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Tuesday, January 3, 2012

Of Strategic Sourcing or Added Value: same same

On a small (eight by thirty miles) island isolated by thousands of miles of sea and ocean (see Distances), as Guam is, economies of scale can easily become skewed. All it takes is one large "box" store and local mom and pops mainstays are swept away like being hit by a super-typhoon.

Still, if managed well, wise government purchasing supervision can whittle down the costs of government, and since we are leveraged to the hilt with debt, that can be a good thing.

The US federal government is taking that step, albeit pushing the string, to usher in more "strategic sourcing".

Strategic Sourcing: GSA’s Path of Choice
Although the federal government will increase the importance of price when awarding contracts for goods and services in an upcoming era of tightened budgets, the government’s lead agency for acquiring resources sees this new era as a “sweet spot” for it to get agencies good value for their purchases according to Federal Acquisition Service Commissioner Steven Kempf.

Kempf told Government Executive he believes the General Services Administration is well-positioned to help federal agencies leverage their resources and help reduce costs when purchasing goods and services. The GSA is using strategic sourcing as its tool to cut costs ....

The Office of Federal Procurement Policy introduced strategic sourcing in 2005 to encourage multiple agencies to purchase office supplies and other products on one contract vehicle in an effort to cut costs. The Federal Strategic Sourcing Initiative intends to increase collaboration between the private and public sectors in developing solutions and sharing best practices.

While the Government Accountability Office has questioned GSA’s methods for measuring the savings, GAO said in a December report that interagency purchases cut the government’s spending on printing products when purchases were made on GSA’s multiple award schedule program.

There has been movement on several fronts in Washington to further encourage strategic sourcing. In September, the OFPP directed agencies to develop business cases for establishing or renewing either a governmentwide, multiagency or interagency contract.

OFPP said this measure would prevent duplication of contracts and former OFPP Administrator Dan Gordon said the measure would help agencies better determine if their needs require a new contract or if needs could be met using an existing contract.

There are still some obstacles in GSA’s path for governmentwide contracts. According to GovExec’s list of agencies participating in the strategic sourcing initiative, 90 federal entities use GSA’s domestic shipping and delivery services and 60 use GSA’s office supplies plan.

“Over the last 10 years, agencies received more sources and had more in-house capability to do things, so they got used to it,” Kempf said, adding that agency pride may explain the hesitancy.

That article and topic have been picked up across the Pond.

Federal Procurement: Strategic Sourcing/Leveraged Buying/Multiple Award Schedules Required (Part 1)
Here at Spend Matters, we know a number of folks in public sector procurement who are extremely dedicated to improving government-related acquisition activity in both the US and UK. Yet the yardstick by which we measure public sector activity must be more transparent.

It's not enough to reduce spending (and budgets) overall or better manage demand (i.e., cut off spending before it happens), however important these two items are. It's also essential to enable civil servants to buy smartly at the frontlines of government, taking advantage of centralized agreements that leveraged, volume buying power and overall spend clout can provide.

Simply put, clout in procurement -- at least in large part -- is about enabling suppliers to better leverage a relationship and forcing a discount, accordingly. Theoretically, everyone wins in a leveraged purchasing arrangement. Procurement organizations can claim victory through negotiated discounts and consolidated supplier relationship that can improve quality and responsiveness. And suppliers benefit from receiving a larger portion of the spend pie.

Yes, theoretically. It begins to break down in practice when government habituates to simply shopping at WalMart and Amazon, however. It is the process of habituated shopping from the same supplier, big or small, that leads to inefficiencies, in my view.

Whenever we see supply contracts last 5 years, and so often then renewed, that theory gives way to foible. Especially in the case of routine, standard products, more frequent trips to the market, with new solicitation, keep the market interested, and sharp.

The notion of "strategic sourcing", has also taken hold on this side of the Pacific. The Public Auditor of Guam has just issued a report on GovGuam small purchasing practices, and takes essentially the same path discussed above as is being promoted in Washington and touted in London. She is calling the process "added value", but it's the same worthy idea.

The report is called, "General Services Agency Small Purchases Procurement Follow-Up Audit Report No. 11-12, December 2011".

The Executive Summary describes the GovGuam situation.
The Government of Guam GovGuam) has tremendous buying power, yet does not take full advantage of its bargaining potential. Rather than consolidate similar procurement requests, especially for recurring supplies and services, and buying in bulk, the General Services Agency (GSA), GovGuam's procurement arm, increasingly uses small purchase procurement. According to GSA's Chief Procurement Officer (CPO), agencies are ultimately responsible for planning their purchases and GSA simply processes requisitions as long as they are within the dollar threshold of the corresponding procurement authority.

GSA’s failure to plan purchasing for line agencies and consolidate procurement of recurring items led to artificially dividing and/or not consolidating purchases totaling $3.1M that should have been procured through competitive sealed bids.

GSA routinely issues small purchase POs on behalf of all line agencies for recurring items, circumventing the competitive sealed bidding process which requires advertisement. The departments of Public Health and Social Services (DPHSS) and Public Works (DPW) are consistently the two highest users of small purchase procurement, issuing the most POs every fiscal year.

Small purchase procurement is piecemeal, uncomplicated, and convenient, limits competition, stifles fairness, is inherently inefficient and costly, and does not require advertisement. In requiring only three price quotes from vendors, small purchase procurement closes the doors to those vendors, not selected who may offer better products, services and/or prices. GSA routinely decides and not the agencies which three vendors to solicit quotes from. This adds further to the speculation of “who you know” in government in order to do business. Small purchase procurement leaves the wider vendor market untapped.

The fundamental objective of government procurement is to provide departments and agencies with the goods and services they need to carry out their duties to the public efficiently and effectively. Those goods and services must be of the right quality and quantity at the lowest overall cost, and delivered and available on a timely basis. To these ends, the procurement process should involve as much competition as possible, to ensure that the opportunity to compete is open and fair to all who choose to do business with their government. Small Purchase limits competition to only the select or preferred three vendors.

She concludes, rhetorically,
What value added does GSA provide, if it merely processes individual POs from individual agencies?

Score. Adding value is too often an alien concept when purchasing, as in other management endeavor, is subsumed to paper pushing and territoriality.

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