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No matter whose perspective you use, eCommerce is a good idea for government acquisition. Unfortunately it is a much underutilized tool in the government acquisition tool box. Why do you think the federal government has been slow in utilizing this technology that has been around for almost 20 years?
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 […]
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 […]
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 […]
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.
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.
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 . . .