Strategic Sourcing Cuts Costs, Improves Performance

Optimize acquisition processes, strengthen purchasing power, and save money all at the same time.

Federal agencies are finding that changing their procurement processes offers a great opportunity to develop high-performance capabilities and save money at the same time. Experience shows that when agencies optimize their acquisition processes to strengthen their purchasing power, they can achieve savings of 10-20 percent.

Strategic sourcing is a leading practice used largely to wring waste out of acquisition. As a set of procurement leading practices, high-value strategic sourcing can let an organization significantly improve performance by buying more effectively and efficiently, while coordinating acquisition with organizational strategy. At the same time, many procurement directors increasingly see the value in viewing procurement in terms of total cost of ownership, as opposed to simply low cost.

Public-sector procurement reform through strategic sourcing targets spending in four areas: construction; purchase of services (such as IT services); procurement for unique and ad hoc projects; and acquisition of routine and recurring commodity goods and services. Procurement reform in the last category—the acquisition of routine and recurring goods and services—generally offers the highest potential return on investment (ROI).

Accenture's multi-step strategic sourcing methodology has been leveraged successfully by more than 500 clients, driving over $3 billion in savings to date. This includes five state and local government clients that have saved more than $300 million annually through procurement reform. For instance, the Commonwealth of Pennsylvania implemented a strategic sourcing program. Without cutting a single program or service level, the state saved more than $140 million—21 percent of its annual $700 million tab for purchasing everything from office and cleaning supplies to information technology services and tires.

Strategic sourcing is designed to combine a deep understanding of commodity and market information with quantitative analysis about a government’s needs and spending patterns to achieve lower life cycle costs. It extends beyond traditional competitive contracts, to align acquisition with the overall goals and strategy of the organization, such as evaluation of the risks and benefits of using one or several vendors; the use of 8(a), minority- and women-owned companies; consideration of short- versus long-term contracts; the role and impact of green initiatives; and performance terms or service level agreements. Several characteristics distinguish effective strategic sourcing. The leading programs:

• Focus on total cost, quality and social considerations.
• Deliver tangible bottom-line savings.
• Concentrate on needs, rather than wants.
• Optimize decisions at the enterprise level.
• Establish standards for common goods and services.
• Facilitate a disciplined, fact-based decision process.
• Include implementation of demand-management practices.
• Enable analytics for contract compliance.
• Provide tools for strategic sourcing to be a self-sustaining, internal process.
  
  

The proof of a successful strategic sourcing program is in both the hard and soft savings that are captured. Hard savings are measurable cost reductions in the total cost of ownership of a product or service, including lower prices paid for goods and services; reduced costs for maintenance and support; and lower costs gained through standardizing product specifications.

Soft savings, or more qualitative benefits, include such things as: knowledge transfer to government employees to drive sustained benefits; more efficient procurement processes and improved procurement policies; reduced costs to perform purchasing transactions; reductions in error rates and in the time necessary to take corrective action; and improved compliance with laws, regulations and policies.

Agencies that successfully undertake purchasing reform through strategic sourcing initiatives are aware not only of the financial and technological dimensions of the initiative, but also the cultural dimension. They avail themselves of proven processes and tools available to help drive savings quickly without making a high initial investment in technology. However, they also work with their people and show strong leadership so that the entire organization, at all levels, demonstrates a willingness to change.