Optimizing Causes of Procurement Cost Through Strategic Sourcing: The Impact of Rate, Process, and Demand

Abstract

The benefits of strategic sourcing have been realized by private industry for over two decades. Despite the compelling business case presented, the adoption of strategic sourcing tenets in government procurement has been slowed by a lack of leadership and committed resources (GAO, 2012). We believe that advancing the ability to identify, capture, and communicate cost savings that accrue from strategic sourcing activities will allow government procurement leaders to better articulate the value of such programs. Enhanced communication will enable leaders to pursue the appropriate resources to sourcing teams. In order to tell the story in a more effective manner, leaders must understand the types of cost they are incurring and the drivers of cost that they can impact, and they must ensure that their teams take credit for the total spectrum of cost that they affect. This paper examines the various types of savings that may accrue to an organization pursuing strategic sourcing strategies and recommends the grouping of savings into rate, process, and demand categories. In addition to introducing the types of cost, examples of cost and scenarios whereby organizations have achieved cost savings are presented.