By Jason Miller
and Keith BieryGolick

In six short months, the Veterans Affairs Department demonstrated the effectiveness of vendor management organizations.

The idea behind a vendor management organization is to create one part of the agency that manages all major contracts. Four agencies, including General Services Administration and the Treasury Department, applied this “single door” method.

Steve VanRoekel, the federal chief information officer, said VA saved $40 million after implementing a centralized approach to managing contractors.

During a meeting of the President’s Management Advisory Board Wednesday, VanRoekel said the government needs to set goals for using these organizations and align them across agencies. With examples such as VA, he said the obvious choice is to expand the use of VMOs.

“As far as next steps on this, it’s all about scale. It’s taking it and scaling it across government,” he said.

VanRoekel said his office and the Office of Federal Procurement Policy developed a maturity model for using VMOs. VanRoekel and OFPP Administrator Joe Jordan are creating technology centers of excellence to work with vendors the strategic sourcing initiative.

Centralized buying needed

Jordan said the government needs more centralized buying. He said agencies could reduce the amount of money spent on procurement by obtaining standardized levels of pricing and transaction data from vendors.

“Maybe there is some relative percentage, 90-10, 80-20, 65-35, but it’s really a balance of what are the things you gain value by centrally buying once and buying well using your scale?” said Dan Tangherlini, acting GSA administrator. “And what are those things that are deeply mission critical?”

Several private sector members of the advisory board promoted the use of centralized buying. Tangherlini said he learned a lot from a recent visit with Hewlett-Packard to see how they buy commodity goods and services.

Jordan said he’s interested in the concept of centralized procurement for certain items, but agencies already are doing that to some extent through strategic sourcing. Jordan said the opportunity across the government is huge — $150 billion out of the $535 billion procurement budget.

“The goal would be to try to save $10 billion over the next two years through strategic sourcing,” Jordan said. “A real number, an aggressive man-on-the-moon type target, but one that we think is achievable.”

To reach that target, Jordan said OFPP must increase utilization of the current set of strategic sourcing contracts for products, such as office supplies, and for services, such as print management or delivery

Benefits of strategic sourcing

Several agencies already are finding benefits of centralized procurement.

The Department of Homeland Security bought $3 billion worth of goods and services through strategic sourcing last year, saving about $15 million. DHS Deputy Secretary Jane Hull Lote said that although DHS is “all in” on strategic sourcing, the strategy isn’t one size fits all, “but, like McDonald’s proved successfully, one approach fits most.”

The Transportation Department also is saving millions. John Porcari, the deputy secretary of DoT, said he created a strategic sourcing executive steering committee with their 10 bureaus.

“We built by consensus and plan for the low hanging fruit we go after and establish targets on it,” he said. “One of the important attributes is we set explicitly early on the savings accrue back to the operating division, so you can reinvest it in your priorities. That made buy-in a whole lot easier.”

One of Transportation’s first areas is the volume buying of peripheral IT devices. Porcari said the agencies expects to save about $8 million in 2012.

Jordan said OFPP has to make the benefits of strategic sourcing clearer to agencies. He said the ability for them to “opt-out is too powerful.”

“We have to increase the number of vehicles we have,” he said. “We’ve got to improve the agency high level accountability, and also create a steering committee so we don’t act ahead of where the needs are, and we get the buy-in quickly.”

Jordan said he expects to issue new guidance for agencies to create target goals for using strategic sourcing.

But some have questioned the benefits of strategic sourcing. Small businesses under the office supplies blanket purchase agreement say the costs are much higher than the benefits.

More savings on horizon

Beyond strategic sourcing, VanRoekel said PortfolioStat is the next area to yield significant savings.

PortfolioStat sessions bring together important parties such as CFO, CIO, chief acquisition officer, the deputy secretary and OMB’s budget side to demonstrate how an investment review board should work. VanRoekel is holding the first set of sessions this week, six of them.

Based on preliminary data from those six agencies, VanRoekel said there are savings of half a billion dollars within reach. All they would need to do is to reduce spending in telecom systems, identity management and mainframes and servers to government averages.

VanRoekel will meet with all the large agencies through early August for the first round of PortfolioStat sessions. Agencies must submit to OMB a final plan by the end of August on how they plan to rationalize their portfolios and what systems they plan to consolidate.

VanRoekel said OMB wants agencies to be aggressive to find savings in the duplicative investments.

Keith BieryGolick is an intern at Federal News Radio

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