Strategic Sourcing [Suggest Change]

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Primary Functional Area : Contracting

Definition [Suggest Change]

OMB’s Definition: A collaborative and structured process of analyzing an organization’s spend and using the information to make business decisions about acquiring commodities and services more efficiently and effectively.

Contents

Definition
General Information/Narrative
Defense Acquisition Guidebook, Policies, Directives, Regulations, Laws
Best Practices, Lessons Learned, Stories, Guides, Handbooks, Templates, Examples, Tools
Training Resources
Communities
Related Articles

General Information/Narrative [Suggest Change]

As a tenet of Supply Chain Management, Strategic Sourcing represents a shift from buying tactically, on an as-needed basis, to buying collaboratively, with well-planned service acquisitions that consider spending trends and future requirements of the entire enterprise. Strategic Sourcing is applying the best approach to spending money. It is aligning source selection processes and other approaches to sourcing goods and services. It is meaningful and effective competition to get the best deal for the taxpayer.

Strategic Sourcing benefits include:

Increased collaboration and communication
Enhanced supplier relationships and market expertise
Improved holistic views of Defense-wide requirements
Increased workforce skills, efficiency, and effectiveness
Increased understanding of small business spend and markets
Standardized business processes
Maintained workforce balance
Reduced number of duplicative business arrangements
Reduced duplication of effort

MANAGEMENT-RELATED BENEFITS FROM STRATEGIC SOURCING (STAKEHOLDER/STRATEGIC SOURCING BENEFIT)

DOD LEADERSHIP

Enterprise-wide view of goods and services spend
Enhanced acquisition forecasting capabilities
Demonstrated stewardship of defense funding
Demonstrated commitment to small and disadvantaged business utilization
More efficient use of acquisition personnel

DOD CUSTOMERS (I.E., REQUESTING OFFICES)

Greater input on goods and services requirements
Demonstrated program budget savings resulting from Strategic Sourcing
Access to more diverse pool of goods and services providers
Standard, shared process for requisitioning goods and services
Reduced procurement cycle times
More value-added services from procurement community

DOD CONTRACTING COMMUNITY (I.E., BUYERS – CONTRACTING OFFICES)

More proactive collaboration with end-users on requirements
More collaboration between commodity experts
Increased availability and reliability of spend data
More rigorous market analyses
Better understanding of supply/demand drivers
Greater leverage in deal making
Improved planning for meeting socio-economic acquisition goals
Standard, shared process for coordinating and executing purchases
Improved analytical capabilities
Improved channels for sharing expertise, lessons learned and best practices
Enhanced professional fulfillment

DOD SUPPLIERS (I.E., SELLERS – PRIME CONTRACTORS)

More efficient coordination for single vendors with multiple DoD contracts
Opportunities to grow business across DoD through more efficient, coordinated contracting
Opportunities to compete on multiple levels – not just contract price
Increased contracting opportunities for small disadvantaged businesses
Standard, clearly understood process for doing business with DoD
Opportunities for more in-depth, multi-level contract negotiations with DoD purchasing personnel (Source: Adapted from Defense-Wide Strategic Sourcing Program, Concept of Operations, approved January 2005, pp. 15-16)

Spend Analysis is the foundation for identifying Strategic Sourcing focus areas. A spend analysis assesses the breakdown of spend in terms of:

Who did the buying? (Contracting Agency)
Who did the spending? (Requesting Agency)
How much was spent?
What type of contract award was used? (BPA, PO, Delivery Order, Definitive Contract)
What was purchased? (Portfolio Groups/FSC/PSC)
What was the size of the purchase? (>$1M, <$1M, Micro Purchase threshold, etc)
What acquisition method was used? (Assisted vs. Direct)
What type of contract was used? (Cost, FFP, T&M, etc)
Who received the work? (Top 1%, Top 10, Top 100)

In the Department of Defense the foundation for Strategic Sourcing is spend data and portfolio analysis and management. The spend analyses play a critical role in DoD acquisitions as it provides transparent, powerful information that Military Departments and Other Defense Agencies can use to assist in making Strategic Sourcing decisions. Both commercial organizations and the federal government rely on spend analyses to evaluate spend patterns in order to identify what the organization is buying, how they are buying, and from what suppliers. This knowledge and understanding can identify the right and wrong results from strategic decision-making and enables organizations to improve on their approaches to sourcing goods and services. Portfolio management provides a management structure for procurement spend and drives insight and collaboration, thereby increasing data transparency and reducing duplicate business arrangements. It also helps acquisition personnel build deeper functional skills by allowing them to specialize in grouped like-services/commodities.

Strategic Sourcing must be performed continuously to understand the constant changes in organizational spend – both past and future. It not only addresses actions leading to contract award, but actions and spend taking place after contract award. Most importantly, Strategic Sourcing activities are accomplished early so as to shape and influence the development and approval of the individual contract acquisition strategy – especially as it relates to the sourcing decision.

Strategic Sourcing solutions can range from implementing supplier partnerships, to establishing centers of excellence (based on region or core competencies), to leveraging strategic business arrangements that garner results for the enterprise. By creating an environment of data transparency and instilling a culture of strategic decision-making and collaboration, the Department can provide strategically sourced goods and services that maximize procurement dollars, resources, and warfighter support. Strategic Sourcing is not simply about reducing the number of DoD contracts or reallocating spend; it is about working collectively and operating as a single, unified acquisition workforce. It seeks to maximize enterprise-level benefits by achieving for the warfighter the right balance in terms of product/service quality and innovation, delivery time, prices, competition, contract administration costs and workload, and socio-economic goals. Therefore, it is DoD’s vision to: Institutionalize Strategic Sourcing across the DoD Supply Chain to Better Meet Warfighter Needs and Maximize Taxpayer Value.

Defense Acquisition Guidebook, Policies, Directives, Regulations, Laws [Suggest Change]

Defense Procurement and Acquisition Policy Office Policies, Reports, and References

Office of Federal Procurement Policy Memos:

Best Practices, Lessons Learned, Stories, Guides, Handbooks, Templates, Examples, Tools [Suggest Change]

Best Practices (identified by the Services Acquisition Reform Act (SARA), Section 1423 Acquisition Advisory Panel in 2007):

Invest time and resources necessary to understand and define requirements
Use multi-functional cadre to plan procurements, conduct competitions and monitor contract performance throughout the term of the contract
Rely on well-defined requirements and competitive awards to reduce prices and to obtain innovative and high quality goods and services
Establish objective measures of performance and continuously monitor contract performance
Rely on carefully crafted standardized terms and conditions, developed with vendor input, to manage risk and ensure quality performance
Use fixed-price contacts when feasible
Use relatively short-term contracts (3-5 yrs) with right to re-compete before contract has run full term
Achieve time to award in 6-12 months

Tools:

Portfolio Management (structure for goods and services)
The following table represents the DoD portfolio approach to services.

Factors used to develop the service portfolios included the nature of services provided, industry sector or segment involved, the complexity of sourcing the services, and the expectation that similar services could be sourced by the same service providers using comparable business arrangements.

The following table represents the DoD portfolio approach to goods.

Factors used to develop the supplies and equipment portfolios included similarities of the nature, type and physical characteristics; manufacturing level (raw materials to completed end-items); intended use or application (air, land, sea or space); and industry sector or segment involved.