[From iSource Business, June/July 2002] Anyone who believes the federal government's acquisition and supply chain systems are too bogged down in bureaucracy to act quickly and efficiently should consider this: Within hours of the September 11 terrorist attacks on the World Trade Center and the Pentagon, the General Services Administration (GSA) reportedly acquired and shipped, among other things, 65,000 protective suits, 5,000 facemasks, 3,000 respirators, 1,000 entrenching tools, 400 vehicles, 500 phone sets and 250 cell phones to help in rescue and recovery efforts.
Yet when it comes to implementing technologies to make the federal acquisition and supply chain systems more efficient, Earl Warrington, deputy program manager for the Integrated Acquisition Initiative at the GSA, acknowledges that the government's efforts are still in the formative stage. We are looking at how the government can leverage the work that industry has done in developing supply chain solutions and in adopting standards, he says, but for now, we haven't even hit walker-toddler stage.
Warrington may be a bit modest, but it is true that the federal government, once a technology leader thanks to projects like Internet progenitor ARPANet in the late 1960s, more recently has found itself lagging behind private industry in its use of supply chain solutions.
Now, as the government strives to adopt a more businesslike, enterprisewide approach to its operations and reap the benefits of the latest technologies, Washington faces some of the same obstacles as the private sector in implementing those solutions, as well as some added challenges. A few early adopters, particularly in the military, are already in the midst of supply chain and procurement projects. However, at this early stage, it is worth considering how far the federal government can and should go with its procurement and supply chain initiatives. The current consensus on this question may surprise private sector champions of procurement and supply chain enablement, and it could serve as a cautionary lesson for those who would implement corporatewide purchasing and supply chains systems within their own enterprises.
A Billion Here, A Billion There
The first thing you notice when you start delving into the federal government's spending is, not surprisingly, the large numbers of zeros and commas. At just over $2.0 trillion, the 2002 federal budget accounts for nearly 20 percent of U.S. gross domestic product. However, all those zeros can be deceptive. $1.1 trillion of the budget goes for mandatory spending, such as Social Security, Medicare and Medicaid payments, and another couple hundred billion covers interest on the $5.7 trillion in federal debt. When we take all the salaries, benefits and other administrative costs out of the remainder, we find the government actually spends only about $200 billion 10 percent of its total budget on procurement every year, with $87 billion going to acquire services and the rest to procure goods.
Not small change, mind you. Two hundred billion is almost as much as Exxon Mobil Corp. earns in revenues every year, so the government's procurement budget still makes it the biggest spender on the planet.
The second thing you notice about federal procurement is how dispersed it is among the government's many agencies, departments, offices and services, each of which has its own goals, culture and requirements in the same way that large corporations traditionally have had their own organizational stovepipes. Except, of course, in the government, the stovepipe structure is both intentional and necessary, since each agency's goals and mode of operation stem from its mandated mission. The impact of this mission on how an agency goes about its procurement is difficult to underestimate.
For example, the Department of Energy operates nuclear facilities around the country, and, in exchange for putting this type of facility in a particular community, the department generally agrees to do business in the local community. On a practical level, this means not only that the department wants to buy through its individual labs, but that it will be conducting its procurement through the particular contractors that are running those labs. The Department of Agriculture, on the other hand, operates small, usually one- to five-person offices across the United States, and typically wants to buy collectively through one massive contract.
Federal government procurement also differs from private sector purchasing in ways that directly impact suppliers. Alan Lawrence, a 20-year veteran of public sector sales who is currently manager of strategic programs in the government business at Hewlett-Packard, points out that federal agencies frequently place unique ordering or logistics requirements on their suppliers. Rated orders, for example, are priority requisitions that require a supplier, in accordance with the Defense Production Act, to give preference to certain orders from the government, on pain of criminal penalties. In the area of logistics, for example, the government may require that suppliers figure out how to make their fulfillment mechanisms work with the government's own internal organization for deliveries overseas through army post office (APO) or fleet post office (FPO) addresses. In some cases, Lawrence explains, they want you to deliver to that [address] on a regular basis, unless it's an emergency, in which case they want you to bypass all that and deliver it directly to U.S. soil in a foreign country, but go through standard customs. Complicated? Sure, but Lawrence says that long-time government suppliers simply get used to handling such exigencies to the point where they become routine.
