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How do we buy more strategically and more smartly within a large agency?
August 31, 2010 at 2:21 pm #109770
Yesterday I met with a very high level person within a large agency to talk about the agency’s need to buy smarter and more strategically. Like many federal agencies, the buying takes place at the local level, worldwide. Within our agencies, we are all challenged with getting our arms around what’s being bought by who, what the contractor workforce looks like, how large it is and what we are using contractors for, what should be contracted out, how we better leverage and manage our services spend – and how we communicate and manage all of this across a worldwide organization. So some of the options to address these challenges might be that mandatory contracts within an agency for certain categories of spend get put in place (strategic sourcing), or all requirements over a certain dollar value must be reviewed by a single responsible office within the agency, or as an example for all IT services, certain basic technical requirements must be part of every contract, etc.
In this example agency (and I think is typical of many others) thousands and thousands of contracting actions, at various dollar levels for a multitude of services and commodities is taking place across the world. Billions of dollars are spent annually.
Would love to hear your ideas for better managing the requirements and spend.
August 31, 2010 at 2:38 pm #109780
Peter G. TuttleParticipant
Hi Mary. Great post. At least in my opinion, getting a handle on the “spend” initially as part of the overall strategic sourcing process would be a great first step. Unfortunately, use of NAICS does not easily provide the line item granularity needed; perhaps use of UNSPSC might be helpful for agencies to get down below the summary-level commodity and drive down to the detail required to make informed enterprise buying decisions. All is easier said than done … I am not an UNSPSC advocate – only recognizing that its use provides more valuable detail than NAICS and would hopefully reduce the time federal employees and/or contractors would have to perform manual analysis of available paper & electronic purchasing records. I know of one COTS contract writing system in production currently which does provides UNSPSC-level functionality choices, but the GovLoop venue is vendor neutral and I, for one, would like to keep it that way. It’s a refreshing change. Anybody want to follow-up on my above statement – please contact me off GovLoop. Cheers and have a great week. Pete
August 31, 2010 at 3:15 pm #109778
The difficulty that I’ve seen with any large organization is that “strategy” tends towards the general, while actual “requirements” tend towards the specific.
In order to better implement strategic sourcing, organizations will move towards a centralized procurement staff that has a broad view of what is being purchased because a centralized staff is better at leveraging the organization’s spending potential by combining, standardizing, etc. Unfortunately, a centralized staff is removed from the day-to-day struggles of the people or groups they support, which can lead to contracts or procurement vehicles that don’t quite meet the needs of everyone in the organization. It might look good on a strategic sourcing report, but if it doesn’t meet the real world requirements, then people will find other ways to get what they need… which ultimately makes the “strategy” ineffective.
I would recommend that large agencies consider a two-pronged approach. First, have a centralized procurement team that focuses on leveraging the overall organization’s spending wherever possible. Second, have Contract Specialists “embedded” in the various programs within the organization to fully understand and support their specific requirements. These Contract Specialists should be viewed as both advocates for the programs and as procurement experts who are kept fully aware of the strategic goals and objectives of the centralized procurement team. This second “prong” should provide the link that is often missing between a centralized procurement team and the customers it serves.
There are many, many ways something like this could be structured, and numerous factors to consider, but this sums up my suggestion at a very high level.
August 31, 2010 at 3:26 pm #109776
1) Make it easier to buy centrally – I buy from my grocery store because they have everything I need at one place and easy vs going to 10 stores. Instead of mandating buying centrally, make it easier to buy through central channels than going at it alone. Often, the centralized process are seen as just a pain in the a** by the person/project manager who just needs the stuff quickly.
Tactically, this may look like Amazon-style shopping, apps.gov, etc.
2) Above $ thresholds – Every agency had various thresholds. Credit card limit and then different ones that varied by agency – $250k, $1m, etc – with each level requiring more review boards and processes. Not saying they are perfect but that seems pretty standard.
3) Share in incentives – There are rarely incentives for the local level to bring their requirements to a central authority. It’s slower and they don’t get exactly what they want. And honestly at the local level, they are less interested in cost savings as they have their budget and need to spend it.
Maybe make incentives for reason to buy centrally. This could be:
-Share in savings…part of cost-savings go back to departments
-If go central on this procurement/service/etc…we’ll let you go de-central on this one
-Get better stuff…if we buy together we all get $1k worth of computers for $1k. If go into together, we’ll get the awesome $1500 worth of computer for $1k. We get better stuff if go together
August 31, 2010 at 3:37 pm #109774
I can’t agree more with your first suggestion. Unfortunately, instead of making it easier to buy centrally, the general tactic seems to be making it harder to buy locally. But rather than encouraging people to buy centrally, this usually causes people to figure out work-arounds in order to keep buying locally.
If we can make it easier to buy centrally and set up a more flexible system that responds quicker to changing (or specific) customer needs, then we’ve got a winning scenario!
September 2, 2010 at 12:38 pm #109772
Spend analysis is the critical “requirement” necessary to get these initiatives productive and effective. Strategic sourcing is not a new concept, but certainly one that closely mirrors what industry supply chain management has done to promote and achieve world-class buying.
World-class buying at the federal level begins with setting up a comprehensive, automated data system for compiling spending throughput. This system will extract vendor payment and related procurement data from financial and other information systems within the agency. The data is then automatically compiled into a central data repository and benchmarked, by using a scorecard and dashboard approach to comply with open government and transparency goals.
But as we have discussed so far, it is the data that must be standardized and compiled if the initiatives have a chance to be successful from the beginning. Federal data, as we all know, is difficult to compile accurately for many reasons, but this would be the first step before any real strategic sourcing initiative should start. Agencies need to consolidate and standardize how they report spending data, and conduct a holistic data scrubbing exercise agency-wide to conform to the new initiative.
A tough exercise indeed, but if spend analysis is not conducted properly or at all, strategic sourcing is dead in the water and costs savings will be perceived and not real. I believe this is one time where perception is not reality
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