Why Strategic Sourcing Savings Plans Don’t Always Work Out

There has been an ongoing discussion in Linked-In about why some procurement saving initiatives or strategic sourcing plans fail to realize the savings they are projected to have.  The comments to the questions have revealed a few likely reasons so many projects fail.  I work primarily with government agency buying groups, but the following comments pertain to both public and private buyers.

Many buying groups operate in isolation and are not always aware of the enterprise-wide opportunities and/or mandated vendors.
Because these groups operate independently, they don’t understand the value of buying from the corporate contract. This may result in buys made to the contracted vendor, but outside the corporate contract, making effective tracking difficult.
Sometimes the contracted vendor may not have the preferred items and local vendors may provide better or additional services to the customer. If many people are buying outside the strategic supplier, there may be a problem with the supplier and the program should be looked at or possibly an additional supplier should be added to the authorized list.

Several things have to happen to counteract these “Buy Around” behaviors.

Senior stakeholders have to make sure the buying units understand the importance of the enterprise projects. Making sure that the information filters down from the top to all the buying units can be a challenge. Often a single memo from the top is not enough to get the message out.  Some type of an extended Corporate  Marketing Campaign  may be required.
They have to adequately market to the enterprise that these contracts exist, that they are mandated for use, what the benefits of using these contracts are, and how much money will be saved by the business/agency.
Headquarters also has to make sure that the enterprise-wide contracts […]

eCommerce Support of Procurement Models

Acuity (Consultants) Ltd Executive Interm Manager and ACUITY Director, Tony Colwell’s Blog post this week titled 5 Models for Procurement Organisation, discusses the differences in the definition between Procurement and Purchasing. It also outlines the different types of procurement models. There are three basic models for procurement, any others being a combination of these three:

Local – All activity, decision making and control is performed locally and is autonomous.

Central – Decision making and procurement activity is centralized. (There may be local activity and controls outside the scope of procurement, for example, calling off supply under a centrally negotiated contract.)

Networked – Activity is co-ordinated across local units. Decision making is not independent but is controlled in some way by a node, or nodes, on the network

Being a great advocate of eCommerce, I was struck by how eCommerce was compatible with each of the models.

In a Centralized system, Company/Agency wide contracts can be offered and easily used by anyone with ordering capability. Rules and workflows can be put in place to facility large buys and prevent rogue purchases. Consolidated purchasing data is collected which can be used for strategic sourcing and other business analysis.
In a Localized system, a centralized eCommerce site can still be used. Rules can be put in place to display local contracts only to local users. These users can receive regional pricing. Each local buying group will have the feel and control of a local system, but the company can still gather the consolidated purchasing data for business analysis.
A Networked system can show both the Centralized and Local contracts and include business rules for specific items.  It could allow unrestricted purchasing for certain dollar thresholds and workflows for higher priced items or items whose […]

Online Shopping: Nine Benefits to the Government Buyer

As is the case with commercial shoppers, government buyers can also benefit in a number of ways from shopping online.

1. Convenience and time saving

From the Contracting Officer’s perspective – writing a general purpose contract one time and letting buyers make purchase orders against that contract saves a lot of time. A number of federal agencies have used this strategy to save both time and contracting dollars.
From the Buyers perspective – A buyer does not have to travel to a store site or adjust his schedule around the store’s hours. No longer does the buyer have to wait on hold for a customer service representative to answer the phone. Without leaving the office, government buyers can access thousands of websites, or their own agency specific website, to research products, and purchase items which have been approved and made available through agency wide contracts.

2. Broader selection – By writing broad based contracts for vendor catalogs, the contracting officer can make more items available to the buyers without knowing the exact requirements. This prevents the contracting officer from having to go back and amend contracts. This policy is especially good for consumable products like office supplies and building supplies where the requirements vary greatly from day to day.

3. Global choice – While the federal government is restricted to multiple procurement regulations, online shopping can make Buy American Act products more easily available overseas. It can also give government personnel access to locally approved vendors worldwide.

4. Better information – Access to a fuller range of information about product availability, descriptions, reviews and pricing.

5. Lower prices – By writing multiple broad based contracts, the government can take advantage of their buying power and negotiate better prices […]

Why Strategic Sourcing Works

I saw a discussion recently on LinkedIn discussing why companies are turning toward having a few preferred suppliers rather than selecting items on price alone. This strategy is known as Strategic Sourcing. The question spurred quite a discussion.  Here are some of  the key points.