In a larger sense, Tom Burlin, vice president for federal government at IBM Global Services, points out a more fundamental difference between the missions that the private and government sectors are pursuing. While both focus on satisfying the needs of their respective stakeholders, the government's responsibility to the broader constituency of society at large, and the high stakes frequently in play when the government takes action, typically lend a certain urgency to its mission. In the private market we tend to worry a lot more about security in the sense of protecting a financial asset and protecting, as long as possible, a market advantage, says Burlin, a 23-year IBM veteran who has been in the company's government sector for the past three years. In government, there is a higher price to pay, often human life. So they tend to take their responsibilities a little bit differently. Not to say that businessmen are cavalier about their responsibility, but certainly how we protect a market advantage versus how we protect a nuclear reactor in a port are pretty big differences.
The Politics of Procurement
Such differences have a direct bearing on the sorts of hurdles that government agencies face as they attempt to implement new solutions. For instance, the peculiarities of the federal government's budgeting and acquisition processes can be a challenge. Admittedly, private sector organizations must budget limited resources to pursue e-procurement and supply chain initiatives, too. But the duration of the government's process makes it particularly difficult for public procurement departments to acquire the latest technologies, according to James T. Eccleston, who, until recently, served as assistant deputy under secretary of defense for supply chain integration. Eccleston, who spent more than 17 years in defense logistics, (most of that time as a civilian with the Air Force), left the Pentagon in February to take over as president and CEO of ASD Global, a provider and integrator of e-business solutions and knowledge-based engineering solutions. There he worked with the Defense Department on a proof-of-concept project at the University of Maryland's Supply Chain Management Center.
The problem, Eccleston says, is that while the government, in principle, has deep pockets, it is not in a position to come up with funds quickly to invest in new, worthwhile technologies. It does not have the ability to generate capital to go do things right away, Eccleston says of the government. It doesn't have a board of directors that it can go to and say, We need to generate $100 million in investment capital to go do something.' It has to budget, and the budget process is two to three years. With solution providers on a six-month development cycle, government agencies can easily slip three or four versions of software behind the commercial sector by the time funding is approved for a particular project.
As a result, according to Eccleston, agencies are more inclined to approve limited funding for pilot programs, such as the project at the University of Maryland, conducted in conjunction with solution providers Manugistics and TIBCO; or a recently-approved Air Force pilot of an advanced planning and scheduling system, also involving Manugistics. Of course, proving a concept is one thing, but getting funds for a full-scale implementation is another. You prove it, and then you wait, Eccleston says.
Another challenge for the government is continuity of top management, or rather the lack of continuity, according to Jeff Holmes, a senior vice president in the government and public sector at solution provider Manugistics. In the commercial marketplace, you would not find everybody getting up and playing musical chairs every couple of years, Holmes says. But in the government, change at the top is continuous. On the civilian side, political appointees cycle through the agencies with the comings and goings of presidential administrations, while in the military, senior officers may change jobs every one or two years. So by the time a government agency resolves to adopt a solution and allocates the funds, top-level managers may not be around long enough to see the implementation through to completion and return on investment (ROI).
And, of course, this being Washington, politics is always a factor, too. Case in point from the days before e-commerce: at one time, public housing administrations throughout the country were able to procure off a pre-approved, pre-negotiated list of goods and services from the General Services Administration's schedule. However, Congress found that much of the money it was sending into their home districts for public housing was going right back out of the districts to suppliers listed on the GSA schedule. All politics being local, Congress prohibited the housing administrations from spending through the GSA.
Interestingly, one factor that most would expect to have a major impact on public sector e-procurement efforts bureaucratic inertia has not been a stumbling block, according to those who are familiar with projects underway. The fact is, starting in the Clinton administration and continuing into the George W. Bush administration, the executive branch of the U.S. government has placed an emphasis on reinventing government and introducing commercial best practices to its business processes. We're finding that the government is looking for the same benefits [from technology implementations] that the private sector is looking for, says IBM's Burlin. They're trying to make themselves more reliable, more efficient and more cost effective. HP's Lawrence agrees: It used to be that the joke was, every dollar you saved was a dollar they took away from you next year. But the reality is that every official in the public sector now has a much more managerial view of their business, so they tend to look at it as trying to do the right thing for the taxpayer and trying to run a more efficient business.
