Federal Strategic
Sourcing Initiative (FSSI). DHS has adopted
these BPAs as a fast, easy, and costeffective means of acquiring office supplies.
Not Just About
Saving Money
Strategic sourcing is not, however, solely
focused on saving money, bundling requirements, renegotiating prices, reducing
the number of contracts, or reallocating
spending. It involves a disciplined, systematic, and collaborative process for managing
and prioritizing an organization’s spending
across multiple customer groups, volumedefined communities, mission priorities, and
services/commodity management. Strategic sourcing allows the agency to achieve
improvements in:
66
ƒƒ
Price,
ƒƒ
Total life cycle management costs,
Contract Management | June 2012
ƒƒ
Performance,
ƒƒ
ƒƒ
Small business and social economic
participation,
ƒƒ
ƒƒ
Vendor access to business
opportunities, and
ƒƒ
Overall business efficiency.4
In summary, it is a nuanced way of achieving difficult results.
Types of Strategic Sourcing
There are two types of strategic sourcing:
(1) dynamic and (2) limited.5
Dynamic Strategic Sourcing
Dynamic strategic sourcing is a procurement approach that maximizes efficiencies
through competition and other market
forces.6 It enables agencies to utilize tools
that bring market forces to bear on each
purchase to drive down commodity prices
while allowing a large pool of qualified
vendors—including small businesses—to
participate.7
To be successful and remain in charge of the
purchasing process, agencies use established competitive processes. These include:
ƒƒ
The use of small businesses,
ƒƒ
The application of constant pressure
on the supplier to obtain and maintain
steep discounts,
Buying from qualified sources while
also obtaining lower prices, and
Purchasing at pre-planned quality
levels for additional price breaks (a.k.a.,
“quantity queuing”) enabling them to
rapidly adapt to changing procurement
variables.8
Limited Strategic Sourcing
Limited strategic sourcing is the second procurement approach, yet it seems outdated
and provides few, if any, benefits to the
buyer. It involves hiring one or more suppliers at a certain level of discount, which
often erodes over time. Relationships with
vendors are usually exclusive, and as a result are for a long period of time with price
increases over the term of the relationship.9
Limited strategic sourcing requires agencies
to perform complex analyses of spending
patterns and implement complicated logistics plans.10 This results in either a greater
workload for existing personnel or the need
for more people to implement the program
and increased agency costs. There is also
a tendency to use brand name products,
which is a violation of the Federal Acquisition Regulation and also limits flexibility and
increases cost.11
The success of dynamic strategic sourcing
stands in sharp contrast to the results of
limited strategic sourcing as the government’s primary means of achieving strategic
sourcing results. The downside effects of
the limited sourcing model (e.g., requirements to perform extensive analysis, limited
government post-award options, the nega-
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delayed or limited implementation among
federal agencies. However, dynamic strategic sourcing provides agencies with a more
effective procurement solution. It offers
easy implementation, minimizes requirements to define specific areas of interest,
enables continuation of government control
over the contracting process, and avoids the
negative impact on small businesses while
maximizing efficiency, competition, and
cost savings.12
Benefits of Strategic
Sourcing
Strategic sourcing has additional benefits
external to the dynamic versus limited approaches. Improved operating efficiencies
reduce procurement- and non-procurementrelated expenses, as well as performance
monitoring costs. Socioeconomic goals
often improve supply management and
optimize supplier relationships. These relationships create a joint understanding of the
needs, capabilities, and increased efficiencies required across the entire supply chain.
In summary, “the key to strategic sourcing
is its drive to make smarter decisions by
analyzing processes first, then deciding
the most efficient way to perform those
processes.”13
Challenges of Strategic
Sourcing
Still, there are additional challenges beyond
applying the best approach in the application and implementation of strategic
sourcing and achieving its many benefits.
Government and industry have no problem
communicating the numerous and well-
68
Contract Management | June 2012
documented challenges they’ve encountered.
Complications often occur with an unclear
vision and undefined requirements of the
products or services sought with indefinite
periods of performance. This challenge deserves its own article as it is highly important
to the future of government contracts and
the government’s priority of improving its
buying practices in the long run.
