Presidential Strategic Sourcing Initiative: What Does it Mean to Business

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Presidential Strategic Sourcing InitiativeWhat
Does it Mean to Business?

• The Department of Veteran AffairsNational
  Acquisition Logistics CenterIndustry
  ConferenceOctober 10, 2007Chicago, IL

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Federal Strategic Sourcing Initiative(FSSI)
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OMB Strategic Sourcing Goals

• Overarching goal is to institutionalize the
  strategic sourcing process and secure top
  management commitment
  
• Results OMB wants
• Reduction in prices
• Reduction in administrative costs
• Improved performance
• Increased small business participation
• Improved business intelligence

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FSSI Chartering Authority

• The Federal Strategic Sourcing Initiative (FSSI)
  is chartered under the purview of the Chief
  Acquisition Officers Council and the Strategic
  Sourcing Working Group monitored by OMBs Office
  of Federal Procurement Policy (OFPP).

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FSSI Overarching Goals

• Test ability to strategically source across
  federal agencies
  
• Establish mechanisms to increase savings, value,
  and socio-economic participation
  
• Share good practices and build the strategic
  sourcing community of practice
  
• Learn lessons applicable to future strategic
  sourcing efforts at federal or agency levels
  
• Avoid unnecessary duplication of effort in
  pursuing OMB Strategic Sourcing Initiative
  

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OFPP Definition of Strategic Sourcing

• Strategic sourcing is the collaborative and
  structured process of critically analyzing an
  organizations spending and making business
  decisions about how to acquire commodities and
  services more effectively and efficiently.
• The spending analysis drives decisions about how
  to optimize performance, minimize price, increase
  small business participation, evaluate total life
  cycle management costs, improve vendor access to
  business opportunities, and otherwise increase
  the value of taxpayer dollars.

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Let's break it down... Strategic Sourcing is a
structured process. It is a systematic approach
to sourcing goods and services with clearly
defined steps. It is a repeatable process that c
an be applied over time to any commodity (service
or product).   Strategic Sourcing is an analyti
cal process. It is data-driven and relies on fac
ts, not hunches, for sourcing decisions.
  Strategic Sourcing is a collaborative process.
It is cross-functional and engages stakeholders
from multiple perspectives and disciplines.
  Strategic Sourcing helps organizations optimize
their supply base. It helps organizations ident
ify the optimal number and types of suppliers to
satisfy sourcing needs (including small
business). It seeks to structure the
supplier-buyer relationship for mutually
beneficial results.   Strategic Sourcing helps
organizations reduce total cost of ownership.
 More than just unit price reductions, TCO
savings can be achieved through reduced volume
and consumption (demand management), improved
process efficiencies, and better supplier
management    Strategic Sourcing helps organizat
ions improve mission delivery.
It improves the quality and value of acquired
goods and services that directly or indirectly
support mission-focused programs and activities.
It contributes to a more efficient use of
purchasing dollars.
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OFPPs Strategic Sourcing Value Proposition

• GET IT
• Develop a Commodity Strategy
• Develop a Business Case
• Develop an Acquisition Strategy

• FIND IT
• Conduct Spend Analysis
• Profile Commodity
• Conduct Market Analysis

• KEEP IT
• Implement and Manage Performance
• Manage Compliance with Sourcing Strategies

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The Strategic Sourcing Process
(Common steps)  1. Conduct Spend Analysis   Ge
t visibility of spend (detailed view of what is
being purchased, by who, when, from what sources,
at what prices) Foundation for creating deep
commodity level understanding (discover
opportunities)   2. Assess Customer Requiremen
ts   Establish Commodity Councils (cross function
al teams)   3. Analyze Commodity/Industry   An
alyze trends   4. Strategy Development   Uniqu
e for each commodity   5. Select Suppliers Ne
gotiate Agreements   Issue RFP, Analyze proposals
and Negotiate terms and conditions
  6. Implement/Monitor Agreements Across Enterpr
ise   Communication Plans Reports and Complian
ce   7. Manage Supplier Performance   Develop
incentives, scorecards, etc
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OFPP Potential price savings estimates
Benefits 8-14
Computer/ Hardware 10-25
Office Supplies 8-34
TE 8-30
Utilities 6-16
Advertising/ Media 10-18
Paper 6-14
Creative Agencies 5-15
Fleet 3-6
Computer/ Software 8-15
Professional Services 5-15
Office Equipment 10-25
Recruiting 10-15
Other Marketing 8-12
Facilities/ Equipment Maintenance 6-15
Temporary Services 10-25
Freight 8-30
Telecom 10-21
Subscriptions 3-5
Business Support 8-15
Printed Material 5-30
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Cost Savings Example
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OMB and Strategic Sourcing