In the Bush administration, much of the impetus for change on the civilian side has come from Mark Forman, the associate director for e-government and IT at the Office of Management and Budget (OMB). Following his appointment in June 2001, Forman, a veteran of work in the Senate and at IBM, headed up the OMB's e-government taskforce, also known as the Quicksilver taskforce, which developed a series of proposals for improving the government's operations and service to citizens through new technologies. President Bush's Management Council has approved 24 Quicksilver projects, including the Integrated Acquisition Environment, a GSA-managed initiative to get federal agencies sharing business-related information and common acquisition services.
The goal of the Integrated Acquisition Environment initiative is to streamline the government's procurement processes. As a first step, the Quicksilver taskforce outlined five projects to pursue, including providing federal agencies with online access to government wide acquisition contracts (called GWACS, pronounced GEE-wax) and e-catalogs; establishing a single site where suppliers could register once to do business with all government agencies (the Integrated Vendor Profile Network); and launching the Federal Acquisition Management Information System (FAMIS), an updated version of the Federal Procurement Data System (FPDS), providing for better reporting functionality and better integration with acquisition systems in the various agencies. Additional projects call for redesigning the process for government-to-government (G2G) transactions and developing standards for e-transactions.
The Integrated Acquisition Environment initiative is an ambitious undertaking given the government's aggressive 18- to 24-month rollout plan. Delia Davis, director of the Acquisition Systems Division in the Office of Electronic Government at the GSA, acknowledges the challenges that lie ahead, purely from an organizational standpoint, in getting diverse agencies to adopt shared business processes. You're looking at using common, high-level business practices, common tools, common interfaces, common standards, she says, and all of that takes an incredible amount of coordination behind the scenes, and leadership. The leadership, she adds, is coming from Forman and the OMB, which are pushing federal agencies to unify and simplify.
Of course, it takes more than just leadership to implement a major IT project, it takes money, and that is where the OMB's e-government initiatives may run into trouble. The White House had requested $20 million for all its e-government initiatives in 2002; Congress approved a budget of just $5 million for the fiscal year, out of a total government IT budget of $45 billion. Undeterred, Forman has said that he has more than enough funding to accomplish his current goals because the Quicksilver taskforce was able to identify instances of redundant funding for IT initiatives among the different federal agencies involved. And he points out that the projected savings from the e-government initiatives amount to more than $1 billion per year.
On the technical side, the GSA's Warrington says the administration currently has an IT group looking at the federal government's technology infrastructure to help map out a holistic approach to the new integrated business platform. The federal government is seeking to leverage systems and processes already in place throughout the government to capitalize on existing investments (and thereby avoid making new investments, where possible) and to share successful business tools across the federal enterprise. Only when the administration has identified holes in the shared environment will the government start to look for commercial, off-the-shelf (COTS) solutions to meet specific requirements. The last resort would be to create custom code to support government-centric processes, something the government would like to avoid altogether, if possible. The last thing that we want to do is any kind of development, Warrington says.
This emphasis on COTS solutions is key. The government is consciously moving toward commercial solutions and standards, even at the cost of lagging behind industry somewhat. We're letting industry take the lead, Davis emphasizes. We're watching industry to see the standards that emerge. We're not trying to come up with a government-only standard. The hoped-for advantages of going with off-the-shelf products are the same for government as for private companies, including lower maintenance costs over time, the ability to take advantage of new functionality as solution providers update their products, and the option of moving to new platforms without having to redesign and redevelop systems.
Davis further notes that the Integrated Acquisition Environment is not planned as an island of automation. The Quicksilver initiatives are intended to build on each other so that, for instance, the e-Authentication project, to establish common interoperable authentication solutions for all the e-government initiatives, will support integrated acquisitions, providing the electronic signature technology for government acquisition transactions.
