Buy Lines: A place for small business in strategic outsourcing

Lately, I've been thinking about what role small businesses can play in the growing initiative to implement strategic sourcing across federal agencies. Are there specific activities they can facilitate between the federal agencies and technology manufacturers?

A May 20 Office of Management and Budget memo to agency executives defined strategic sourcing as "the collaborative and structured process of critically analyzing an organization's spending, and using this information to make business decisions about acquiring commodities and services more effectively and efficiently."

To implement strategic sourcing, agencies need to analyze their "spend" data, identify key suppliers to establish strategic relationships and automate supply functions to collect even more precise purchasing data across the entire enterprise.

Instead of department buyers procuring goods and services as needed, all buyers are instructed to consider the strategic supplier first. Strategic sourcing turns the usual procurement process on its head.

Automating the supply chain has cut operating costs in large commercial corporations by as much as 30 percent. Therefore, Congress, the Government Accountability Office, the administration and many agency executives see it as a way to reduce acquisition, administrative and lifecycle costs while enforcing security and technical standards.

To identify the role for small business, let's look at the activities involved in strategic sourcing. The five elements of spend analysis defined in GAO's report to Congress, "Using Spend Analysis to Take a More Strategic Approach to Procurement," are a good place to start:

  • AUTOMATION: Agency spend data is compiled automatically.

  • EXTRACTION: Essential data is culled from accounts payable and other systems.

  • SUPPLEMENTAL INFORMATION: Additional data is sought from internal and external sources.

  • ORGANIZATION: Data is checked for completeness and organized into logical, comprehensive commodity and supplier categories.

  • Study data to support strategic-sourcing decisions and procurement management in areas such as cost cutting and streamlined operations.

A small-business contractor could be vital in performing these unique buy-side data collection and analysis activities, which large businesses would be precluded from performing because of organizational conflict of interest issues.

On the sell-side, the manufacturers could designate a small business as the partner charged with maintaining the strategic sourcing relationship between the manufacturer and the agency. This contractor would maintain the dynamic, yet structured, data-driven relationship needed to make strategic sourcing a win-win for the manufacturer and the agency.

I like the idea of a small business being able to assume this role, and it seems to be what the Homeland Security Department envisioned in its draft request for proposals for FirstSource, a multiple-award, indefinite-delivery, indefinite-quantity contract to facilitate the strategic sourcing initiative for information technology products.

After reviewing the draft RFP, I wondered how strategic a FirstSource agreement can be under a contract with the independent price determination clause. Wouldn't a schedule-based blanket purchase agreement, similar to those negotiated by the Defense Department's Enterprise Software Initiative for Enterprise Software Agreements, let the agency define the strategic relationship more precisely? It could do so with those manufacturers that are truly strategic, without the overhead associated with doing a contract from scratch.

This is a good time for the General Services Administration to provide specific guidance to agencies on ways to implement strategic sourcing initiatives contractually, so the objectives of agencies, manufacturers and small businesses could be met using existing models and tools.

Steve Charles is cofounder of immixGroup, a government business-consulting firm in McLean, Va. Steve welcomes your comments at

About the Author

Steve Charles is a co-founder of immixGroup, which helps technology companies do business with government. He is a frequent speaker and lecturer on technology and the federal procurement process. He can be reached at or connect with him on LinkedIn at

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