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By Debra Fryar, on January 23rd, 2012
As with all of government, the Department of Defense is facing slimmer budgets and looking at ways to save money. Basically as Ashton Carter, Deputy Secretary, Department of Defense, put it: “To do more, without more.”
In December 2010, John Young, a senior fellow at Potomac Institute for Policy Studies and a former U.S. undersecretary of defense for acquisition, technology and logistics wrote an article for Defense News encouraging the Department of Defense to use reverse auctions to save money. Young stated in his article,”There is constant debate about acquisition practices, with simple and obvious steps frequently overlooked. Reverse auctioning can save money, increase competition, cut contract officer workload, reduce procurement complexity, provide transparency, and help prevent fraud and graft. Reverse auction tools should be added to the DoD and defense industry acquisition tool kit and used whenever possible to get maximum value for each taxpayer dollar.”
In October 2011, David C. Wyld, Professor of Management at Southeastern Louisiana, published a report for the IBM Center for the Business of Government titled “Reverse Auctioning: Saving Money and Increasing Transparency.” In this report, Dr. Wyld recommends that the government adopt an auction first policy. Wyld estimates that the federal government could save $8.9 billion by increasing use of reverse auctions. He estimates that the Department of defense alone could save over $6 billion. In addition to increased savings, his report indicates that there is increased transparency of the acquisition transactions. A case study of the Department of State found that increased use of reverse auctions also increased the competition among suppliers, and dramatically reduced the acquisition contract time for department staff.
Over the last decade the DOD has made a few attempts at using reverse auctioning, but has not taken any steps to make it a common practice. However, in the last two months both the Defense Logistics Agency and the NAVSUP Fleet Logistics Center Norfolk have published Requests for Information (RFIs), looking for reserve auction tool suppliers. It looks like they may be getting the message.
By Debra Fryar, on January 17th, 2012
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 support the field unit with all the items they require. They have to have both the right items and the right prices to be effective.
- Headquarters can offer to share the savings with the buying units, giving them a percentage of for local use. This can make it worth the trouble for the buying units to change their current buying practices and to take advantage of the enterprise-wide contracts.
If these steps are followed, it will greatly increase the potential to see the projected savings from strategic sourcing become a reality.
By Debra Fryar, on January 11th, 2012
I wanted the first blog post of the year to give a little history of Partnet. We are a small business housed on the campus of the University of Utah, in the foothills of the Wasatch Mountains. The University of Utah is home to one of the first Computer Science Departments and ranks among the world’s top 20 academic programs. The University of Utah was also one of the initial five sites for DARPANET—the predecessor of the Internet.
I’m not going to say we “Invented the Internet” or anything, but Partnet was there at the beginning. Before Netscape, Internet Explorer, or even Mosaic were around, Partnet developed its own web client to allow engineers to use the Internet to source parts located in remote databases. Partnet obtained a patent for searching distributed databases over the Internet. Today this patent is widely used by nearly all Internet companies that crawl the Web (this includes Google, Yahoo, Amazon, and many others).
 In 1992, Dr. Don Brown was so impressed with the ideas of his students that he made a video of the capabilities and sent it to the Defense Advanced Research Projects Agency (DARPA). DARPA is an agency of the United States Department of Defense responsible for the development of new technology for use by the military. DARPA has been responsible for funding the development of many technologies that have had a major effect on the world.
Impressed with the idea of a distributed architecture that could search for spare parts from multiple databases, DARPA eagerly funded the project. The Defense Logistics Agency (DLA) soon joined the project. DLA provides supplies to the military services and supports their acquisition of weapon system repair parts and other materiel. DLA saw this as a new way to support the warfighter.
By 1998, the first DLA eCommerce site was born, DOD EMALL. Partnet’s interest in cutting edge technology did not stop with eCommerce. During the mid-1990s, Partnet became one of the first software companies to adopt the Java programming language. Java revolutionized web-based programming due to its ability to run on any Java Virtual Machine (JVM) regardless of computer architecture. By 1999, the vast majority of DOD EMALL had been rewritten in Java. Partnet also embraced XML, a markup language that relies on the concept of rule-specifying tags. This makes it easier to convert data between different data types, allowing the DOD EMALL to send out orders in multiple formats. By recommending that the Defense Logistics Agency use Linux, an open source operating system without the high licensing fees of other operating systems, to support the DOD EMALL, Partnet saved the government several million dollars in hardware and software licensing fees. Over the years, DOD EMALL has grown from a small research and development project to a billion dollar a year business within the government. Partnet still supports this important Department of Defense world-wide application.