Clearly the GSA and the other government agencies implementing the e-government strategy have their work cut out for them, and if the past is a guide to the future, bumps in the road are inevitable. The government's General Accounting Office, for example, recently reproached the GSA over certain documentation and reporting issues associated with two current e-procurement initiatives, GSA Advantage!, an e-marketplace for goods and services available to federal buyers; and the IT Solutions Shop, a Web site for procuring technology services. But, if nothing else, the Quicksilver initiatives do appear to represent a serious effort to build a more efficient, integrated and customer-oriented government. The point, Davis concludes, is that we are no longer thinking in terms of our stovepipes, and that's a big step.
e-Sourcing for Camels
On the military side, one finds the various branches of service dabbling in different e-procurement and supply chain technologies that are intended both to cut costs and to create a more effective fighting force. The Naval Supply Systems Command (NAVSUP), for example, is using an e-sourcing tool from Procuri to purchase everything from desktop computers to aircraft landing gear. NAVSUP, which purchases more than $4 billion worth of goods and services annually, awarded the five-year, $2.25 million contract to Procuri in December 2000, following a series of pilot-auction events using competing e-sourcing tools. The Navy initially sought both a self-service, desktop e-sourcing tool, such as the Procuri solution, and a full-service e-sourcing component but ultimately opted for the former as the best way to improve individual buyer's sourcing skills and to institutionalize sourcing best practices throughout its organization.
Mark Morel, Sr., Procuri's president and CEO, said the implementation the Navy undertook differed little from e-sourcing projects the provider has done for private-sector firms. Actually the Navy has adopted it as effectively as any for-profit business we've seen, says Morel. He notes that, while the Navy has not announced its return on investment in the tool, initial reverse-auction events saw cost savings ranging from 12 to 40 percent, as well as reductions in sourcing cycle times. Morel adds that, like companies in the private sector, the Navy has used e-sourcing to move beyond price as the decisive factor in a bidding event to incorporate such factors as quality and supplier performance to arrive at a total cost of ownership figure.
The Navy did request that Procuri supply new functionality to show whether, and for how long, suppliers are actually logged in during a reverse auction event, an audit feature that allows the Navy to demonstrate which suppliers had the opportunity to participate and bid. Procuri subsequently incorporated this functionality into its solution for clients in the private sector as well.
Was security a greater concern for the Navy than it typically is for private companies? Morel says no. In both cases, all parties want to ensure that the information they are providing goes out only to intended recipients and that commercial secrets, proprietary information and the like remain confidential. While the Navy may deem it sensitive for other reasons, the private sector deems it a competitive advantage, Morel says. So it's just as sensitive for [private-sector companies] as it would be for the Navy.
Currently the Navy has about 300 end-users trained on the system, and NAVSUP has conducted about 30 events since January 2001 for items like aircraft towbars and camels, which are boats that shuttle servicemen from ship to shore. Interestingly, NAVSUP has attempted to make the e-sourcing project self-funding by re-selling the solution to other federal government entities, which to date have included different offices within the Navy and the Coast Guard.
Collaborating on Comanches
Elsewhere in the military, the Army has benefited from the use of collaboration software at one of its major contractors, Stratford, Conn.-based Sikorsky Aircraft Corp., a $1.8 billion division of United Technologies Corp. In November 1999, Sikorsky implemented a solution from NexPrise to allow internal information sharing among the company's design and engineering groups engaged in the RAH-66 Comanche helicopter project, a $3.1 billion contract with the Army to develop and certify the design of the advanced aircraft, with delivery of 13 test helicopters by 2006 and follow-on production of more than a 1,000 aircraft. The NexPrise solution replaced manual processes for organizing, storing and sharing design documentation; and for collecting that information when it came time to submit to government design reviews every two or three months.
During those reviews, Army staff used to visit Sikorsky's offices for a day or two to get a snapshot of progress on the project. Because the Army was reviewing design activity that had taken place over a two- to three-month period, any changes that came out of the review process could force Sikorsky's engineers to backtrack several months in their design work. In many cases, Sikorsky would have already invested in some of the tooling to make certain parts or would have begun part fabrication. However, after the Army saw how Sikorsky was using the NexPrise tool, the government and the helicopter company realized that extending the use of the solution to the military's team at their base in Huntsville, Ala., would give the Army real-time access to the design information and could virtually eliminate such backtracking.