Price alone has nothing to do with material standards, product quality, or timeliness of delivery. Most often a manufacturer can excel at two of three key things…price, quality or service. A savvy buyer develops relationships for their company that balance all three.
Consolidating vendors helps reduce costs, and increases price leverage opportunities. A reduced vendor base can also help focus the procurement department’s ability to focus on quality, service and pricing.
Once you have developed a relationship with a supplier and know that they are reliable, you are often able to negotiate better pricing than they would offer to others. Another reason is that they know that you can deliver, such as paying on time,  which further solidifies their willingness to do business with one company over another. It goes both ways.
The simple answer is “Value.” Preferred suppliers are chosen for many reasons including: pricing, quality and service.  Some companies sell strictly on pricing and the notion that “you get what you pay for” usually holds true. I suggest that you demonstrate value and you may get more results than strictly pricing.
With a few preferred suppliers you can develop a kind of partnership which means long-term benefits for both parts, a win-win situation. Along with your supplier you can sometimes even develop or change products by using your joint knowledge and other things that you are unable to affect if you are frequently changing suppliers.
The movement toward fewer preferred suppliers is a […]

Transforming Government Supply Chain Management

While re-arranging my office space, I came across a book on government supply chain management. In 2004, the Honorable Jacques S. Gansler, former Under Secretary of Defense for Acquisition, Technology and Logistics, and Robert E. Luby Jr., Vice President, Supply Chain Management at IBM published a book titled: Transforming Government Supply Chain Management. In the book, among other things, they document two government eCommerce initiatives; DLA’s Medical eCAT and the DOD EMALL.

They state in the book that the Medical eCAT program, which at that time allowed web-based ordering of 650,000 medical items, “saved the DOD customers over 25 % of the product and handling costs  involved in obtaining the items through other means like local purchase.”

In Chapter 15, they document the benefits of the DOD EMALL in the following way.

Customer Benefits:

Assurance of ordering against establish contractual vehicles and compliance with federal regulations
Desktop access to product information and availability
Single point of entry , search and ordering across all electronic sources
Convenient payment mechanisms
Increased buying office productivity
Security

They conclude that web based ordering from commercial distributors using standard eCommerce transactions allows customers to receive products in a fraction of the time at a fraction of the cost.

Though this book was published some years ago, the benefits and cost savings are still true today. In fact, both of these systems still exist and are saving the government money every day. It just goes to show that there are ways for the government to save money and every little bit helps.

Keeping Credit Card Data Safe

Having your credit card stolen is a major concern for any cardholder. Combine that with the responsibility of buying supplies for the government and it is enough to lose sleep over.  Attacks on payment card processing systems are on the rise. Organized internet thieves target all sizes of on-line merchants. According to a study by the University of Michigan, 76 per cent of websites from 214 US financial institutions suffer from at least one security design flaw that prevents secure usage (you can find the full report at http://cups.cs.cmu.edu/soups/2008/proceedings/p117Falk.pdf).

No one is completely safe.

Fortunately, there’s a clear path of action for merchants that can help prevent compromise of payment card data. The Payment Card Industry Data Security Standard is the authorized program of goals and associated security controls and processes that keep payment card data safe from exploitation. The standard is often called by its acronym PCI DSS or PCI.

This standard was created to help payment card industry organizations that process card payments prevent credit card fraud through increased controls around data and its exposure to compromise. The standard applies to all organizations that hold, process, or exchange cardholder information from any card branded with the logo of one of the card brands. This includes deploying multiple firewalls within the  ecommerce  system and separating the credit card database from other system processes.

As principle developer of the DOD EMALL eCommerce site, Partnet recognized the vulnerabilities of the system. In 2008, when the Defense Logistics Agency mandated that DOD EMALL be moved into a DISA enterprise data center, Partnet recommended that the ecommerce system network be redesigned to move toward PCI compliance. This was the first time the Department of Defense dealt with this commercial standard. Partnet […]

Government IT: Looking forward to 2011

A number of predictions are being made about the direction of government IT for 2011. The Obama administration is taking a look at the effectiveness of the “grand design approach.” These costly, massive IT projects aim for sweeping reinvention of agency computer systems and business processes. Unfortunately, these large-scale projects are frequently plagued by cost overruns and schedule delays.

Government watchdogs say there are two critical elements that will make or break the effort to end the grand-design era: the ability to embrace agile development techniques and the creation of a well-trained acquisition and project management corps to oversee the new rapid delivery style.

Nearly 20 years ago, the General Services Administration advocated that government avoid giant, multiyear IT modernization projects and instead deliver new systems in small chunks and solicit user feedback to identify problems early and facilitate frequent course corrections. Few government agencies have taken that advice, but tighter IT budgets in the foreseeable future may cause them to re-think the idea.

In addition, OMB is calling for a number of IT Acquisition reforms including increased training for government IT program managers and increased oversight of IT products with better defined milestones and the use of agile development.

Over the last 10 years, Partnet has been the major developer of the Defense Logistics Agency’s DOD EMALL. Partnet has stressed the importance of agile development within the DOD EMALL program. The DOD EMALL PMO has an outstanding record of continual system improvement over the system life cycle.  Due to the use of agile development, projects have been able to stay within a tightly controlled budget and on schedule.  We hope the rest of the government will embrace the use of agile development as recommended by OMB.