Today, Partnet continues to work on the leading edge of technology, supporting both government and commercial customers and doing research in the areas of website security, medical healthcare records and advanced eMarketplaces. Our engineers are among the best and brightest in the business and take great pride in their work.
By Debra Fryar, on December 22nd, 2011
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 purchase is controlled within a specific Network.
No matter what type of procurement model your company/agency uses, eCommerce can facilitate purchasing products and services and help to collect and aggregate data for your financial system.
By Debra Fryar, on December 15th, 2011
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 from vendors. Aggregating items from multiple vendors in a single view also helps the buyer compare items and make best value purchasing decisions.
6. Rapid response time to needs – eCommerce allows traditional supply chains to be shortened (direct shipping from the manufacturers) or even completely eradicated (digital goods such as software). This allows customers to purchase products in much less time. This is true for both commercial and government buyers
7. Quality of service – eCommerce has created a global market with all suppliers competing for business. It brings suppliers closer to the customer. The customer benefits to the extent that the quality of the service offered is improved. Customer rating services also increase this as it is easy for customers to rate both products and customer service of individual suppliers.
8. Approval Workflow eliminates “maverick buys” – By establishing a workflow between the buyer and a contracting officer, higher cost buys can be approved and “maverick buys” can be eliminated.
9. Business Intelligence enables strategic sourcing – Agency sponsored eCommerce sites allow for easy collection of level 3 procurement data. You know exactly who is buying what and for how much. This business intelligence can help narrow the vendor list and lead to strategic sourcing of products at the best possible prices.
With the current emphasis on saving money, a hiring freeze and the a recommendation to only replace two out of three vacancies, the federal government acquisition community should take a hard look at the benefits of using more eCommerce for government procurement.
By Debra Fryar, on November 22nd, 2011
I saw a discussion recently on Linked-In on 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 striclty 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 practical one. For smaller businesses, it is a way to develop better business traction. By staying with suppliers that share your values, you have the opportunity to grow together and ensure that you receive a level of customer support and visibility that you may not receive if you don’t generate enough business to be important to larger suppliers.
- For larger businesses, fewer suppliers is also a practical consideration. Larger businesses may have thousands of suppliers generating many thousands of reports, invoices, follow up calls. Supplier consolidation can save these businesses enormous sums of money.
By Debra Fryar, on November 11th, 2011
There are a number of arguable benefits to the consumer of online shopping verses traditional brick and mortar stores.
1. Convenience and time saving – Shopping on the Internet can save time. A consumer does not have to travel to a store or adjust his schedule around the store’s hours. No longer does a consumer have to wait on hold for a customer service representative to answer the phone. Without leaving their home or office, consumers can access thousands of Web sites to become informed about breaking news and events, research products, and purchase everything from groceries to books to insurance policies.
2. Broader selection – The opportunity to find specialty items not readily available in ordinary retail outlets. This is especially true for consumers who live in small towns or rural areas where retail shopping is limited.
3. Global choice – Shopping is no longer limited to the stores within a reasonable driving or walking distance or to the catalogs they receive in the mail. Online, customers can shop at stores in other states or in other countries.
4. Better information – Access to a fuller range of information about product availability, descriptions, reviews and pricing.
5. Lower prices – Some Internet retailers offer discounts from traditional channels (online booksellers, buying and selling stocks through the Internet). Some Internet retailers are starting to swallow shipping fees to capture customers. Users can access most online news and information free of charge. This element is of greatest power and appeal in influencing the habits of consumers.
6. Rapid response time to needs – eCommerce allows traditional supply chains to be shortened (direct shipping from the manufacturers) or even completely eradicated (digital goods such as software, music, info). This allows customers to purchase products in less time.
7. Customization and Personalized products and services – Some Web businesses, particularly media, music, computers businesses already customize the product to an audience of one. The result is customized products comparable to those offered by specialized suppliers but at competitive mass market prices. As suppliers are closer to their customer they are able to gather detailed information on the individual needs of the customer and can then tailor products and services catering for these individual needs
8. Quality of service – eCommerce has created a global market with all suppliers competing for business. It brings suppliers closer to the customer. The customer benefits to the extent that the quality of the service offered is improved. Customer rating services also increase this as it is easy for customers to rate both products and customer service of individual suppliers.