Now the Army is able to see design analyses as they are completed and access the dialog going on between structural engineers, designers and other Sikorsky personnel involved in the project. As a result, the Army staff is able to comment and provide part approvals six months to a year in advance of when they previously would have been exposed to those design details. The Army has become sufficiently enamored of the NexPrise tool, so much so that they have requested Sikorsky expand usage of the solution to all design areas on the Comanche project, and to another helicopter project, the UH-60M, a modernized version of the venerable Blackhawk. The government also nixed a requirement to submit hardcopies of various documentation, meaning Sikorsky will no longer have to ship truckloads of reports to Huntsville since the Army can access all those reports, and more, online.
According to Darryl Toni, lead structural engineer at Sikorsky, moving to the new, collaborative way of working with the Army represented not just a technical but also a cultural shift for the defense contractor. It's a new model, where you have the contractor sharing data openly with the government and other subcontractors, Toni says. Sikorsky has not tracked a specific return on investment in the project, but Toni says the benefits have been evident nonetheless. We know we're taking a lot less time and are able to keep track of things that previously would have fallen between the cracks, he says, adding, We have very visible customer approval, and it's hard to even put a price on that.
The Supply Chain as Force Multiplier
Projects such as the Navy's e-sourcing initiative and the Army's use of a design collaboration tool target costs and cycle time issues in the military's procurement, but the Pentagon is also looking to use new supply chain technologies as a way to create a more effective fighting force. They are trying to use [supply chain] information as a force multiplier by being able to get the right piece of equipment, the right piece of information to the right point faster than the enemy, explains IBM's Burlin. Much of the focus in the military, therefore, is on improving supply chain visibility and accelerating logistical cycle times. Small wonder, considering that the Department of Defense (DoD) spends more than $80 billion a year on logistics programs and operations, supporting the management of more than $60 billion of materiel inventories.
Perhaps the mother of all such government initiatives is the Defense Department's supply chain integration pilot project underway at the University of Maryland's Supply Chain Management Center (SCMC), in conjunction with the DoD's Supply Chain Integration Office (SCIO) and using solutions from providers Manugistics and TIBCO, as well as the integration services of ASD Global.
The university's Robert H. Smith School of Business set up the center in 1998 with the mission of putting technology to use for supply chain applications, and the SCMC has particularly focused on creating real-time supply chain architectures based on the Internet and virtual private networks. As part of the center, the university set up a lab, dubbed the Netcentricity Laboratory, to study and demonstrate the ability of digital networks to distribute information in real time, as well as to promote the practical applications of such netcentricity.
Meanwhile, after James Eccleston assumed his post as assistant deputy secretary of defense for supply chain integration in 1999, the Pentagon established the SCIO, headed by Eccleston, as part of an effort to move the military toward best practices in logistics and supply chain. After viewing the work underway at the Netcentricity Laboratory, Eccleston's office formed a partnership with the SCMC and designated the lab as the DoD's Supply Chain Integration Center (SCIC) with the goal of demonstrating that real-time monitoring and control of logistics was possible in the immense DoD supply chain.
The SCIC's first project involved the maintenance supply chain for the General Electric F-101 gas turbine engine on the B-1 bomber. The center set out to establish a single Web-based portal that could serve as a common front end for all the participants in the F-101 supply chain, from maintenance personnel to procurement staff to Pentagon-based managers. For the project, staff from the SCIC went into the field to talk to the personnel providing the support for the engine, all the way from the maintenance people in the field at Tinker and Dyess Air Force bases, through the supply managers and the weapons procurement manager at Tinker, to the staff at Langley Air Force base in Virginia, where they handle parts acquisition for the F-101 engine. The interviews focused on how the staff currently works and how they could benefit from a Web portal.
