2 Mr. Pat Rhode, Chief, Procurement Transformation Division, US Air Force Date: August 5, 2008 Time: 10:45 – 11:45 AF Strategic Sourcing Initiatives

3 Outline DoD and Strategic Sourcing Strategic Sourcing Model AF Initiatives –Commodity Councils –AF Results –Installation Acquisition Transformation Emerging Demands Questions

4 DoD and Strategic Sourcing Strategic sourcing is mandated by the OMB and is identified by GAO as a best practice The Department of Defense (DoD) is one of the largest, most complex purchasing organizations in the world exceeding $300 billion in FY07 Lack of coordination across Contracting Activities has resulted in a proliferation of duplicative efforts and lack of efficiency in a strained budget environment Understand HOW and WHERE it is spending its procurement dollars! IDENTIFY opportunities to LEVERAGE its buying power and Source Strategically! Understand HOW and WHERE it is spending its procurement dollars! IDENTIFY opportunities to LEVERAGE its buying power and Source Strategically! DoD Needs to: The SSDB was chartered to focus on DoD Strategic Sourcing results

5 5 Strategic Sourcing IS NOT Just… Strategic Sourcing IS… A PROCESS for systematically analyzing and developing optimal strategies for buying goods and services DATA DRIVEN – fact-based analysis to drive decision making rather than just “hunches” A HOLISTIC process that addresses customer needs, market conditions, organizational goals and objectives, and other environmental factors Based on MARKET INTELLIGENCE and takes into account small business capabilities A COLLABORATIVE, CROSS-FUNCTIONAL approach About SUPPORTING AN ORGANIZATION’S MISSION through procured goods and services A PROCESS for systematically analyzing and developing optimal strategies for buying goods and services DATA DRIVEN – fact-based analysis to drive decision making rather than just “hunches” A HOLISTIC process that addresses customer needs, market conditions, organizational goals and objectives, and other environmental factors Based on MARKET INTELLIGENCE and takes into account small business capabilities A COLLABORATIVE, CROSS-FUNCTIONAL approach About SUPPORTING AN ORGANIZATION’S MISSION through procured goods and services The resulting contract Leveraged buying Contract consolidation/bundling Contracting and procurement About saving money The resulting contract Leveraged buying Contract consolidation/bundling Contracting and procurement About saving money DoD and Strategic Sourcing

6 Tactical Sourcing Strategic Sourcing Benefits Provides cost savings Improves operating efficiency Improves management of consumption Improves focus on socio-economic goals Reduces total cost of ownership Requires a collaborative effort Strategic Sourcing Provides Opportunities To Maximize Procurement Spend Dollars -- plus a lot more

7 Strategic Sourcing results AND potential: In FY06, DoD targeted $4.3 Billion, or 1.5%, of the DoD total spend and achieved an estimated cost savings of $538 Million, or 12.5%! These savings do not even count the out-year savings stemming from decreased administrative costs, less manpower requirements, improved demand management, all of which will have a multiplier effect for years to come! DoD and Strategic Sourcing But what about the other 98.5% of the Spend ?

8 Opportunity Assessment – Goods and Services Opportunity Assessment – Goods and Services Commodity Market Research Identify requirements Review past and present business arrangements Conduct TCO analysis Current Strategy Review Identify qualified suppliers Understand industry trends and cost structure Collect requirements Standardize requirements Requirements Definition Determine level of competition Develop a CONOPs Sourcing Strategy Development Results Customer Warfighter Taxpayer Customer Warfighter Taxpayer Follow acquisition process Use business arrangements Strategy Execution Administer contract Monitor internal performance Integrate supplier relationship mgmt Conduct quality analysis Performance Management Strategic Sourcing Team SB Maint. Lawyers PEOs Contracting Buyers QA Reps COTRs Finance CE Proj. Mgr Buyers FAR Part 7* FAR Part 10* FAR Part 11* FAR Part 6,7,8,19* FAR Part 8,12,13,14,15,36,37* FAR Part 42* * Additional FAR parts may apply AF and DoD Strategic Sourcing Model

