A cautionary word about strategic sourcing

As the government rushes forward with strategic sourcing, PSC President Stan Soloway advices caution because how and where strategic sourcing gets applied can be the difference between a win and lose for both sides.

On May 15, the Government Accountability Office (GAO) released a new report on strategic sourcing. It's worth reading…carefully. For while it clearly endorses the greater use of strategic sourcing for government needs, it is important to pay close attention to the sometimes less than obvious messages it contains.

GAO makes clear that strategic sourcing is common in the commercial world, even for the procurement of professional services. GAO cites numerous companies—from Boeing to Walmart—that effectively use strategic sourcing for almost all of their requirements. At first blush, this would seem to negate the argument that some, including myself, have made about strategic sourcing not being appropriate for higher end, more complex services.

And that’s where the words come in, because, as usual, words matter.

What should be gleaned from GAO’s report is that, in the commercial marketplace, strategic sourcing is a multi-layered approach to procurement that changes and evolves from requirement to requirement. While cost is always a consideration, it is also clear that cost is not the only issue, and often not the most significant one.

 Moreover, GAO makes it clear that, to a company, the term “cost” involves more than the immediate operational costs of implementation. Rather, it refers to the total life-cycle cost of ownership and impact, including the long term costs as well as the operational and monetary impact a given solution will have across the enterprise.

Yet government too often focuses solely on one element—the immediate operational costs—and ignores all others.

In addition, GAO found there are numerous other “best commercial practices” associated with commercial strategic sourcing rarely seen in government because they run counter to other requirements embedded in the federal acquisition system, from socio-economic goals to mandated wages and more.

In the end, the most important message from GAO is their first: strategic sourcing is not one thing.

“Strategic sourcing” in the commercial world involves a set of processes and analyses that lead to different manifestations of the term. Technical quality is a good example. In addition to increasingly sophisticated spend analyses, companies expend a great deal of effort analyzing the levels of quality and capability needed to deliver excellence for their customers.

Minimum quality, especially for other than true commodities, is rarely enough and trade-offs between factors are routine. In fact, strategic sourcing for complex services and the use of best value acquisition approaches are not only not mutually exclusive, they are commonly blended together. At least in the commercial world.

And this is where the rub lies. Across government today, the term “strategic sourcing” seems to be understood as but one thing—a method for aggregating buys as a means of driving down prices. This is evident almost across the board and was the core of GSA’s explanation of the relationship between strategic sourcing and the OASIS procurement.

The Federal Strategic Sourcing Initiative is a smart idea and should be widely applied. But how it is applied matters a lot.

Until a much clearer understanding of the many nuances and variations that characterize the concept is developed in government, it should be exceedingly cautious in its application. In fact, government has a well established tendency to too quickly and too broadly adopt new concepts without carefully assessing where and how those concepts are really best applied. Think, for example, of the over-emphasis on Earned Value Management (EVM). Full, 32-step EVM systems have become mandatory even where EVM has little value or relevance. 

Thus in other than pure commodity arenas, it is not only fair, but critically important, to slow the strategic sourcing train down before a “win-win” is turned into a “lose-lose.”

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