The resultant portal offers the same look and feel for all the supply chain participants, but based on a participant's log-in information, the site provides access to information appropriate for that individual. For example, the first of five folders at the top of the portal provides line mechanics with all the information they need on the history of a particular engine. Maintenance staff can also order parts through this section of the site. A second folder allows a supply manager to search for parts in inventory, including at military facilities around the world and at private sector partners connected to the system, such as GE Aircraft Engines facilities. A third folder provides an online order requisition for procuring the parts, and a fourth tracks order fulfillment from the ordering stage through arranging transportation and delivery of the parts. The final folder allows for demand forecasting to ensure that necessary parts remain in stock where they are likely to be needed.
The center built the portal to exchange information with a variety of Air Force and private sector systems, with support for legacy data systems, enterprise resource planning (ERP) systems and advanced planning systems, according to Dr. Thomas Corsi, professor of logistics and transportation at the university and co-director (with Dr. Sandor Boyson) of the Supply Chain Management Center. The portal also provides for real-time messaging and alert management, with TIBCO middleware doing the heavy lifting in getting data in and out of the different systems. Corsi notes that while the Air Force does not lack highly sophisticated systems, the primary problem is that they are not coordinated. So once a mechanic orders the parts, they'll show up at some point in time, but he has no way to find out the status of the order.
The center finished the proof of concept for the portal early in 2002, delivering Alpha and Beta versions of the system. By the end of March, however, the Air Force had not made a decision on how to proceed with the project, according to Corsi.
Clearly, if the Air Force does proceed with the project, success will not come automatically, and change management will be critical. The culture that now exists in the military, according to Eccleston, holds that a good supply officer always knows where the inventory is, how to hide it and where to get it when it's needed. To gain the benefits of the new technology, the Air Force will have to demonstrate to a large number of end users that real-time visibility into systemwide inventory really does eliminate the need for such hidden safety stocks, Eccleston concludes.
The ROI from this type of real-time visibility would include reducing lag times in getting parts to where they are needed, a process that can sometimes take as long as two years under the current system. And the Air Force could see savings by eliminating redundant manual processes associated with maintaining the parts supply chain.
But beyond these types of ROI, projects like the SCIC have the potential to turn the DoD's supply chain into the kind of force multiplier that Burlin cited. Sure, if the U.S. military can operate more cost effectively, it can spend more of its budget to acquire greater numbers of the materials necessary to wage war. But if the Pentagon can use supply chain technologies to cut repair cycles times for the machines of war, thereby ensuring that planes, tanks and ships spend more time in the field and if war planners can be sure of their capacity to get the right materiel to the right place faster than the enemy such incremental competitive advantages could add up to better support for the nation's warfighters and a more effective fighting force overall. As the old soldier's proverb holds, while amateurs study tactics, professionals study logistics.
Should Uncle Sam Go e?
As we have seen, various agencies and military branches are forging ahead with e-procurement and supply chain technology projects. Yet overall, Uncle Sam remains in the early stages of adoption of those technologies. Which perhaps makes this the best time to be asking how far the federal government should go with its technology initiatives. Should Washington pursue an enterprisewide approach, with the goal being a single procurement system, for example, for the entire government?
Before pondering that question, consider first the case of the Standard Procurement System (SPS), a 7-year-old initiative within the Defense Department to replace legacy procurement systems with a single commercial, off-the-shelf solution developed by Fairfax, Va.-based American Management Systems (AMS). The system, with a price tag to date of about a half-billion dollars, was designed to support 43,000 users at 1,100 sites worldwide in preparing, awarding and administering contracts, and to interface with such back-end systems as payment processing and logistics. According to AMS, When fully deployed ... SPS will fulfill all of the diverse procurement and contracting activities of the [Defense Department] from purchasing office supplies, uniforms and sundry items to weapons systems, helicopters and tanks.
To date, 20,000 users at 773 sites around the world have been brought onto the system. However, in February, following a critical report on the system from the government's General Accounting Office, the Defense Department said it was halting further development of the system to focus on fixing problems with the current version and to assess ways to encourage greater user adoption. Deidre Lee, director of defense procurement, noted at the time in written testimony to a congressional hearing on the project: We now know that replacing all legacy contract writing systems particularly those used for buying major systems with a single standard, one-size-fits-all system may not be the most efficient strategy to meet our goals.