Another challenge is the initial up-front
costs and risk of responding to competitive
government solicitations for groups of items.
This can become burdensome and is often
time-consuming for the contractor. Contractors are typically asked to price hundreds of
items and provide supporting details that
are excessive, with no certainty of winning
or what the production volume will be if
they do win. During the post-award phase,
contractors also raise concerns regarding
the existence of arms-length relationships
with the government, lack of access to customer data, exposure to commodity fluctuations, and difficulty in problem resolution.14
In addition to the enormous workloads
experienced by government and industry,
internal and external political, legal, and
resource constraints exist, placing limits
on their ability to effectively implement
strategic sourcing efforts. The key to ensure
success is to identify key problems early so
that both sides will try to collaborate and
resolve them in a positive way before it is
too late.
Use of Internet in
Strategic Sourcing
In the acquisition community, the Internet
has played a significant role in the way contracts are drafted, bid, executed, and award-
ed. The Internet has changed the industry
from paper-based to electronic. Buyers and
sellers are now demanding products/services and payment more quickly than in the
past. The online commercial procurement
marketplace plays host to FedBid. It is used
to maximize efficiency, competition, and
cost-savings while avoiding potentially costly and problematic limited sourcing issues.
Available at no cost to vendors registered
in the Central Contractor Registry, prices
are driven lower through a dynamic pricing
mechanism. FedBid and its “reverse eBay”
approach was endorsed by OFPP and former
House Government Reform Committee
Chair Tom Davis. Another e-commerce site,
FedSpace, is a secure intranet and collaboration workspace for federal employees and
contractors led by GSA through the Office of
Citizen Services.15
Strategic Sourcing Process
The strategic sourcing process consists of
seven fundamental steps.
Step 1
The first step is an initial assessment of the
opportunity. Begin by identifying the mission and key objectives; reviewing historical
spending, current contracts, demand, and
current market conditions; and capturing
potential benefits and risks. These steps aid
in forming a comprehensive business case
when seeking executive buy-in.
Step 2
Second, identify key decision-makers for
both government and industry.
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The Need for More Government and Industry Collaboration on the Application and Implementation of Strategic Sourcing
Step 3
Step 7
Next, research and gain an understanding
of the commodity and how it is currently
being procured.
Lastly, implement and manage performance
utilizing the selected sourcing strategy in
consonance with the acquisition oversight
and compliance guidance, targeted enterprise investment, and defined performance
objectives. When the process is complete,
performance data should be collected
periodically for review to ensure expected
benefits and results are achieved.16
Step 4
Define the scope, identify critical success
factors and performance indicators, and
ensure there will be a reasonable basis for
return on investment.
Step 5
Perform market research and an industry
analysis using the results to develop a
strategic plan.
Step 6
Conduct the phases of the acquisition process coordinating with acquisition oversight
groups and other stakeholders to ensure
documentation and compliance at all levels.
70
Contract Management | June 2012
DHS, the Department of Defense, and other
agencies have incorporated “concept of operations” (CONOPS) into their organizations
to document a repeatable and sustainable
process for identifying opportunities for common procurements that are more efficient
and effective and are rapidly developing and
deploying successful sourcing strategies. The
benefits include a multi-tiered framework
utilized by agency components in defining
their mission requirements and allocating
investment to achieve their goals. DHS accomplishes this through the DHS Strategic
Sourcing Program (SSP) governance structure, which supports the achievement of the
department-wide goals of mission effectiveness and fiscal responsibility. As the head of
this structure, the Strategic Sourcing Group
(SSG) serves as an advisory/oversight group
for developing and implementing the vision
of transforming agency-wide acquisition of
goods and services from a tactical and reactive function to a strategically driven one to
ensure maximum value. Toward this end, the
SSG must champion the use of the strategic
sourcing process and provide executive-level
oversight to ensure the achievement of SSP
objectives.
