Market Forces in Government eCommerce

Last week I wrote about the success the Department of Defense is having in leveraging Government eCommerce for the strategic sourcing of its office supplies.  What I didn’t mention was the side effect its having on the pricing structures of  office supply vendors on the DOD EMALL.

In 2004, when the Army was establishing their strategic sourcing policy, they did a market-basket analysis of office supply prices on GSA Federal Supply Schedule Contracts.  In establishing their blanket purchase agreements with 20 office supply holders, they negotiated a 15% GSA  price reduction and mandated the use of those contracts.

Each of the Armed Services followed suit — negotiating their own office supply contracts and mandatory online purchase policies.  As a result,  DOD EMALL quickly became a magnet for office supply vendors, large and small. The number of office supplies vendors on DOD EMALL skyrocketed to over 500.  So when the Army redid their initial market basket analysis two years later, their 15% pricing advantage had vanished.

What happened?

Market forces brought down the prices of the competing catalogs.  By mandating the use of Government eCommerce for office supplies, the Army had saved millions of dollars on their own office supplies and created a savings environment for the whole Department of Defense.

Defense Acquisition Reform: Closer Than You May Think

The Department of Defense recently got an earful from the Defense Acquisition Reform Panel (DARP) over its “outdated” acquisition and contracting policies.  The panel’s criticisms centered largely on ill-suited “cultural issues” preventing the DOD from moving towards more IT-focused procurement methods.  Amber Corrin’s Inside DOD blog from Federal Computer Week gives a nice, high-level overview of this argument.

Recommendations made by the panel included:

Improved process for developing contract requirements
Performance-incentives for DOD’s acquisition workforce
Getting more value from the industrial base.

I can’t imagine the recommendations are anything the DOD hasn’t already realized.  As one of many DOD-contracted IT-providers, Partnet recognizes the changes DOD is implementing towards modernizing their IT-capabilities, particularly around acquisition.  The potential cost savings to taxpayers in finding smarter, faster ways to supply and equip our Warfighters is enormous.  And few know that better than the DOD.

However, the DARP report seems to imply that the DOD is sitting on its hands, meanwhile, letting old-fashioned acquisition protocol dictate the Department’s future.

Again, I’m pretty sure the DOD knows exactly what needs to done, and in many instance, is taking strong initiative to correct so-called “cultural issues”.  Government eCommerce, for instance, is one area where the DOD is making tremendous strides.

Debra Fryar has written a number of excellent posts on this blog illustrating exactly how the DOD is leveraging information technology towards streamlined acquisition and purchasing.  And DOD EMALL (which Partnet proudly built and operates, I might add) is a concrete example of the Department’s success so far.

Not to mention the DOD is also looking to technology for OCONUS souring and contracting solutions–specifically, the potential for web applications to optimize contingency contracts and purchasing from global vendors and local markets.

None of this is to say the DOD should […]

Strategic Sourcing on the DOD EMALL

In 2006, the Office of the Secretary of Defense added Strategic Sourcing to the Defense Procurement and Acquisition Policy’s (DPAP) list of standing initiatives.  According to DPAP, strategic sourcing is defined as:
. . . a proven best practice [representing] how the DoD will acquire goods and services moving forward. It is the collaborative and structured process of analyzing an organization’s spend and using the information to make business decisions about acquiring commodities and services more effectively and efficiently.”
Though the government continues to struggle with strategic sourcing as a practical matter, there are success stories that can help inform guidelines for a future, government-wide strategic sourcing policy.

Take Government eCommerce, for instance.

In 2004, the US Army established 20 blanket purchase agreements for office supplies on DOD EMALL, and subsequently issued a Service-wide policy that all office supplies were to be purchased online through these established contracts.  By negotiating their own strategic contracts, the Army saved 15% on office supplies, while ensuring that all online purchases were compliant with Ability One, the Buy American Act, and other procurement regulations.  In addition, the DOD EMALL provided Level 3 processing data on all of its office supply purchases.

Over the next two years, the Navy, Air Force, and Department of Homeland Security implemented similar strategic sourcing contracts for online office supply purchases.

The potential for strategic sourcing through online applications, like the DOD EMALL, is virtually limitless.  If the DOD was able to save 15% on the cost of buying office supplies, consider the savings of implementing similar measures for all commodities  throughout the Federal government . . .

The Practical Value of Government eCommerce? -Ask NAVFAC.

A few years ago, a Naval Commander arrived in port at Norfolk, VA needing some repair work done on his ship.  It took the Naval Facilities Command (NAVFAC) 14 days to arrange for the required services.  The Commander thought this was completely unsatisfactory — why would it take so long to make arrangements for something that takes place on base all the time?

The Commander had a point.  Why did it take so long?  NAVFAC turned to Government eCommerce for a solution.

NAVFAC needed a way to support collaborative eCommerce between the facility manager, vendor, and base financial office. And so,  NAVFAC attempted a pilot buy using DOD EMALL .  Pre-negotiated service contacts were placed on DOD EMALL, so that when the facilities manager needed a repair done, he went online and ordered it.

