Implementing Category Management for Common Goods and Services
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1 Implementing Category Management for Common Goods and Services
2 Darbi Dillon Office of Federal Procurement Policy 1800 G Street NW, Washington DC Audit Tax Advisory Grant Thornton LLP 333 John Carlyle Street, Suite 500 Alexandria, VA T F Dear Ms. Dillon, Grant Thornton would like to thank the Office of Federal Procurement Policy (OFPP) for the opportunity to provide our comments on the Office of Management and Budget (OMB) draft Circular, Implementing Category Management for Common Goods and Services, in response to the Federal Register notice dated October 7, We commend OMB on the transparency of this effort to obtain stakeholder feedback in order to establish a feasible and sustainable category management policy. As a leading provider of public sector advisory services, we bring a unique perspective based on our significant experience and lessons learned in applying OMB guidance to help organizations meet their strategic goals. Our experience includes supporting the General Services Administration (GSA), Office of Integrated Technology Services (ITS) in implementing an effective category management operating model to improve the government-wide acquisition of IT products, services, and shared services. This effort required a redesign of the customer engagement, supplier management, and category operations business processes; execution of training to operationalize new business processes; a skills assessment to measure category management competencies; and the establishment of a category management performance framework and metrics to measure category management success and maturity. Many of our recommendations can be implemented via minor changes to the existing language, while others are more nuanced. Should OFPP require additional information or would like to discuss the topic in further detail, Grant Thornton would welcome the opportunity. I can be contacted at or Eric.Heffernan@us.gt.com. Sincerely, GRANT THORNTON LLP Eric Heffernan, Principal Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd
3 Audit Tax Advisory Grant Thornton LLP 333 John Carlyle Street, Suite 500 Alexandria, VA T F Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd
4 Importance of the Category Management Initiative Category management provides a foundation for creating strategically focused procurement efforts designed to guide buyers to the most ideal solutions, ease access to preferred vehicles, and increase buying power by optimizing the contract landscape. The federal government, the single largest buyer in the world with approximately $450 billion in annual spend on common goods and services, is implementing category management to buy as one, gain efficiencies, and improve performance. Category management presents realizable and lasting benefits for all of government because of its focus on the entire acquisition lifecycle. With OFPP s guidance, agency executives will be enabled in the application of category management practices that will help improve how the government operates and how the public receives its services. As a government-wide initiative, category management has the platform and attention it needs for Performance Improvement Officers, Chief Acquisition Officers, and other agency leaders to set the vision and criteria for buying as a single enterprise. Section 6. Common Categories of Goods and Services OMB has defined a clear category hierarchy that focuses on segments of commonly purchased goods and services. The category hierarchy sets the foundation for category analytics, planning, execution, and performance management, making it a critical component of the government-wide category management effort. An effective category hierarchy should align with market dynamics, including the way buyers purchase common goods and services as well as the means by which vendors supply the market, and map to available spend data to enable robust analytics. Suggested Enhancements to the Draft Circular. OMB aligned spend data available through the Federal Procurement Data System (FPDS) with the category hierarchy, but the current category structure using Product Service Codes (PSCs) may be too simplistic given the complexity and size of the federal procurement landscape. Create qualitative boundary statements to create a common understanding of what products and services are and are not included within a designated category and associated subcategories. Align available spend data using a consistent, universal taxonomy across stakeholders, and establish allocation rules, as needed, to distribute spend between categories and subcategories using clearly defined taxonomy or coding constraints. Establish a structured, recurring governance process for approving changes to the category hierarchy that enables flexibility and continuous evolution in the products and services encompassed as well as the creation of new categories and subcategories based on market advances. Require the use of agency and/or department spend data, as several agencies/departments currently have detailed transactional data that could provide more meaningful insight to spend patterns and behaviors. After the DATA Act is fully implemented in spring of 2017, all agencies should have a standardized, robust spending data set that could be used for comparison/analysis across the government to significantly enhance the category management initiative. Section 7. Key Principles By citing its key principles for category management, OMB has articulated its vision for the category management initiative and established the strategic priorities for all stakeholders involved. Clearly defining a strategy should help participating agencies focus resources on these targeted areas and align category initiatives across government. Suggested Enhancements to the Draft Circular. When implemented fully, category management covers a broad range of procurement tactics, including demand and supplier management, which could be expanded further. 3