Federal Strategic Sourcing
Initiative
The FSSI is a partnership between large and
small agencies, OFPP, and GSA. The primary
goals of the FSSI are to:
ƒƒ
Strategically source across federal
agencies;
ƒƒ
Establish mechanisms to increase total
cost savings, value, and socioeconomic
participation;
ƒƒ
Collaborate with industry to develop
optimal solutions, share best practices,
The Need for More Government and Industry Collaboration on the Application and Implementation of Strategic Sourcing
and build the strategic sourcing community of practice;
ƒƒ
Collect and analyze data;
ƒƒ
Identify trends; and
ƒƒ
Identify adjustments for future FSSI
commodities/services.
The key players in regards to the collaboration efforts between government and
industry include the administration, the
OFPP administrator, NCMA, other similar
associations, and government contractors.
The administration, OFPP, and OMB have
issued some of the following memoranda
and guidance pertaining to government and
industry’s collaborative efforts, as well as
the need to implement strategic sourcing to
achieve agency goals of a reduced supplier
base, the opportunity to leverage buying
power, increase cost savings, enhance quality, and increase the realization of socioeconomic goals. On February 2, 2011, Jack Lew, director of
OMB, penned an article, titled “Turning the
Tide on Contract Spending,” in which he
praised the Obama administration for reducing contract spending for the first time in 13
years. In the article, he states:
[The administration has] taken advantage of smarter buying practices, such
as strategic sourcing…. They have used
innovative techniques that allow them to
obtain greater economy and efficiency in
their buying practices, such as electronic
reverse auctions that help buying organizations obtain lower prices for a wide range of
off-the-shelf commodities through vigorous
competitions where vendors bid down their
competitors’ prices to win work….
[S]trengthening communication between
the government and contractors to ensure
agencies acquire the best market solutions to meet their needs…[will help] the
On the same day, Dan Gordon, administrator
of OFPP, issued a 13-page memo to senior
procurement executives and chief information and acquisition officers to emphasize
the importance of “early, frequent, and
constructive engagement with industry”18
and to demystify some of the myths about
the acquisition process. The memo also
stated that “our industry partners are often
the best source”19 in regards to the latest
pricing information and new and efficient
technologies. He concludes by stating:
tential offerors as long as no vendor
receives preferential treatment.
•
ƒƒ
[I]nformation gathered from industry
sources plays an invaluable role in the
acquisition process. For this reason, agen-
[and] agencies will improve how they buy IT
early, frequent, and constructive commu-
•
Fact: Restricting communication
won’t prevent a protest, and limiting
communication might actually increase the chance of a protest (in addition to depriving the government
of potentially useful information).
•
Comment: Protests are a fact of
life. Nothing and no one is perfect
and mistakes are often made. It’s
just a matter of who is willing to
take the risk of pointing it out.
nication during key phases of the process.
The federal government’s ability to achieve
successful program outcomes effectively
and efficiently, depends upon agencies
establishing effective strategies for industry
engagement and supporting those strategies with senior-level commitment.20
In conjunction with the Federal Acquisition Institute, Gordon kicked off his “Myth
Busting” campaign on February 17, 2011,
by giving a presentation at The Association for Federal Information Resources
Management to the federal IT community.
The campaign’s objective is to “eliminate
artificial private sector engagement barriers.”21 His speech emphasized improving
communication within the government as
well as between government and industry,
particularly as these improved communications affect the federal acquisition process.
Concerning the failure of communications between government and industry,
he cited his “Myth-Busting” memo. The
following are examples of some of the
10 “myth busters” he discusses in more
detail in the memo; all of which restrict or
completely eliminate effective communications between the government and its
contractors:
ƒƒ
ƒƒ
Misconception: “We can’t meet oneon-one with a potential offeror.”
ƒƒ
and allow for more nimble and careful use
of taxpayer dollars.17
Misconception: “A protest is something to be avoided at all costs—even
if it means the government limits
conversations with industry.”
cies must develop practices that will ensure
administration’s plan to increase the return
on information technology (IT) investments,
Comment: Present the government official with an agenda
ahead of time so that he or she
knows the reason for your visit
and will feel comfortable speaking
to you about the highlighted topics. This will help pave the way for
open communication.
