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Strategic Sourcing 101 — Reasons Why Your Agency Should Sign On

The age of austerity is here and it’s here to stay. But one potential way for agencies to save is to use strategic sourcing in its acquisitions. But what is strategic sourcing and could it really work at your agency?

Thomas Kuhn in a fellow with Integrity Management Consultants. He told Chris Dorobek on the DorobekINSIDER program how strategic sourcing works.
A recent GAO report, found that four agencies, which account for 80 percent of the total procurement spent across government, weren’t taking the best advantage of applying economy of order and multi-sourcing contracting.

What is Strategic Sourcing?

“in previous acquisitions you would look at buying tactically. You would focus on a specific good or service on an as needed basis. With strategic sourcing you can look at buying collaboratively. You can make better use of economy of scale and efficiences across the portfolio,” said Kuhn

Why Now?

“Economy of scale has been a concept for awhile. But it is more difficult with services contracts. But if you have multiple service contracts across the portfolio you can look at elements in those contracts and combine rather than have each individual contract. It could be 2-4 times less expensive,” said Kuhn.

The Report Highlights Simple Steps for Success

  • Conduct market research. With strategic sourcing it is important to identify opportunities upfront to meet program needs. Strategic sourcing after the fact is not effective at saving money
  • Use spend analyses to better improve selection of products and services for strategic sourcing
  • Devote resources to strategic sourcing efforts
  • Continuously measure success and progress of efforts

Mindset Shift

“For this to work you have to change the culture the acquisition workforce. For years we’ve been living rather large. People need to start changing because going forward we will not have the luxury of unlimited budgets,” said Kuhn.

Agile Approach to Strategic Sourcing

“When you think of agile you think of an incremental approach. The smaller the implementation the easier it is to implement and roll out. It is also easier to manage in smaller bites and also if you need to cancel you have less sunk costs,” said Kuhn.

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Allen Sheaprd

Economy of scale and strategic buying is a no brainer – butttt… without a NSN (National stock number) its very hard to see that part #34AG56 from vendor A is the same three inch 5/16 right hand thread grade five bolt as #100-458-516 from vendor B.

There is some “fifedom” or turf considerations.

Here inventory databases do help. How many bolts, Google phones, etc do we buy?? Manufactures of goods or services do think in volume and customer base.