How Can Government Buying Match the Best in Business?
Cashing in on category management.
The category management initiative, started under the leadership of former Office of Management and Budget executive Anne Rung, is expanding to help the federal government buy goods and services in a similar way leading companies operate.
Category management is used by businesses and governments around the world to better manage their common purchases. The approach involves defining a clear strategy for spending on common items or services within a category, which in turn leverages buying power across that category to generate a price discount, additional services that reduce total cost of ownership, and other sources of value. This approach encourages agencies to buy through common contracting vehicles and allow purchasing decisions to be managed centrally by specialists who know how to find the best services or products at the best price. In addition to leveraging the government’s buying power, category management reduces duplication in contracting.
A recent study by ASI Government suggests that when used effectively, this approach can generate cost efficiencies of 7.5 percent to 12 percent of total procurement spending. For the federal government, this could result in more efficient spending of up to $40 billion a year, if category management is widely adopted. In the private sector, savings have reached 20 percent or more of annual procurement spending.
The Obama administration began to champion the use of category management two years ago.
The initiative built on a prior effort launched by the Bush administration, called strategic sourcing. Strategic sourcing was an agency-by-agency consolidation of common purchases, in order to reduce the complexity of many different contracts and supplies. The Obama administration expanded strategic sourcing within agencies and piloted its use across agency boundaries for select services, such as package delivery and office supplies. When this approach proved successful, the foundation was set for OMB’s broader initiative.
Rung, who was OMB’s administrator for federal procurement policy, announced the new emphasis on category management in December 2014, giving it high-profile status as one of the administration’s 15 cross-agency priority goals. This resulted in top-level attention to the initiative’s progress on a quarterly basis.
Category management was launched under a very structured approach, with an eye toward ensuring its sustainability. It also involved a good deal of cross-agency collaboration, as well as some pointed top-down directives.
The Category Management Leadership Council was created in late 2014, composed of representatives from the departments of Defense, Energy, Health and Human Services, Homeland Security and Veterans Affairs, along with the General Services Administration and NASA. In addition, the chief financial officers of the 24 largest agencies designated single points of contact to coordinate governmentwide category management initiatives.
Ten super categories were created, which account for more than $270 billion in annual spending. These include areas such as travel, facilities construction, medical supplies and transportation. A career senior executive was designated category manager for each. According to GSA’s Steven Krauss, these leaders “built teams of experts from across the rest of the federal government to begin the process of analyzing the spend and looking for opportunities within that spend portfolio.” The teams are staffed with 350 people from 46 departments and agencies who are identifying performance metrics and talking with top suppliers in their respective categories.
Within the 10 super categories are 50 subcategories. Each category and many subcategories have their own leads, who develop market intelligence and buying strategies and identify the best contract vehicles. Centers of excellence for each category are designated within select agencies that have the expertise in that specialty to serve as executive agents for buyers across the government.
In addition, GSA created the Acquisition Gateway to allow government purchasers to “buy as one.” According to the GSA website: “Inside the Acquisition Gateway, users can find side-by-side comparisons of governmentwide acquisition solutions, connect with other acquisition professionals, and explore product and service category ‘hallways.’ The hallways feature category-curated articles, templates, market-research tools, prices-paid data and more to achieve successful outcomes at each step of the acquisition lifecycle.” The portal, which launched in January, already has 10,000 registered government users.
At the strategic level, the Office of Federal Procurement Policy is partnering with other policy officials, including Federal Chief Information Officer Tony Scott and GSA Administrator Denise Turner Roth, to issue joint guidance to agencies on the road forward in each of the categories.
OMB focused on one of the largest super categories as a starting point. The federal government spends $50 billion a year in common information technology hardware and software. OFFP partnered with the federal CIO to methodically attack common challenges associated with routine IT-related purchases. They used PortfolioStat in quarterly meetings to track overall progress in managing IT investments, along with other tools and a dashboard.
Here are some actions in recent months to improve IT commodity management:
- Laptops and desktops. In October 2015, a joint memo to agencies called for a standardized set of laptop and desktop configurations for common uses and a reduction in contracts in order to consolidate purchases: “In FY 2014, agencies awarded more than 10,000 contracts and delivery orders for common laptops and desktops totaling about $1.1 billion, resulting in reduced buying power, inefficient duplication of contracts, and very little transparency into prices paid.” In August 2016, GSA reported that agencies saved over $6 million by conducting reverse auctions through three blanket purchase agreements open to all agencies. Initially, five agencies agreed to potentially buy about 55,000 laptops and desktops at an average savings of 18 percent.
- Commercial software. In June 2016, a joint memo directed agencies to develop inventories of their commercial software licenses: “Each year, the federal government spends more than $6 billion on software through more than 42,000 transactions, which results in a fragmented and inefficient marketplace.”
- Mobile devices and services. In August 2016, a memo on purchases of mobile device services directed agencies to consolidate their requirements to one contract per agency: “Each year, the federal government spends approximately $1 billion on mobile devices and service contracts. Almost all of that spending is paid to four carriers, yet the federal government manages over 1,200 separate agreements and buys more than 200 unique service plans for voice, data and text capability.”
In her final blog post on the OMB website, Rung wrote: “We’ve saved more than $2 billion through category management and are on track to save $3.5 billion by the end of next year. We’ve seen prices drop by as much as 50 percent of personal computers since the release of the workstation policy.”
Category management may not be glamorous work—cleaning up acquisition data, making it more transparent, making comparisons between agencies—but it makes government work more efficiently. In early October, OMB released for public comment a draft circular that would institutionalize category management across government. The goal is to make it the routine approach to buying common goods and services. Comments are due Nov. 7.
In addition, the category managers for all 10 categories are finalizing plans for initiatives that span fiscal 2017 and beyond. These plans are scheduled to be submitted to the Category Management Leadership Council for approval late this year, with details available in early 2017.
This is the second in a series examining cross-agency priority goals.
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