•
Fact: Government officials can
generally meet one-on-one with po-
Misconception: “When the government awards a task or delivery order
using the Federal Supply Schedules,
debriefing the offerors isn’t required so
it shouldn’t be done.”
•
Fact: Providing feedback is
important, both for offerors and
the government, so agencies
should generally provide feedback
whenever possible.
•
Comment: The government
benefits greatly from industry
responses to proposals. The
government should always be
willing to grant a debrief to those
contractors that seek one so they
will be more inclined to respond
to future requests for proposals.
Misconception: “Industry days and
similar events attended by multiple
vendors are of low value to industry
Contract Management | June 2012
71
The Need for More Government and Industry Collaboration on the Application and Implementation of Strategic Sourcing
and the government because industry
won’t provide useful information in
front of competitors, and the government doesn’t release new information.”
•
•
Fact: Well-organized industry
days, as well as pre-solicitation
and pre-proposal conferences, are
valuable opportunities for the
government and for potential
vendors—i.e., both prime contractors and subcontractors, many of
whom are small businesses.
Comment: Market research is an
important aspect of the pre-award
phase for both government and
industry, especially when it is
done properly.22
Strategic Sourcing
Lives On
The “Myth Busting” campaign continues
its mission by presenting at conferences
such as the GSA Expo and NCMA’s World
Congress. The Federal Acquisition Institute
website will host webinars, continuous
learning programs, and video channels to
provide a Q&A forum, celebrate successes,
and perform more myth-busting. None of
this should be perceived as new initiatives or
a change in government policy or direction;
rather, it serves as a reminder to continue
the mission of strategic sourcing.
72
Contract Management | June 2012
NCMA's Role as
Intermediary
NCMA has always been an advocate for
collaboration between government and
industry. In his open letter published January 27, 2011, titled “Addressing the Need
for Cooperation between Government
and Industry,” Neal Couture, the former
executive director of NCMA, applauded the
government for its efforts made in spend
management, but did not shy away from
the need to improve “the relationship
between government and industry working
toward a common goal.”
Forums like those provided by NCMA are
critical to the development of effective
communication between government and
industry. The parties are able to express
both their views and frustrations in an
environment where the professionals have
a mutual respect for the other because they
know that this is where change begins.
In 2010, Steve Kelman, former administrator of OFPP and now a professor at Harvard
University, stated:
Effective communication between government and industry can save money and
This letter was well received by industry
professionals, but little was mentioned
about it by their government counterparts. In an effort to capture their attention, Couture wrote another letter, titled
“Open Letter to Government Employees:
Becoming Engaged with NCMA Enhances
Professionalism and Mission Success,” in
which he stated:
NCMA provides a collection of neutral
networks, or communities, at the local and
national level, where contract management
professionals from all types of government
and industry agencies and organizations
can come together with a common goal: To
enhance their professional expertise in a
nonadversarial environment, thus enabling
them to more effectively accomplish the
mission of their organizations.
prevent misunderstandings and proposes
using government/industry communication for the benefit of agency missions and
taxpayers.23
If communication ceases to exist, progress
will too.
Benefits of Collaboration
There are many benefits to be had from
enhanced collaboration between government and industry, including better, more
effective spending and resource management and relationships built on trust and
channeled into productive interaction,
which reduces conflict over time. Collaboration fosters ownership of problems,
responsibility, and stewardship and empowers employees by shifting power downward.
The Need for More Government and Industry Collaboration on the Application and Implementation of Strategic Sourcing
It promotes real participation, fosters
transformation through change in understanding and values, and promotes learning
and adaptation. Collaboration also improves
a team’s ability to deal with future situations, promotes proactive decision-making,
and builds support for those decisions
that are typically appealed. This creates
the potential to achieve joint gains; builds
understanding of complex, cross-boundary
problems through shared information; and
builds a richer understanding of joint values
by enabling parties to articulate and discuss
them. This fosters action by mobilizing
shared resources to get work done.24
Collaboration can also be examined as a
paradigm shift to better realize benefits.
