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OMB Implements Strategic Sourcing

Public Contracts Update

The Office of Management and Budget (OMB) has directed agencies to leverage the government’s buying power by applying strategic sourcing principles to acquisitions. Strategic sourcing is the collaborative and structured process of analyzing an organization’s spending and using the information to develop strategies that reduce the purchase price for goods.

The federal government spends approximately $300 billion on goods and services each year, and federal agencies are responsible for maximizing the value of each dollar spent. OMB believes that agencies need to leverage spending to the maximum extent possible. Strategic sourcing will help agencies optimize performance, minimize price, increase achievement of socio-economic acquisition goals, evaluate a total life cycle management cost, improve vendor access to business opportunities, and otherwise increase the value of each dollar spent.

Each agency’s Chief Acquisition Officer (CAO), Chief Financial Officer (CFO), and Chief Information Officer (CIO) are responsible for overall development and implementation of the agency’s strategic sourcing effort, which begins with a spend analysis and the identification of commodities for which strategic sourcing should be implemented. The CAO shall lead the CAO/CFO/CIO development team and will take the following actions:

1. Not later than October 1, 2005, the CAO shall identify no fewer than three (3) commodities that could be purchased more effectively and efficiently through the application of strategic sourcing, excluding software that could be purchased under the SmartBuy program. Agencies may include existing strategic sourcing efforts for this purpose.

2. The CAO shall lead the collaborative development of an agency-wide strategic sourcing plan in coordination with the agency’s CFO, CIO, representative of the agency’s Office of Small and Disadvantaged Business Utilization, and other key stake holders, as appropriate. The plan should reflect the application of sound program and project management principles. At a minimum, the plan should include the following elements:

  1. Strategic Sourcing Governance – A charter should be developed outlining the members, roles, responsibilities, and operations of an agency-wide Strategic Sourcing Council and any commodity councils to be formed.

  2. Strategic Sourcing Goals and Objectives – The Strategic Sourcing Council should establish annual strategic sourcing goals and objectives by fiscal year. These goals and objectives should include existing strategic sourcing efforts, as well as prioritizing new initiatives. In addition to cost and performance goals, any strategic sourcing plan must be balanced with socio-economic goals for small businesses, small disadvantaged businesses, woman-owned small businesses, veteran-owned small businesses, service-disabled veterans-owned businesses, HUB-Zone and preference programs, (e.g., Javits-Wagner-O’Day) and others, as appropriate.

  3. Performance Measures – The agency Strategic Sourcing Council should establish agency-wide performance measures and reporting requirements in order to monitor and continuously improve the strategic sourcing program.

  4. Communications Strategy – The Strategic Sourcing Plan should also include a communications strategy that clearly conveys senior management’s commitment to the effort, describes the scope of the effort and identifies any organizational changes. The communications strategy should also include steps to make agency employees aware of awarded strategic sourcing contracts and how they are to be used.

  5. Training Strategy – The plan should identify actions necessary to educate agency personnel to support effective and efficient strategic sourcing implementation and management.

3. Beginning in January 2006, the CAO shall report annually to the Office of Federal Procurement Policy (OFPP) regarding, at a minimum, reductions in the prices of goods and services, reductions in the cost of doing business, improvement in performance, and changes in achievement of socio-economic acquisition goals at the prime contract and, if possible, the subcontract level. Agencies shall develop methodologies for establishing baseline data and subsequent changes to this baseline and shall consistently apply this methodology throughout the strategic sourcing process.

Using information for the agency reports and other data sources, OFPP may identify several commodities that could be strategically sourced government-wide and will establish an inner agency structure for managing the acquisition of these commodities.

OMB’s efforts are commendable and it will be interesting to observe whether or not agencies enthusiastically support the strategic sourcing initiative.

For those who would like to discuss the issues in this Update, please contact Robert G. Fryling at 215-569-5534.