Strategic sourcing’s subtle effects on small business

Do federal strategic sourcing initiatives put price ahead of good business relationships -- and hurt both small businesses and the agencies seeking their services in the process?

"The strategic sourcing that Wal-Mart does builds long-term relationships with suppliers," said Emily Murphy, senior counsel of the House Committee on Small Business. The federal government's brand of strategic sourcing, however, has become "more about leveraging buying and limiting the number of companies that might be able to compete."

That emphasis on pricing in the government's growing strategic sourcing efforts can work to squeeze small businesses out of the running for government contracts, she said. Unclear regulations from the Small Business Administration concerning how smaller businesses can partner with larger ones to vie for large contracts add to the pressure.

"We need industry to point out that there could be long-term harm," Murphy said. Although strategic sourcing can produce savings as competitors vie for an initial contract, "those savings won't continue" as the initial incentive to get the lowest price tends to fade as contracts are locked in.

Murphy, who spoke at a July forum on small business partnering sponsored by the Coalition for Government Procurement, also contended that efforts to ensure a certain percentage of federal contracts go to small businesses can be subverted by sometimes-confounding regulations, which drive small companies away from competing in the market.

For strategic sourcing initiatives to be most effective for federal agencies, she argued, "we have to have a viable community of small businesses."