9 AF FY08 Commodity Councils

10  Contained an executed spend of $54M in the Boeing sole source strategy  Generated a $7.7M cost avoidance in FY07in the Boeing sole source strategy  Reduced ALT by 70 days as a result of reduction in synopsis and Justification and Approval (J and A)  Focused on developing sole source strategies for major vendors Examples of Air Force Strategic Sourcing Successes Information Technology Aircraft Structures  Focused on developing strategies and standards for Clinical Support Services (CSS), Temporary Medical Staffing (TMS) and Medical Administrative Support Services (MASS)  Expanded to OCONUS  Addressed a baseline spend of $207M through strategic sourcing  Generated a $9M cost avoidance in FY07 Awarded 100% of CSS and MASS to small businesses Medical Services  Developed standard desktop configurations AF-wide; also adopted by OMB  Set up a quarterly enterprise buy to generate economic order quantities Awarded 8% of FY07 spend in one initiative to small business and anticipates awarding 25% in another initiative  Generated over $150M in cost avoidance since FY03 AF Strategic Sourcing Results Cost ResultSocio-Economic ResultProcess Result

11 AF Strategic Sourcing Results Achieved a cost savings/avoidance of $98.8 million on a baseline spend of $2.6 billion in FY07 Strategic sourcing focus on only 4% of the $69 billion FY07 AF spend But what about the other 96% of the Spend ?

12 Installation Acquisition Transformation (IAT) Current CONUS Installation Contracting ($15B) –71 Contracting offices/squadrons: Provide tactical support to their assigned installation customers –Results of Current Construct: Redundant procurement of similar goods and services Inability to effectively strategically source AF requirements Inefficient use of contracting expertise Installation Acquisition Transformation is: –AF-Enterprise Initiative –Crosses traditional organization lines 12 Enables Strategic Sourcing

13 Key Tenets of IAT Maintain Customer Relationships Continue Socio-Economic Focus Retain Contracting Experts at Every Installation Maintain Robust Contingency Contracting Capability Ensure Force Development Preserve Transparency Maintain Customer Relationships Continue Socio-Economic Focus Retain Contracting Experts at Every Installation Maintain Robust Contingency Contracting Capability Ensure Force Development Preserve Transparency

14 IAGs 786 th IAG 787 th IAG 789 th IAG 790 th IAG 788 th IAG From 71 tactical units to 5 strategic units 14 IAT Future State HQ

15 IAT and Strategic Sourcing Installation Acquisition Group Enterprise Sourcing Squadron Program Support Squadron Business Support Squadron Sourcing Acquisition Squadron Requirement Evaluation & Sourcing Flight

16 Enterprise Sourcing Squadrons (ESS) Conduct lifecycle acquisition of defined commodities including services Provide multi-functional skills to develop acquisition strategy Coordinate with FOAs and existing Air Force and DoD commodity councils Execute strategic sourcing activities Maintain Air Force-wide focus on defined commodity groups Enterprise Sourcing Squadrons (ESS) Conduct lifecycle acquisition of defined commodities including services Provide multi-functional skills to develop acquisition strategy Coordinate with FOAs and existing Air Force and DoD commodity councils Execute strategic sourcing activities Maintain Air Force-wide focus on defined commodity groups IAT and Strategic Sourcing

17 Requirement Evaluation & Sourcing Flight Evaluate requirements, determine appropriate sourcing location/strategy Identify similar requirements from multiple installations Utilize historical spend data to identify strategic sourcing candidates Develop sourcing teams for identified candidates Requirement Evaluation & Sourcing Flight Evaluate requirements, determine appropriate sourcing location/strategy Identify similar requirements from multiple installations Utilize historical spend data to identify strategic sourcing candidates Develop sourcing teams for identified candidates IAT and Strategic Sourcing

18 Installation Level Sourcing Regional Level Sourcing Acquisition Sourcing Squadrons AF Level Sourcing Installation Acquisition Center Enterprise Sourcing Squadrons IAT and Strategic Sourcing

19 Emerging Demands Strategic Sourcing training of contracting workforce Build Strategic Sourcing Experts Process Re-engineering across enterprise Greater awareness, collaboration and utilization of DoD and Federal initiatives and capabilities

20 QUESTIONS?