Strategic Sourcing

Strategic sourcing is the analytical and collaborative process of examining total organizational spending in specific categories, understanding the supply market, and developing optimal procurement strategies that deliver better value than transaction-by-transaction purchasing.

What is Strategic Sourcing?

Strategic sourcing originated in private sector supply chain management and was adopted by the federal government through OMB Memorandum M-13-02 (Improving Acquisition Through Strategic Sourcing), which established government-wide strategic sourcing as a formal procurement discipline.

A strategic sourcing initiative follows a structured methodology:

1. Spend analysis: Identify all current spending in a category across agencies, broken down by supplier, commodity, contract vehicle, and price paid. FPDS and USASpending.gov data are primary sources.
2. Supply market analysis: Understand the supply base - who the major suppliers are, their pricing practices, their capacity, and competitive dynamics.
3. Current state assessment: Evaluate existing contracts, prices, terms, and supplier performance to identify gaps and opportunities.
4. Strategy development: Design the optimal sourcing strategy: consolidate to a single contract, establish a multiple-award arrangement, negotiate enterprise licensing, or develop category-specific standards.
5. Sourcing event: Execute the competitive acquisition to establish the strategic vehicle.
6. Implementation and change management: Drive agency adoption of the new vehicle and measure results.
7. Ongoing management: Monitor spend migration, supplier performance, and market conditions; renegotiate as needed.

Federal strategic sourcing has produced vehicles like GSA's Strategic Sourcing for IT (SSIT), office products strategic sourcing initiatives, and agency-level programs that have achieved documented savings on commodity purchases.

Strategic sourcing feeds directly into category management - strategic sourcing is the process used to establish and maintain the Best-in-Class contracts that category management directs agencies to use.

Why Strategic Sourcing matters for government contractors

Strategic sourcing initiatives consolidate previously fragmented agency spending into fewer, larger contract vehicles with pre-negotiated pricing. Suppliers who are selected on strategic sourcing vehicles gain privileged access to the consolidated volume; those who are not selected lose spending that previously came through agency-specific contracts. Contractors should actively monitor strategic sourcing initiative announcements and position themselves to compete for strategic vehicle awards.

Example

The General Services Administration identifies that the federal government spends approximately $4.5 billion annually on office supplies across thousands of separate agency contracts. A strategic sourcing initiative consolidates this spending into a small number of government-wide contracts with the top office supply distributors. Competing distributors that win spots on the strategic sourcing vehicle gain access to all participating agencies' spending. Distributors not selected lose much of their previously fragmented federal business. The government achieves 12-18 percent savings on aggregate spend compared to prior contract prices.

Frequently Asked Questions

How can a small business participate in strategic sourcing?

Strategic sourcing vehicles often have small business reserved components or mandatory small business subcontracting requirements. Small businesses can also team with large business primes that are pursuing strategic sourcing contracts. When a strategic sourcing initiative consolidates spending that was previously in small business set-asides, small businesses may need to advocate during the acquisition planning process for continued small business access (set-aside pools, small business reserves) within the consolidated vehicle.

What is the relationship between strategic sourcing and price competition?

Strategic sourcing uses a competitive process to establish prices on contract vehicles, but the ongoing use of those vehicles does not always involve individual competition for each purchase. Some strategic vehicles allow direct ordering (no competition at the task order level below a threshold); others require mini-competitions for each task order. The competitive dynamics shift from individual purchases to the vehicle establishment competition.

Does strategic sourcing apply to all procurement categories?

In practice, strategic sourcing is most impactful for commodity categories with large, fragmented spending and competitive supply markets: IT equipment, office supplies, janitorial services, fleet vehicles, and professional services. Highly specialized, mission-unique, or low-volume categories are less amenable to strategic sourcing because the supply market cannot support a consolidated approach.

How does an agency measure strategic sourcing savings?

Savings are typically measured as the difference between the price paid under the strategic sourcing vehicle and a baseline price (prior contract prices, market benchmarks, or a should-cost model). OMB tracks government-wide strategic sourcing savings and reports them in the President's Management Agenda metrics. Agencies must distinguish between cost avoidance (prevented a higher price) and cost reduction (paid less than before).