Implementing Best Purchasing and Supply Management Practices. Lessons from Innovative Commercial Firms

Abstract

The Air Force is under pressure to maintain or improve performance while reducing costs so that it can pay for new weapon systems, force structure, and personnel retention initiatives (e.g., pay increases). The Air Force spends about one-third of its budget on purchased goods and services. This proportion should increase as the Air Force competitively sources more services. As a result, purchased goods and services offer a large and growing target area in which to seek improved performance and cost savings. The Air Force is not the only organization for which purchased goods and services can be a leading performance and cost driver. Purchased goods and services account for 50 to 80 percent of many commercial firms' total expenditures. Purchased goods and services represent such a significant performance lever and powerful competitive weapon that commercial firms are increasingly taking a more strategic approach to purchasing and supply management (PSM). Taking such an approach is a powerful way to increase profits by improving performance and reducing costs. The Air Force recognizes the potential importance of these new purchasing practices and is currently adopting an aggressive new approach of its own. Drawing on the new opportunities created by acquisition reform (recently renamed acquisition excellence) and related initiatives, the Air Force is promoting more proactive use of market research and performance-based services acquisition (PBSA), which includes the use of performance-based statements of work with outcome-oriented measures tied to new quality assurance plans and performance