Is Washington Finally Serious About Sourcing and Procurement? (Part 3)

Click here for Part 1 and Part 2 of this post.

Obama's Deputy Director for Management Jeffrey Zients suggests a number of key contributing strategy components to a new sourcing charter and mandate for the federal government in a memorandum to departments and agencies. One strategy includes best practices from the private sector like gathering "input from a large number of potential agency users - especially the largest likely users - regarding customer demand for the goods and services being considered, the acquisition strategy (including contract pricing, delivery and other terms and conditions, and performance requirements), and the commodity management approach."

Further, the plan calls for including "tiered pricing, or other appropriate strategies, to reduce prices as cumulative sales volume increases" with vendors. As with the need to gather and manage inputs from stakeholders, rebate programs based on volume can be effective components of strategic sourcing programs. But perhaps more interesting is the element that will "require vendors to provide sufficient pricing, usage, and performance data to enable the government to improve their commodity management practices on an ongoing basis."

The translation for you non-spend analysts is that the federal government currently lacks the right type of information in their AP and financial systems to guide sufficient spend analysis and sourcing programs. In other words, they have no measure of what they're buying, what changes over time, and the relative value delivered. So in other words, the feds are asking suppliers to turn over invoice and related information. Hey, it's a start!

With this information handy, it will be easier to "perform active commodity management and monitor[ing] vendor performance and pricing changes throughout the life of the contract to ensure the benefits of strategic sourcing are maintained." Yet unless the government commits to spend analysis investments as a core component of their efforts – including selecting and actively using a specialized toolset such as Spend Radar (SciQuest), BravoSolution, BIQ (Opera), Emptoris, Iasta, SAP, Oracle, GEP or many others – we think their effort will fail to sustain the initial results it might bring.

After all, spend visibility not only can enable the right sourcing strategy – it can bring daylight to broader opportunities for risk reduction, total value delivery (e.g., through supplier development) and continual cost management initiatives.

- Jason Busch

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