• OMB Memorandum issued May 20, 2005
• Required CAOs to lead collaborative effort with
  CIOs, CFOs, small business reps, others
  
• Required CAOs to identify three commodities that
  could be strategically sourced by October 1, 2005
  
  
• VA Response
• - pharmaceuticals
• - interment flags
• - headstones

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FSSI Current Focus

• Starting with 5 commodities
• Office Supplies
• Domestic Delivery Service (Express/Grounds)
• Wireless Service (Cell Phones/Blackberries)
• Copiers
• IT (Printers)
• VA is actively participating in these efforts.

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VA Strategic Sourcing Focus

• Established a VA Strategic Sourcing Counsel that
  includes senior management representation from
  all VA Administrations (VHA, NCA, VBA) as well as
  Information Technology and the Office of Small
  Disadvantaged Business Utilization
• Conducted extensive benchmarking and market
  research with other governmental and private
  sector companies to gather lessons learned.
  

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Support of VA Mission

• Deliver world-class service to veterans and their
  families by applying sound business principles
  that result in effective management of people,
  communications, technology and governance.
• Stewardship and oversight of VA business
  activities ensuring their consistency with
  national policy, law, and regulation.

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Awaken the Giant

• George Ruiz, MD
• Special Assistant to the Secretary

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One VA
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Local VA
Purchase Cards
Purchasing Power
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Tail
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Guided Procurement Environment
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VA
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Awaken the GiantFindings

• Need shift from transactional to strategic
• Deliver the volume, improve the value
• Negotiate centrally, purchase locally
• Visibility and accountability are essential
• Micro purchases require a guided procurement
  environment
  
• Compliance, compliance, compliance

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VAs Strategic Sourcing Focus

• Phase I
• Actively Participate in all five (5) FSSI
  commodity teams
  
• Conduct in-depth Spend Analysis on approximately
  12 billion in VA yearly expenditures.
  

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VAs Strategic Sourcing Focus

• Phase II
• Apply lessons learned from FSSI commodity
• Teams together with the new business
  intelligence
  
• gained from the Spend Analysis, to expand the
  VAs
  
• Strategic Sourcing efforts to all targetable
  commodities,
  
• including
• Medical/surgical products/services
• Information Technology (computers, printers,
  etc..)
  
• Utilities (electricity, natural gas, etc..)
• Facility and maintenance (janitorial supplies,
  MRO, etc)
  

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Domestic Delivery Service

• Over 100 Million Annual VA Spend
• Express Delivery and Grounds Shipment
• - should include Pharmaceutical CMOPS to
  maximize
  
• VAs buying power
• Can compete Federal Governments large business
  among several national companies
  
• - FedEx
• - UPS
• - DHL

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Federal Express FSSI Tiered Discount Structure
Notes MAS Multiple Award Schedule Discounts
shown EXCLUDE the waiver of fuel surcharges and
are thus understated.
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Notes MAS Multiple Award Schedule Discounts s
hown EXCLUDE the waiver of fuel surcharges and
are thus understated. Ground Discounts represent
an average and vary by zone.
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Priority Overnight Service Tier 3 Savings
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FSSI Wireless Devices

• Greater than 11 Million Annual Spend
• - 10,000 cell phones with Sprint/Nextel
• - 4,200 cell phones with Cingular/ATT
• - 3,500 cell phones with Verizon
• VA has multiple contracts in place with a huge
  variety of plans and prices
  

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VA Calling Plans
Over 100 Calling Plans at Nextel alone
Goal is have two or three
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Types of VA phones
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Develop a VA Wireless Commodity Strategy

• Results
• Save a significant amount of
• Eliminating overage charges
• Pooling minutes
• Competition among suppliers
• Procure wireless products and services cheaper,
  faster and better
  

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FSSI Copier Overview The FSSI Copier Commodit
y Team consists of 14 federal agencies.
Participating government agencies purchase an es
timated 349 million in Copier products/services
annually. Copiers are defined as multifunctiona
l devices that provide copies (color or black and
white), printing, faxing and scanning
capabilities. This commodity also includes
maintenance agreements and consumable operating
supplies
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VA Copiers