5 Demand Management: Demand management should be enabled by more robust business processes other than requirements collection. A key feature of effective demand management is the process of forecasting the current and future needs of buyers in alignment with the category strategy. Market intelligence on buyer demographics and spending trends should inform category strategies, create meaningful dialogue with key buyers, and establish an open communication channel to first understand and then address buyer needs. Supplier Management: Focus on gaining clarity into the demographics of the category s supplier base, soliciting insights and innovation from industry to improve solutions, and collaborating with industry to share information, capture opportunities, and achieve efficiencies. Measuring the quality of the supplier base by leveraging supplier performance data generated through the Contractor Performance Assessment Reporting System (CPARS) or scorecards must also be part of the policy to allow for expanded use of this information. Small Business Utilization: Category management should increase the visibility of small businesses, with an emphasis on accessing innovation often produced by these new and emerging businesses. While small business innovation and engagement are critical to the federal acquisition community, assessing small business participation within a category must take into account the unique market of each category and must align with the category s strategy. Section 8. Strategies and Policies A key component of OMB s category management strategy is to reduce contract duplication by identifying Best in Class (BIC) vehicles by category and/or subcategory and influencing buyers to utilize those vehicles. OMB issued guidance for determining BIC contracts with requirements noted in five key areas rigorous requirements definitions and planning processes, appropriate pricing strategies, data-driven demand management strategies, category performance management strategies, and independently validated reviews. Suggested Enhancements to the Draft Circular. Identifying BIC vehicles should enable the Category Manager (CMX) to better influence spend through desired channels; however, structure and governance of the selection process may improve the results achieved. BIC criteria should be explicit and standard across categories and subcategories to ensure consistent strategies and application of this process and to reduce confusion across contract owners in how to improve their solutions. These criteria should better reflect specific features that make them attractive to both buyer and suppliers. Shared services should be included in the evaluation and selection of BIC solutions to gain even greater efficiency in obtaining common services. Additionally, dollars obligated to shared services should be incorporated into the government-wide data set to provide a more accurate and broader view of category spend. Granting the CMX authority to review and approve business cases submitted through the existing process established by OMB policy would greatly enhance the influence of this role in reducing contract duplication. The process should include guidelines for contracts that do not meet the BIC criteria. Given the visibility of the BIC designation, contract owners will be incentivized to improve and resubmit vehicles for evaluation or present justification for overruling the initial decision, which would cost time and resources to adjudicate. Establishing a decision gate and process for sun setting or transitioning contracts that do not meet the BIC criteria or are underutilized, redundant, or expiring would generate greater results in increasing spend under management. 4
6 Section 9. Governance, Roles and Responsibilities The concept of buying as one and actively managing procurement spend across government benefits both the government and taxpayers. The focus on spend under management strengthens the partnership between categories and stakeholders so they can shape BIC vehicles, drive economies of scale, and reduce overhead expenses. In order for this strategy to work, all key stakeholders must have buy-in and responsibility in obtaining the desired results. Suggested Enhancements to the Draft Circular. The list OMB included in the draft policy included the major stakeholders in this initiative; however, a few other stakeholder groups and responsibilities should be included to create a comprehensive, complete list of responsibilities for all involved in successful implementation. Center of Excellence (CoE): In addition to the responsibilities listed, adding a requirement to develop a category management team for the respective category or sub-category made of agency experts to lead both government requirements definition and industry relationship management will promote interagency collaboration. CFO Act Agencies: In addition to the responsibilities listed, adding a requirement for an agency designated as a CMX to define resources and processes dedicated to the category or subcategory and organizational structure will more effectively implement category management best practices government-wide. Large Agency Procurement: Appointing a Category Management Accountable Office (CMAO) at the Department level, as designated by the CFO Act, will have limited influence or authority over the procurement activities and spend of large, subordinate agencies. Requiring a CMAO for agencies with large amounts of spend would generate greater results at a faster pace. This role may be subsumed by the Agency-level CMX, which has a more narrow set of responsibilities to a specific category. Chief Information Officers (CIOs): Given the emphasis on data and information systems, the CIO also has a key role in the implementation of category management. In addition, the Federal Information Technology Reform Act (FITARA) empowers the CIO with greater authority to drive IT procurement spend, making this role a key influencer in the IT category to coordinate and execute the IT category initiatives. OMB CXO Councils: The Councils provide an established body of decision makers that the CMX can leverage to obtain feedback and engagement on the category strategy, initiatives, and results. For categories with a corresponding council, such as IT and Human Capital, the appropriate CXO council should have support responsibilities. Section 10. Increasing the Visibility of Data and Information Category management not only emphasizes increased use of existing data, and also acknowledges the need for more accurate and detailed government-wide procurement data. OMB and GSA are leading efforts to build a government-wide category hierarchy with a spending taxonomy using PSCs. This is intended to drive greater use of available data in strategic decision making to gain efficiencies, like reducing contract duplication and open market purchases. Suggested Enhancements to the Draft Circular. Improving data availability and integrity is critical to success and must take the following recommendations into consideration. Modifying FPDS to align with a category hierarchy based on market dynamics would make it easier for users to more effectively analyze procurement trends. This would include the qualitative category boundary statements as a means for both buyers and suppliers better understand what products and services are intended to make up the market. 5