By Debra Fryar, on November 1st, 2011
Over the last 15 years, eCommerce has fundamentally changed the way we buy things. Before the advent of eCommerce, individuals and businesses looking to purchase items were forced to either shop from store to store, or search through stacks of paper catalogs and then call the merchant to order.
Now you can sit at a computer in the convenience of your home or office and purchase things from all over the world. They will arrive at you home or office in 2 to 7 business days or overnight for a little extra money. This has been a boom for the both the consumer and the business person, particularly the small business owner. Instead of setting up a brick and mortar storefront, many small businesses start with an online store. They have immediate access to millions of customers who might need their wares. Consumers who live in smaller communities have easy access to goods and services that might not be available locally.
Although online sales have steadily increased since the advent of the internet and are expected to increase into the future, event more sales are influenced by on-line research. The Forrester Research Group describes web-influences sales in the following diagram.
 Web-Influenced Retail Sales While $155 billion worth of consumer goods were bought online in 2009, a far larger portion of offline sales were influenced by online research. Forrester estimates that $917 billion worth of retail sales last year were “Web-influenced.” It also estimates that online and Web-influenced offline sales combined accounted for 42 percent of total retail sales and that percentage will grow to 53 percent by 2014, when the Web will be influencing $1.4 billion worth of in-store sales.
There is a lot of room for improvement in helping consumers go from doing online research to on-store purchases. Increased security is required to make more customers feel comfortable using their credit card online. New types of on-line shopping like making purchases with you smart phone called “Mobile Commerce” will also start to increase online sales in the near future. While I don’t see the “Mall” disappearing anytime soon. eCommerce is certainly here to stay and making life a lot easier for many of us.
By Debra Fryar, on October 24th, 2011
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.
By Debra Fryar, on October 17th, 2011
For a number of years now, the business community has benefitted from the impact of Business to Business (B2B) markets. Their impact on the economy is evident in several ways:
Transaction costs. Three cost areas are significantly reduced through the conduct of B2B e-commerce.
- First is the reduction of search costs, as buyers need not go through multiple intermediaries to search for information about suppliers, products and prices as in a traditional supply chain. Internet is more efficient at gathering information, in terms of effort, time, and money spent. In B2B markets, buyers and sellers are gathered together into a single online trading community, reducing search costs even further.
- Second is the reduction in the costs of processing transactions (e.g. invoices, purchase orders and payment schemes), as B2B allows for the automation of transaction processes and therefore, the quick implementation of the same compared to other channels (such as the telephone and fax).
- Third, online processing improves inventory management and logistics.
Removing Intermediaries – Through B2B e-markets, suppliers are able to interact and transact directly with buyers, thereby eliminating intermediaries and distributors.
Transparency in pricing. – Among the more evident benefits of e-markets is the increase in price transparency.
- The gathering of a large number of buyers and sellers in a single e-market reveals market price information and transaction processing to participants.
- Increased price transparency has the effect of pulling down price differentials in the market.
- Buyers are provided much more time to compare prices and make better buying decisions.
- B2B e-markets also allow multiple buyers and sellers to participate in two-way or reverse auctions. In such environments, prices can be set through automatic matching of bids and offers.
Economies of scale and network effects. The rapid growth of B2B e-markets creates traditional supply-side cost-based economies of scale. Furthermore, the bringing together of a significant number of buyers and sellers provides the demand-side economies of scale or network effects. Each additional incremental participant in the e-market creates value for all participants in the demand side. More participants form a critical mass, which is key in attracting more users to an e-market.
Business-to-government e-commerce or B2G is defined as commerce between companies and the public sector. The United States Government is the largest buyer in the world. The federal government spends over $300 billion dollars annually on various goods and services. The federal government is also under extreme pressure to save money wherever it can.
Although the federal government has taken advantage of some of the lessons learned by B2B markets, moving many of it processes and transactions to the Internet, it has not taken full advantage of web-based procurement or eMarketplaces. There are a few systems in place, GSA Advantage and DOD EMALL being the largest. But government e-procurement systems remain undeveloped and underutilized. Web-based purchasing policies increase the transparency of the procurement process and reduce the risk of irregularities. The federal government would be wise to use online marketplaces to take advantage of their enormous buying power and reduce prices across the board. The American Taxpayer would be most appreciative.
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