Taxonomy and Spend Analysis
Portfolio Group Taxonomy
The Department of Defense (DoD) organizes its spend using a taxonomy based on Product Service Codes (PSCs) used today by all federal government contracting activities for identifying and classifying the services and supplies & equipment (S&E) that are purchased under contract, as set forth in the Federal Procurement Data System Product and Service Codes Manual. The DoD’s Portfolio Group Taxonomy consists of 16 portfolio groups (9 services, 7 S&E) and 70 portfolios (40 services, 30 S&E).
This taxonomy was selected because it consists of few categories (i.e., portfolio groups, portfolios, portfolio category, sub-category), yet is broadly defined in terms of people, equipment and facilities, and encompasses all spending. It is defined by an overarching hierarchical classification of services and S&E being purchased and not what acquisition method was used or what organization did the buying. PSCs were selected because they are readily available, accurate and consistently recorded unlike other classification codes used by various contracting offices. Additional factors used to develop both the services and S&E portfolio groups’ structure include:
Use of this taxonomy by each component will ensure consistency across the Department and enable better understanding of the aggregate DoD spend, the value of specific services and S&E being acquired, similarities and dissimilarities in buying practices and behaviors, and most importantly – facilitates establishing baselines for measuring progress.
Portfolio Group Spend Analysis
Portfolio group spend analysis is part of the first critical step in making an informed business decision in the Strategic Sourcing process. It is a powerful tool that provides knowledge within the context of a portfolio about how much is being spent; the specific nature of the purchases (Services or S&E); buying practices (i.e., contract characteristics); and what contracting parties (i.e., requiring offices, contracting offices and suppliers) are involved. A portfolio group spend analysis also identifies opportunities to create significant cost savings, leverage economies of scale, employ demand management principles and draws attention to procurement best practices. DPAP/SA provides annual portfolio group spend analyses to Military Departments and Defense Agencies to enable and sustain their strategic sourcing efforts.
Portfolio Management
DPAP/SA conducts the annual spend analysis employing a portfolio management approach. Portfolio management provides a collaboration framework for centralized oversight within OUSD (AT&L) coupled with decentralized execution at the Military Departments and Defense Agencies. By driving collaboration, portfolio management:
- Improves the transparency of requirements across the Defense Enterprise;
- Reduces the proliferation of redundant business arrangements developed for similar products or services; and
- Increases awareness of alternative business arrangements that may be better suited to particular needs.
Portfolio management also helps acquisition personnel build deeper functional skills by allowing them to specialize in specific commodities or marketplaces. This additional expertise results in enhanced support to the warfighter through maximized procurement dollars, streamlined organizations, and increased efficiency and effectiveness.
Portfolio Group Spend Analysis Reports
Using the portfolio group taxonomy, DPAP/SA conducts annual comprehensive, enterprise-wide and detailed contract spend analysis of contract purchases of Services and S&E made by DoD. Each annual spend analysis:
- Includes all contract awards made by DoD contracting activities and civilian agency contracting offices (i.e., interagency spend) on behalf of DoD requiring offices;
- Uses the spend totals certified by DPAP Director to the Office of Federal Procurement Policy and contract records submitted to the GSA Federal Procurement Data System – Next Generation (FPDS-NG) repository for the fiscal year under review; and
- Employs a common analytical framework and reporting structure that is defined by a set of questions often asked by DoD senior acquisition leaders about contract spend as depicted here.
The primary focus of each annual spend analysis is on identifying spend patterns and buying practices of Services and S&E from both - the requiring office and contracting office perspectives. DPAP/SA has developed and produced portfolio group spend analysis reports during the past three years that are accessible using the Spend Analysis [FOUO, CAC-enabled] link above. Together, these spend analysis reports provided the analytical foundation used by DoD senior leaders in formulating the DoD Better Buying Power Initiatives in September 2010 and in monitoring its progress. The spend analysis reports also have provided invaluable insights and data to the DoD Strategic Sourcing Directors Board and DoD Component Senior Services Managers for use in their activities and initiatives – especially in support of obtaining greater efficiency and productivity in DoD spending, identifying collaboration opportunities, and monitoring key performance measures (e.g., overall competition, effective competition, Time & Material contracts, and small business utilization).