Department of Defense Gets B in Small Business Use

The Department of Defense gives itself a B in overall use of Small Business in FY2009. As a Small Business Prime Contractor for the DOD, Partnet is proud of our contributions to the DOD and feel that we give the America Taxpayer a good buy for their money. Small businesses frequently operate with lower overhead than large companies, giving a lower overall cost of development for a project. Small businesses are usually juggling fewer projects than their large business counterparts and can give full attention to a project and great customer service.

Shay Assad, director of defense procurement and acquisition policy, the final speaker during the two-day 2010 DLA Enterprise Supplier Conference and Exhibition, held in Columbus, Ohio, Aug 24-25, commented that the Defense Logistics Agency and its industrial partners must improve buying power and create more value for warfighters and taxpayers. He said, “What we’re looking to do is partner with industry to find ways to become more efficient.”

One of the ways that the DOD can achieve this goal is to increase the use of small businesses. The amount of business going to small businesses should also increase in the coming year, Assad said. The current Defense Department goal for small business partnerships is 23 percent, but currently stands at about 19 percent. Out of $400 billion spent by the department on supplies and services, about $12 billion is going toward small businesses.

DLA recently honored small businesses with a number of awards at their DLA Supplier’s Conference. Though we didn’t win an award this year, we had the honor of attending the awards ceremony and supporting our fellow small businesses.  We know we give great service and value to our customers and who knows […]

DLA Support for Performance Based Logistics Contracts

The Performance Based Logistics 2010 Conference was held last week in Arlington, VA. It made me think about how much defense logistics has changed over the last ten years.

Performance Based Logistics (PBL) goes beyond traditional acquisition of contractor good and services.  PBL guarantees contractor performance and system capability based on declared performance-based agreements between the Department of Defense (DOD) and the contractor.

Before PBL, defense contractors simply provided a product or service.  A contractor would develop a weapons system, for instance, and DOD would subsequently assume complete responsibility for its storage and maintenance.

DOD advocated PBL in the 2001 Quadrennial Defense Review and called for the evaluation of a PBL approach for all new acquisition programs and systems.

As a result, a defense contractor awarded a PBL contract for aviation services, for instance, is required to provide more than just an aircraft, but all the services, support, and maintenance required to keep that aircraft mission-ready for a specified period of time.

In many cases, however,  DLA’s bulk purchasing capability allows it to acquire common repair parts at a lower cost than individual PBL contractors.

With the advent of PBL support contracts, DOD needed a way to allow defense contractors to purchase parts from DLA under PBL contracts.  The easiest way to support this capability was to enable PBL contractors with access to DOD EMALL.  Using DOD EMALL, contractors can purchase repair parts directly from the DLA and at lower cost to the government.

Today, Lockheed Martin, Boeing, Honeywell, and dozens of other defense contractors s are participating in this DLA program.

As the primary developer of the DOD EMALL, Partnet is pleased to support this innovative strategic sourcing initiative.

Beyond sales: Eight reasons why the DOD EMALL works for government

I was asked the question earlier:  “How is the DOD EMALL important other than as a sales tool?”

Apparently, the question took some people by surprise, but not me. The DOD EMALL provides several acquisition services that extend beyond traditional eCommerce (though that is certainly a big part of it).

Here are my top eight reasons why DOD EMALL works for government:

1. Saves money.  Buying online is inherently cheaper than going to a store or writing a contract for each purchase.

2. Global access – 24/7.  DOD EMALL provides a single point of access for users around the world, and around the clock.  This allows shoppers and vendors to work on their own schedules, regardless of time or location.

3. Innovation platform. For years, DOD EMALL has been a launching pad for several, new IT-acquisition practices and applications — resulting in a number of firsts for the Department of Defense:

Establishment of unique Service-acquisition rules like the Army JWOD/AbilityOne and the Army discount policy.
Strategic sourcing of office supply contracts — started by the Army, but now implemented for all the the Services.

4.   DLA enhancements.  DOD EMALL has opened up access to the Defense Logistics Agency’s managed items for Performance Based Logistics (PBL) contractors and state governments.

5.  NAVFAC base services.  For over ten years, the Naval Facilities Command has used the DOD EMALL to support base-services contracts on Navy and Marine bases worldwide.

6.  Government-wide Acquisition Contracts.  DOD EMALL allows  Military Services to grant and gain access to GWAC contracts from other federal agencies, enabling strategic sourcing across the Department of Defense.

7.  Data quality.  DOD EMALL regularly provides Level III credit card data to several Service systems, and soon the Federal Procurement Data System – Next Generation (FPDS-NG) as well.

8. […]

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