That refrain may sound familiar to chief information officers, chief procurement officers and e-business strategy leaders in the private sector. Look at most large companies, says IBM's Tom Burlin, and you will find instances where it makes sense, based on the business case, to maintain multiple, seemingly redundant or incompatible systems. We manage according to the best business return, Burlin argues. It doesn't always have to tie in at the top. Extending that principle to the government sector, Burlin says, The idea that all of DoD has to run on one system is not necessarily in the best interests of the DoD. In other words, while streamlining can be beneficial, government agencies (and private businesses) must ask themselves, in Burlin's words, At what point does consolidation make sense, and at what point are we suboptimizing the implementation for the sake of saying that we have it end-to-end at the top.
In the case of an entity on the scale of the U.S. government, the question largely comes down to one of mission. The mission of the Army differs from that of the Navy, and the Department of Health and Human Services has entirely different priorities than the Defense Department. What they are trying to accomplish is just so disparate that it's impossible to talk about the' federal government, says HP's Alan Lawrence. In the government, everybody's got a different goal, and that is as it should be. Each agency has a mission, and that's why they're there. That being the case, argues Jeff Holmes, of Manugistics, You really need to have a portfolio of both practices and technology that enables those practices that you can configure to meet specific mission requirements for a particular agency or service.
Moreover, while the private sector is exploiting e-procurement and supply chain technologies to streamline purchasing, consolidate supply bases and focus on supply chain as a core competency, the truth is that we don't necessarily want government to pursue those same goals. The government operates under a system of checks and balances that were intended from the start to be inconvenient and cumbersome: the executive branch collects the funds, legislative branch allocates the funds, the executive spends the funds and the legislature exercises oversight over how the funds are spent. And the voters go to the polls every two years to let both branches know what they think of how Washington has been spending the funds. The body politic seems to have decided that a certain amount of redundancy is an acceptable price to pay for keeping a tight rein on government spending.
Supply base consolidation? A noble aim perhaps for Corporation X, but the federal government operates under any number of requirements to spend with small businesses, minority- and women-owned business, and multiple businesses in the same industry, and to put certain goods out to bid periodically, regardless of how well a supplier is servicing its government customers. Congress and the executive branch put in place such public policy constraints in pursuit of larger social goals that they deem to outweigh the benefits of more efficient purchasing.
And finally, because of the specific nature of government and the missions with which federal agencies and the military are charged, the public sector supply chain may well remain a support function even as automobile manufacturers and computer companies focus on supply chain as their core competency. The Defense Department probably is the most glaring example of this. Sure, American taxpayers would like to see a lean defense apparatus. But at the end of the day, the core competency of the Pentagon is supposed to be, as they themselves call it, warfighting, regardless of what interesting projects they might have underway in the supply chain field.
SIDEBAR: e-Government: An Insider's View
Before Paul Brubaker took over as president of Commerce One's e-Government Solutions division in March 2001, he had served in both the executive and legislative branches of the U.S. government.
As deputy chief information officer (CIO) at the Defense Department, he worked on transforming many of the armed services' business and warfighting processes, including personnel, logistics and finance, as well as command and control.
Previously, as staff director for a U.S. Senate subcommittee, Brubaker helped draft the Information Technology Management Reform Act of 1996, known as the Clinger-Cohen Act, which introduced the CIO position to the federal government and streamlined the way that the government buys and uses technology.
When Commerce One spun off its e-government division in March of this year, Brubaker took over as CEO of the new Laurel, Md.-based company, called Aquilent.
In an interview with iSource Business, Brubaker offered an insider's view of e-procurement reform in the government.
iSource Business: What is the current state of procurement in the government, and what is the opportunity for an e-procurement solutions company like Aquilent?
Brubaker: Right now, in most agencies, procurement is still a very labor- and paper-intensive process. There are issues with visibility into where the government is spending its money, like how much are they spending, on what and to whom it's going. And there is a demand in the federal space for documented competition for procurement. When you couple those three things, it's a prime opportunity for automation.
Having said all that, a lot of agencies like to start off small, either on commodity goods or with services, and automate their procurement system. In fact, there have been some fairly successful electronic catalog efforts, like the General Services Administration's GSA Advantage!, which is the approved buying vehicle for the federal government.
iSource Business: What is holding up a greater adoption of the technologies?
