Acquisition Reform Using Strategic Sourcing as a Tool

1. May 6, 2010 Acquisition Reform Using Strategic Sourcing as a Tool

2. Agenda • Introduction to Acquisition Reform • Strategic Sourcing Overview • Case Studies: Strategic Sourcing Driving Acquisition Reform

3. Spending on Federal contracts has more than doubled since 2002 CONTRACT SPENDING AND ACQUISITION WORKFORCE FY2002 - 2008 SOURCE: Office of Management & Budget

4. Reforming the government’s $500B+ annual contract spend is a key priority of President Obama’s administration • Save $40 billion annually by FY2011 • Terminate unnecessary contracts • Strengthen acquisition management • End the overreliance on contractors • Reduce the use of high-risk contracts across government • “The Federal Government has an overriding obligation to American taxpayers. It should perform its functions efficiently and effectively while ensuring that its actions result in the best value for the taxpayers.” • President Barack Obama • March 4, 2009 • PRESIDENTIAL CHALLENGE

5. Many agencies already have implemented reforms, resulting in increased efficiencies and real savings for the American taxpayer SOURCE: Office of Management & Budget

6. Agenda • Introduction to Acquisition Reform • Strategic Sourcing Overview • Case Studies: Strategic Sourcing Driving Acquisition Reform

7. Strategic Sourcing is an identified and proven way to drive acquisition reform OMB Director Peter Orszag identified ways for agencies to drive savings… Strengthen Acquisition Practices Develop More Strategic Acquisitions … which can implemented through the use of Strategic Sourcing Strategic Sourcing is an analytical process for optimizing the government’s supply base while reducing Total Cost of Ownership and improving mission delivery 1 2 3 4 5 Conduct Market Analysis Select Sources of Supply Develop Commodity Strategy Implement & Manage Performance Profile Commodity Opportunity Analysis Profile Commodity

8. The benefits of Strategic Sourcing go far beyond leveraging the government’s spend to negotiate lower prices PRIMARY BENEFITS OF STRATEGIC SOURCING Reduction in Cost Per Unit Change in Consumption/ Volume Improved Operating Efficiency Improved Supply Management • Pricing Improvements • Lower unit price • Volume rebates • Payment term discounts • Supply Chain Savings • Cost of capital • Warehousing costs • Shipping costs • Reduced Lifecycle Costs • Maintenance costs • Operating costs • Disposition costs • Demand Management • Eliminate demand • Reduce consumption • Encourage substitution • Change product mix • Specification Review • Eliminate “gold-plating” • Simplify specifications • Alternative products Reduced Procurement-Related Operating Expense • Socio-economic Goals • Structured analysis of small/disadvantaged business opportunities • Optimized Supplier • Relationships • Improved joint understanding of needs and capabilities • Increased efficiencies across the entire supply chain • PO Processing • Accounts Payable • Receipt/Warehousing • Standardized procurement process • Other operating efficiencies Reduced Non-Procurement Related Operating Expense Performance Monitoring • Structured metrics and periodic review of contractor performance

9. Strategic Sourcing promotes an effective acquisition system that meets government needs and ensures the prudent use of taxpayer dollars • Provides visibility into spending habits • Lowers Total Cost of Ownership through data analysis • Creates commodity expertise • Enables better and more informed decisions by employees • Minimizes complexity for end-users DRIVES EFFICIENT GOVERNMENT OPERATIONS • Increases clarity of requirements • Optimizes supplier relationships • Improves competition & contract structures • Holds vendors accountable for meeting performance goals IMPROVES VENDOR PERFORMANCE • Helps agencies achieve the President’s savings target of $40B • Enables right sizing of the acquisition workforce by minimizing redundant contracts & activities • Uses Federal acquisitions to drive sustainable and socio-economic goals • Increases transparency & accountability SUPPORTS ADMINISTRATION GOALS

10. The Federal Strategic Sourcing Initiative (FSSI) is a cross-agency program created to drive use of Strategic Sourcing throughout the government FSSI VISION & GOALS • Develop commodity expertise and use best practices to generate governmentwide requirements and drive business process improvements • Aggregate requirements, streamline processes and coordinate purchases • Increase total cost savings, value, socio-economic participation, and sustainability • Create commodity teams and share knowledge with all government purchasers • Collaborate with industry to develop optimal solutions FSSI OPERATING APPROACH • Focuses on most promising government-wide opportunities to strategically source commonly purchased goods and services • Develops solutions through collaborative cross-agency “Commodity Teams” • Works under the purview of the Chief Acquisition Officer’s Council (CAOC) Strategic Sourcing Working Group (SSWG), and is monitored by the Office of Federal Procurement Policy (OFPP) within OMB • Leads the Strategic Sourcing Community of Practice with representatives from 18 federal agencies

11. Agenda • Introduction to Acquisition Reform • Strategic Sourcing Overview • Case Studies: Strategic Sourcing Driving Acquisition Reform

12. Second Generation Domestic Delivery Services Program OVERVIEW • One year (plus 4 option years) award to UPS based on efforts of a 15 agency Strategic Sourcing team focused on: • Ensuring high quality service • Maintaining DDS1 savings • Lowering surcharge costs • Improving reporting & analysis capabilities SOLUTION BENEFITS INNOVATIONS • Savings over 16% compared to Multiple Award Schedule rates and 7% below DDS1 • Elimination of fuel surcharges • Streamlined acquisition processes and minimized redundant contracts across government • Robust savings and usage reports • Mode optimization and more efficient operations • Collection & analysis of business intelligence data “evened the playing field” and eliminated incumbent advantage, resulting in highly competitive bidding • Agencies have increased visibility into total cost of ownership for shipments, resulting in improved employee decisions

13. Second Generation Office Supplies Program OVERVIEW • Second generation acquisition is in process, with the goals of: • Improving agency ability to procure competitively priced products while meeting socio-economic goals • Lowering delivery and other “hidden” costs PROJECTED SOLUTION BENEFITS INNOVATIONS • Focus on driving competitive pricing for those core items which government users purchase most • Incorporation of point-of-sale terms to reduce price variability, increase ease-of-use, and improve compliance with mandates • Collection & analysis of business intelligence data will allow agencies to better manage spend • Over $40 savings over lifetime of solution • Easy access to qualified and competitive small and disadvantaged businesses • Minimized redundant contracting and program management activities • Understanding government spending behaviors leading to further acquisition and usage improvements

14. Wireless Programs OVERVIEW • A team is in the process of implementing a solution which will: • Improve demand management • Leverage government volume to develop governmentwide contracts • Enable agencies to optimize selection & utilization of plans PROJECTED SOLUTION BENEFITS INNOVATIONS • Collaboration between IT and Acquisition communities • Development of a full service suite of solutions to address agency wireless lifecycle needs • Deeply discounted rates • Standardized services and plan types • Reduced inventory costs and billing errors • Minimized redundant contracting activities • Spend data to drive improved decision making and lead to improved efficiencies and acquisition practices Page 13

15. Printers, Copiers, Multi-Function Devices Program OVERVIEW • A team is in the process of implementing a solution which will: • Lower both equipment and consumable costs • Provide new services on the Multiple Award Schedule 36 PROJECTED SOLUTION BENEFITS INNOVATIONS • Multiple buy and lease options to meet specific agency requirements • Designed to minimize agency spend on paper and toner • Robust usage reports which will identify opportunities for additional savings • Enables agencies to lower costs and increase environmental performance by: • Utilizing the most efficient equipment • Making “green” print options the default • Optimizes equipment deployment and usage through sophisticated Managed Print Services