• Over 20 Million in Annual Spend
• VA Utilizes multiple vendors, including
• - Xerox 3,600 copiers
• - Cannon 1,500 copiers
• - FedSource (Treasury) 950 copiers

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• VA Copier Pilot
• HQ Building with 139 total copiers
• - ten different manufacturers/brands
• - over 100 different makes/models
• Canon - 57 units (41)
• Xerox 20 units (14)
• Panasonic 13 units (9)
• Sharp - 12 units (9)
• Ricoh 11 units (8)
• Savin 10 units (7)
• Toshiba 8 units (6)
• OCE 5 units (4)
• Konica Minolta 2 units (1)
• Gestetner - 1 unit (1)

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FSSI Office Supplies

• 300 Million Annual FSSI Spend
• 65 Million Annual VA Spend
• - utilize over 1,900 suppliers
• Great Opportunity to aggregate volume and
  leverage VAs buying power with small number of
  preferred suppliers
  

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FSSI Office Supply Procurement

• GSA issued an RFP to 300 FSS Office Supply
  Schedule holders.
  
• GSA awarded 13 BPAs in August 2007.
• Procurement currently on hold, pending resolution
  of a GA protest.
  

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IT Products

• VA spend over 337 Million in FY 2005
• Desktops
• Portables
• Printers
• Servers
• VA utilized mandatory PCHS-2 Contract
  (Procurement of Computer Hardware and Software)
  
• VA now utilizes Service Disabled Veteran Owned
  Firms on NASAs SEWP IV contract.
  

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VAs Strategic Sourcing Focus Summary

• Phase I
• Actively Participate in all five (5) FSSI
  commodity teams
  
• Conduct in-depth Spend Analysis on approximately
  12 billion in VA yearly expenditures.
  
• Phase II
• Apply lessons learned from FSSI commodity teams
  together
  
• with the new business intelligence gained from
  the Spend
  
• Analysis, to expand the VAs Strategic Sourcing
  efforts to all
  
• targetable commodities.

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Future Impact of Strategic Sourcing

• Pursue additional opportunities amongst the
  approximately 12 billion in non-pharmaceutical
  VA yearly expenditures.
  
• Market research suggests that the VA can expect
  to successfully target at least 40 of overall
  expenditures under future strategic sourcing
  efforts.
• 40 of 12 billion is 4.8 billion in targetable
  VA expenditures.
  
• The private sector realizes an average of 10
  cost avoidance on strategic sourcing efforts.
  
• 10 of 4.8 billion equates to 480 million in
  potential VA cost avoidance each year.
  

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Objectives for VAs Spend Analysis

• Gain critical insights into the procurement
  history and spend patterns for goods and services
  purchased across different key dimensions
  (commodities, customers, suppliers, etc.).
• Develop an organization-wide view of spend that
  is comprehensive, detailed, and accurate.
  
• Identify opportunities to improve purchasing
  efficiency and optimize spend by reducing total
  costs by coordinating purchasing across the
  organization.
• Prioritize strategic sourcing initiatives for
  further analysis and implementation.
  
• Establish a spend baseline against which to
  measure and compare future spend activity,
  including internal compliance with approved
  sourcing strategies.

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VA Spend Analysis RFP

• RFP issued in June 2007
• Proposals received August 2007
• Anticipate award October 2007
• Scope of Work VA will provide approximately 12
  billion in FY 2006 purchasing data to the
  selected contract awardee to be analyzed
  
• RFP includes options to analyze FY 2007 and FY
  2008 data
  

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Drill Anywhere
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Key Elements to Strategic Sourcing Summary

• Strategic Sourcing is a methodical,
  comprehensive process, which includes
  
• Understanding every element of spend
• Evaluating current sourcing relationships
• Assessing value of each supplier
• Formulating a strategy to source each commodity
  and/or Service

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Strategic SourcingKey Success Factors

• Strong governance structure
• Senior-level management commitment
• Cross-organizational collaboration
• Reasonable spend analysis approach
• Comprehensive communication plan
• Strategic sourcing skills and process training

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Small Business Issues

• Understand the perceived conflict with contract
  bundling prohibitions.
  
• Require that the small business issue is a top
  consideration in the acquisition strategy.
  
• Ensure your agencys small business offices are
  involved in the management of the process
  buy-in is key.

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Questions?

• Jeff Ryan
• Procurement Analyst
• Department of Veterans Affairs
• Office of Acquisition Logistics
• [phone]