The vendor received the request, provided the service, and notified the facilities manager.  Then, after inspecting the provided service, the facilities manager went back to DOD EMALL and notified the financial office to pay the vendor.

The result?

Regular services were arranged within 3 days (11 days fewer than the previous standard).  Consequently, NAVFAC has instituted use of DOD EMALL for services in 110 naval bases worldwide.

Another instance where Government eCommerce (specifically, DOD EMALL) has helped save time and taxpayer money.

Supply Chain Inventory Management: Turning Methodology into Strategy

I’ve uncovered an interesting article by Chris Stephenson—writer for Manufacturers’ Monthly.  It was written a few months ago, but reads like a perfect companion piece to Terryl Benson’s post on supply chain inventory management—featured on this blog a few days ago.

Stephenson’s article talks about lean logistics methodologies as a primary improvement model for manufacturers, and how most enterprises fail to apply these methodologies across their supply chain networks.

The article provides a number of good recommendations, but three in particular stood out:

Invest time in back-end business planning, up-to-date enterprise and supply chain planning, and execution applications.
Review outdated legacy IT and traditional ERP systems to ensure they fit with your networked supply chain model.
Embrace technology to help meet customer demand for service through an increasing number of [service] channels.

What struck me about the article (aside from its reinforcement of sound, supply chain inventory management principles) was the way it outlined challenges currently facing the industrial private sector, and how they so closely parallel the logistical problems our government wrestles with.

At least, they are both uniform in their need for tighter integration, new enterprise-planning resources, and access to timely, reliable data sources.

Over the past year, Partnet had the opportunity to meet with government logisticians and planners from across the globe, and several highlighted these same concerns.  This is precisely why Partnet is developing new, integrated applications that improve supply chain visibility and reduce the need for planners and manufacturers to manage market variability with surplus inventories.

We feel it’s a step in the right direction.

New IT investments, however, are only part of the solution.  It’s up to manufacturing and logistics communities—whether private or public—to decide how to take lean methodologies and turn them into functional strategies.

(And […]

Why Government eCommerce Over Traditional Procurement?

There are several good reasons.

It has long been known that traditional procurement processes, whether public or private, are often arduous and time consuming. By establishing long-term purchasing contracts with strategic companies and letting junior buyers place delivery orders against those contacts from an online marketplace, senior acquisition professionals are freed to work on major acquisitions. Government eCommerce is also much more economical because online ordering is quick and easy once those contracts are enabled, and establishing multiple contracts for a given commodity also ensures competition and price competitiveness.

Government eCommerce also provides potential visibility into vendor inventories. Using a distributed architecture, online marketplaces can communicate directly with vendors using application integration tools. This allows secure, reliable messaging and data transmission; including elements like order status, back-order information, stock-on-hand, and stock-out data.

The DOD EMALL is an example of Government eCommerce in action. The Defense Logistics Agency’s (DLA) distributed architecture system allows Department of Defense and other Federal Agencies to house long-term contracts and leverage the government’s buying power. DOD EMALL currently maintains over 2000 individual contracts to support more that 60 million items—helping DOD EMALL to exceed $800 million in FY09.

As the world becomes more integrated online, its only logical that governments take proactive measures to keep pace with the private sector. Government eCommerce ensures that Federal, state, and local purchasing stays ahead of the curve.

IT Software Strategies for Reduced Supply Chain Inventory Management Budgets

IT budgets for Supply Chain Inventory Management investments have shrunk considerably during the most recent economic downturn.  This is true of both Government and commercial enterprises.   Industry research shows that appetites for large scale projects have all but disappeared as enterprises look for targeted and cost-effective solutions that will provide immediate value.  Instead of throwing large amounts of money up front at expensive and often excessive SCMS and ERP systems, enterprises are now looking at alternative methods to solve their most pressing supply chain challenges.

One alternative strategy that is receiving a lot of attention is Software as a Service (SaaS).  While this software model provides some benefits, including the reduction of upfront costs, it also has some disadvantages that enterprises should consider.  These include the loss of control over data, limited customization options, and an inability to integrate with additional services.  Furthermore, this delivery model requires ongoing payments for the service, often times prolonging the budget shortfall by committing future IT dollars to an unproven solution.

A second strategy being taken by enterprises is to purchase lightweight and highly targeted off-the-shelf applications that can be easily plugged in and configured to address a specific Supply Chain Inventory Management problem. This class of application normally incorporates Service Oriented Architecture (SOA) principles, thereby enabling them to be extended, scaled, and incorporated into a larger IT vision at some point in the future—once more funding is made available.

Partnet sees great potential in leveraging this second strategy.  Government, as well as commercial enterprises, need to look at smarter IT solutions—not necessarily larger, more comprehensive ones.  Simple integration tools—targeting critical data sets within the supply chain—often bring more value than cumbersome enterprise systems.

DOD EMALL, which currently employs an enterprise integration […]

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