7 Allocation rules must be defined to divide within a single PSC between categories and/or subcategories to increase the accuracy of the addressable market and other analytics. Centralized data governance and management should be implemented to enable continuous monitoring and tracking of data integrity using validation rules to ensure more accurate data entry. Additionally, agencies should take the category structure and category management performance measures into consideration when modernizing their own management systems to enable acquisition data standardization. Agencies must be equipped to conduct category management analytics by applying their own transactional data in addition to the government-wide view from FPDS. Further guidance on the desired components of these analyses would increase consistency in application and decrease the level of effort required for data calls and reporting. Any future guidance should be sure to leverage improvements made to agency financial systems required to be in place under the DATA Act by May, In particular, the government wide data standards for federal spending data will be extremely helpful in standardizing the way agency spending data can be analyzed across the government as part of the category management initiative. Category teams must also forecast future demand to enable better planning and improved allocation of resources. Linking the procurement forecast with budget and investment data and processes would provide a broader view of the market and enable advanced modeling and statistical analyses. Section 11. Measuring CM Success Developing a performance management system to capture data on key measures is critical to assess whether the desired outcomes are achieved and making any necessary adjustment or recalibrations. Under a category management model, metrics tracking stakeholder engagement, such as buyer and supplier satisfaction, and buying behavior, including spend under management and total cost of ownership, become more important to illustrate the success of implementation. OMB should expand upon the specific metrics identified and continue to apply commercial best practices to measure the maturity of the category management initiative and results of category execution. Suggested Enhancements to the Draft Circular. OMB should consider implementing the best practice approach to spend under management and build upon the existing three-tiered maturity model to guide agency implementation of category management. In this sense, the current goals listed in the model may also be reevaluated to provide more long-term targets, in addition to listing activities needed for initial, short-term implementation. Traditionally, spend under management is a metric used to measure an entity s ability to influence spend. For the government-wide category management initiative, this would translate to the percentage of federal dollars obligated through a select number of BIC and mandatory solutions. Using spend under management as a metric will reduce confusion among stakeholders and will drive buying behavior to BIC and mandatory solutions, allow category teams to act as trusted advisors for buyers to select the best fit solutions, incentivize owners to improve procurement solutions, and increase participation in category initiatives. The spend under management metric should have the following characteristics to achieve these results: Easily accessible list of BIC and mandatory contract sourcing solutions on the Acquisition Gateway; Available government-wide procurement spend data for the calculation; Baseline results to measure improvements; A repeatable measurement process that allows for ongoing comparison, is bought-into by stakeholders, and is in alignment with the OMB strategy; and A long-term strategy to drive continuous performance improvement against this metric. 6
8 Section 12. Workforce Category Management Training OMB recognizes that category management implementation requires enhanced capability among the acquisition workforce. Acquisition professionals will now have access to data and market intelligence that help them to do their jobs more effectively. In addition, the assignment of acquisition professionals to categories based on their technical expertise enables the workforce to heighten expertise, while leveraging their existing knowledge of contract types, terms and conditions, and best practices. Suggested Enhancements to the Draft Circular. The government must change the way business is done today in order to achieve the benefits of category management, efforts to do so should include the following: Skills Assessment: An evaluation of existing competencies based on best practices and compared against industry benchmarks will provide a framework for baselining the training needs of an organization based on the current state. The results of this assessment should be communicated with leadership and used to shape a results-driven training plan and curriculum, recruiting strategies, and succession planning. Organizational Transformation: New business processes and reporting structures may be required to support category management operations. This transformation may be as simple as establishing a centralized category management office for execution and oversight, or as complex as reorganizing an established organization into cross-functional category teams. The level of transformation will depend on the desired results, work environment and organizational role, and the culture and people involved. Change Management: An undertaking of this size requires continuous support and communication from leadership to all stakeholder groups in order to demonstrate strong leadership support, communicate a clearly articulated vision, reinforce performance expectations, and promote extensive collaboration. Both formal and information channels, including memos, workshops, training events, and open forums, should be utilized to effectively transition to category management operations. 7
9 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
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