by Dan Warn
Last week I blogged about the President’s new management initiative to create a better, smarter and faster government. This week, a senate hearing was convened to discuss the impact and potential strategies in play to enable the Federal government to achieve the President’s vision. Click here for the full testimony
Since I don’t expect you’ll view the whole 2 hours worth of testimony, I’ll provide you with the highlights here. The main conclusion, the “big idea?” Strategic Sourcing Could Save Billions! Pardon me while I yawn. OK I’m being facetious. While the private sector has been realizing the benefits of strategic sourcing for well over ten years now, the public sector is just boarding the strategic sourcing train. Better late than never is what I always say.
The data to date certainly provides a compelling case for strategic sourcing (as well as enabling solutions such as Spend Analysis, Contract and Vendor Management). The Government spends over $500 billion annually on goods and services. According to a recent Government Accountability Office (GAO) report on private sector strategic sourcing best practices, the federal government could save between 4 to 15% annually by utilizing those same best practices. Industry analysts such as Andrew Bartolini of CPO Rising have long validated that range of savings for the private sector. For the federal government, that would equate to between $20 and $80 billion in annual cost savings.
Unfortunately, the four largest federal agencies are only funneling 5% of their spend through approved strategic sourcing vehicles. That is a shockingly low number when compared to the private sector (90% of spend being strategically sourced according to the companies surveyed by the GAO) and when considering the potential savings on the table. The federal government’s strategic sourcing initiative, or FSSI, provides one avenue for federal agencies to leverage strategic sourcing. However, only $339 million out of $537 billion in spend has gone through FSSI, resulting in only (yes, only) $60 million in cost savings.
Senator Johnson questioned whether the right incentives were in place for agencies to use strategic sourcing and approved vehicles under the FSSI. The “who’s who” of federal government strategic sourcing leaders, including Joe Johnson from the Office of Federal Procurement Policy (OFPP), GSA Administrator Dan Tangherlini, and Cristina Chaplain from the GAO were in attendance. Joe Jordan felt that the incentives were not the issue, and that agencies would pursue strategic sourcing because “it is the right thing to do.” While it certainly is, I have to respectfully disagree with Joe and side with Senator Johnson. We have an ongoing fiscal crisis in our federal government. One only need look to the President to confirm how real this crisis is. At no time in recent memory can I think of a sitting Democrat (typically the party of spending versus saving) president, putting anywhere near this much emphasis on becoming a more efficient government and saving money. This is the same type of fiscal crisis (married with the need for greater profits) that drove the private sector to strategic sourcing. The need for action must be emphasized and incentivized in the federal government.
The current behavior in most if not all of federal government, is to spend every last dollar of your budget every year, in order to avoid losing dollars not spent in next year’s budget. This was true when I was in the Army in the 1990s, is still true today, and is hardly an incentive to save money using strategic sourcing. Federal agencies should be rewarded for using strategic sourcing to come in under budget. A simple way to do this (one of many), would be to return a percentage of total dollars saved to those agencies that participate in FSSI or can prove they used private sector best practices related to strategic sourcing. It’s sort of the opposite of the NFL or MLB revenue sharing concept: the better you are at saving money the more you’ll benefit, and if you field a poor team or don’t play at all, you won’t.
Please don’t interpret the tone of this post as anything less than optimistic. I think it’s excellent the federal government is having these discussions, and I believe that the President down through the other leaders mentioned here have created some momentum around strategic sourcing that the rest of the federal government can piggyback on. And now is the time. With nearly a third of the procurement workforce nearing retirement, and another third having less than 5 years experience (called the “bathtub effect” within the Beltway), there is a both an opportunity for fresh thinking and an impetus for change as this workforce will continue to be asked to do more with less. Those of us in the private sector are thrilled to see this nexus of forces coming together, and are prepared to help accelerate the realization of the benefits of strategic sourcing.