When collaboration features strategically
sourced initiatives and works properly, government programs can go from a win-lose
situation to a win-win situation. What was
once competition becomes cooperation and
consensus. Teams stop focusing on one correct view and start seeing multiple, legitimate views. They are no longer carrying out
isolated authorities but are solving shared
problems and pursuing shared objectives.
They don’t avoid uncertainty, but acknowledge it and manage it adaptively. Teams
are not fragmented, but integrated across
boundaries.25
Steps to Ensure
Collaborative Success
There are a few basic steps to a successful
government/contractor relationship.
Step 1
The government must adequately state its
program need, and in its response the contractor must describe how to satisfy those
needs and at what cost. This may seem
like a simple task, but the level of difficulty
increases based on the level of complexity
of the program.
who is responsible for what tasks. Strategic
sourcing is a cumbersome process for any
program and being able to quickly connect
with those responsible for specific tasks
improves and maximizes overall efficiency.
Step 3
The parties need to collaborate to define
desired outcomes and how the success will
be measured. This means identifying an
efficient, low-cost total solution using an
outcome-based approach as opposed to
transactional one.
The key success factors in implementing
strategic sourcing require strong executive
leadership support, component commitment, effective communication, qualified
resources and training, and spend visibility
with the supporting analysis of the results
to be examined later.
Conclusion
Both government and industry have made
significant progress toward improving buying
practices and managing dollars spent. They
have also begun to take steps toward effective communication and collaboration for
the benefit of the mission and taxpayer. The
concept of strategic sourcing has opened the
door and played a key role in improving the
government’s buying practices and industry’s
selling techniques, but there is still a long
road ahead. The continuation of this dialogue
will allow for more open and effective communications between government and industry and will aid not only in the reduction of
our national debt, but also the restoration of
our economy as a global leader. CM
Endnotes
1.
Clay Johnson III; “Memo to the Chief Acquisition, Chief Financial, and Chief Information
Officers”; Executive Office of the President;
Office of Management and Budget; Washington, DC (May 20, 2005).
2.
DHS, “DHS Strategic Sourcing Program Concept of Operations, Version 2.0 (2008).
3.
See Federal Acquisition Regulation 13.303-1.
4.
See Johnson III, note 1; and Joanie Newhart,
“Strategic Sourcing: What’s All the Buzz,” Contract Management (January 2006): 26.
5.
See Neal Fox, “Dynamic Strategic Sourcing,”
Contract Management (November 2006): 57.
6.
Ibid.
7.
Ibid.
8.
Ibid.
9.
Ibid.
10.
Ibid.
11.
Ibid.
12.
Ibid.
13.
Kurt Chelf and Tim Reed, “Strategic Sourcing—
The Future of Outsourcing in the DOD,” Contract Management (April 2002): 12–13.
14. See LMI Government Consulting, “Strategic
Sourcing: A Private Sector and Defense Contractor Perspective,” DLA Strategic Sourcing
Workshop (Powerpoint) (November 14, 2008).
15.
See Fox, note 5.
16.
See note 2.
17.
Jack Lew, “Turning the Tide on Contract Spending” (February 24, 2011), available at www.
whitehouse.gov.
18.
Daniel Gordon, OMB “Memo to Chief Acquisition Officers, Sr. Procurement Executives, and
Chief Information Officers” (February 2, 2011).
19.
Ibid.
20.
Ibid.
21.
Ibid.
22.
Derived from Gordon, ibid.
23.
Steve Kelman, “Agencies Should Not Fear Talking to Contractors,” Federal Computer Week
(February 2010).
24. See Steven Yaffee, “Ecosystem Management
Initiative,” University of Michigan (2002).
25.
Ibid.
About the Author
JENNIFER ARMSTRONG is a contract specialist with the U.S. Agency for International
Development and a 2010–2011 NCMA Contract
Management Leadership Development Program
honor graduate. She is currently the secretary
Step 2
for the Tysons Corner Chapter of NCMA.
Identifying responsible and qualified agency
and contractor human capital is another
important factor; it is imperative to know
Send comments about this article to
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Contract Management | June 2012
73