Brubaker: People are waiting to see the experiments from the early adopters. They want to see how things have shaken out. And people are waiting to see the return on investment.
iSource Business: Of course, a lot of private companies are waiting on the sidelines, too.
Brubaker: If you look at the private sector, you'll see a significantly higher number of organizations that have adopted electronic procurement relative to government. In government, just a handful of organizations have adopted technology to improve their purchasing and supply chain. It's still a good 18 to 36 months behind where it should be.
iSource Business: Is there an overarching strategy for how the federal government is going to adopt new technologies, or is it every agency for itself?
Brubaker: There isn't an overarching strategy, although it is strongly encouraged by the Office of Management and Budget. They do want to see functional areas within organizations make process improvement, whether it is procurement, payroll, travel management or financial systems. OMB strongly encourages agencies to undertake these efforts and to realize a return on investment, whether it's quantitative or qualitative.
iSource Business: You were involved in legislation regarding procurement reform. Is it possible to legislate the kind of process change you're talking about?
Brubaker: You can legislate it, but what happens is that legislation gets converted into implementing regulations, and then it's a matter of interpretation on the part of the individual agency. It does translate down pretty effectively over time, provided the word gets out that you're allowed and in fact you're encouraged to re-engineer your procurement processes and automate them.
iSource Business: Is the ROI that folks in government are looking for the same as people in the private sector are looking for?
Brubaker: I would say they are exactly the same. It's cost-savings, either through efficiencies in operations or improved competition. It is improved customer satisfaction, increased worker satisfaction. Reduced cycle time. It's all measured the exact same way.
iSource Business: Are the success factors at work in an implementation in the public sector the same as those in a private sector deployment?
Brubaker:They are exactly the same. You've got to have solid leadership behind the project. There's got to be a willingness on the part of the people within the organization to make it work. And there has to be a willingness to adopt business rules that are consistent with best practice if it's to be successful.
iSource Business: Can you foresee a time when there will be a single, unified procurement system at work in the federal government, or will it always be different at the separate agencies?
Brubaker: I don't ever see the federal government going to a single system. Nor do I think it's appropriate for the federal government to go to a single procurement system. Now, what they may do is agree on one, two or three applications that get deployed and tweaked differently, depending on the agency. It would be good to have one system at the Department of Defense, one at the Department of Commerce and one at the Department of State.
iSource Business: Has the new emphasis on security influenced the way that a company like Aquilent is working with the government?
Brubaker: Absolutely. One thing is certain: If you're building an application for the federal government that is Web-based, that interfaces with their existing networks, you are potentially creating a vulnerability, so you have to be very careful and very aware of your responsibility to your customer.
SIDEBAR: One Project by the Numbers
The Defense Logistics Agency (DLA) manages nearly $85 billion in inventory and processes 665 million shipments and 18 million requisitions every year. DLA's mission: to provide the U.S. military with the food, fuel, clothing, medicines and spare parts they need, and to provide these supplies where they're needed, when they're needed and at the lowest cost possible.
Little wonder, then, that when the agency decided to replace its 1960s-era legacy technology systems to deliver 21st-Century logistics to the military, the supplier-selection process stretched out over two-and-a-half years, from July 1998 to December 2000. Why so long? DLA, working with consulting firm KPMG, began with a list of 19 enterprise resource planning and 12 supply chain management solution providers before narrowing the choices to a short list of supply chain solution providers. The agency scored each short-listed provider in four categories (functionality, technology, customer references, and executive presentations) and numerous subcategories. The candidates provided at least three briefings on their respective solutions for DLA officials.
At the end of the process, the agency tapped Manugistics to provide a planning solution under a broader contract managed by consulting firm Accenture. Other components of the Business Systems Modernization (BSM) include portal technology and an order fulfillment solution from SAP, a contract management solution from AMS called PD2, and integration solutions from SeeBeyond. The six-year project has a total budget of $526 million. By August 2002, DLA expects the system to enter a proof-of-concept phase involving about 140,000 line items, 400 users at the agency, and as many as 19,000 customers and suppliers.