Agencies taking a more disciplined approach to managing vendors

Tuesday - 6/12/2012, 5:24am EDT

Jason Miller, executive editor, Federal News Radio

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The General Services Administration's Federal Acquisition Service recently completed for the first time a survey of its vendors. It always had done an agency customer survey, but never one asking contractors what they thought of FAS.

Steve Kempf, the commissioner of FAS, said his organization wanted to gain insight into specific questions from vendors.

"What were [industry's] perceptions about what we were good at in terms of being a partner and what we were not so good at," Kempf said. "Then we will take the data, and we are looking across all our programs, not just schedules, and see what kinds of relationships do we have with industry across our many different business lines and which ones are better? Some of the things we are actually looking at are how we actually interact with industry and what kind of results flow from that. What parts of our organization have really good relationships with industry where there is good communication back and forth, good levels of trust back and forth, and good results coming from that? How do we, across our own organization, understand the way we act differently with our industry and which ones are most effective?"

Steve Kempf, Federal Acquisition Service commissioner (Photo:GSA)

The FAS survey is an example of a growing recognition by agencies they need to improve the way they manage their vendors.

The departments of Defense, Veterans Affairs and Commerce are among the agencies taking a more disciplined approach to managing their supply chains.

More and more agencies are turning to supply chain management techniques as they face the prospect of tighter budgets, fewer acquisition professionals and pressure from the White House and Congress to do more with less.

Raj Sharma, CEO of the Censeo Consulting Group and the president of the Federal Acquisition Innovation & Reform (FAIR) Institute, said as part of Federal News Radio's week-long multimedia series Inside the World's Biggest Buyer that supply chain management helps organizations understand what their mission goals are through the products and services they buy.

"What role do you want your suppliers to play in helping you achieve your outcomes," he said. "That's very, very important beyond meeting a specific requirement. Ultimately, how does the supply chain help support a set of mission- critical outcomes or whatever specific needs there might be?"

Understanding needed workforce skills

Sharma said once the organization has a clear understanding of how the supply chain meets their mission, than they can go one level further down.

"You can start to really define what are the set of capabilities required," he said. "How should you organize as a department? What kinds of people and kinds of skills sets do you need, and what processes do you need in place?"

Raj Sharma, CEO of Censeo Consulting Group and president of FAIR Institute (Photo:Censeo)

He said a common example is if your organization is buying technical products and services, your acquisition people should understand engineering in order to have educated conversations with suppliers.

For many agencies or organizations just starting out, supply chain management comes down to the basics of understanding the difference between cost and price.

Sharma said a simple example is a printer. The cost of the machine is minor compared to the spending a company does on maintenance, toner and paper over the life of the machine. If an agency doesn't consider the entire lifecycle costs, they may end paying a lot more than initially planned.

"If we really work with our supply chain partners to understand total cost, so many times suppliers have the best knowledge of the requirements we may be imposing that drive up total cost, so the more we are communicating with them — whether it's through structured disciplined practices like supplier relationship management or in process of doing acquisition — we are likely to uncover areas where we can reduce costs," he said.

And it's that issue agencies, such as Commerce, have focused on.

Commerce consolidated contracts for IT hardware. It performed an asset management assessment and a review of historical spending to figure out how to save 50 million dollars on technology products. Commerce also has required bureaus to use a common set of standards for computers to help reduce overall costs.

Sharma says it's not only about total cost.

"One of things I would highlight is a critical need for government agencies to take step back and look at organization structure as well as business processes," he said. "So one thing we can approach these initiatives one-by-one, but to really drive long-term change, we also need to start looking at organizations. Are we organized correctly? Are the business processes streamlined in terms of how we are doing acquisition and managing our supply chains?"

Good news, bad news

9 tips for managing your agency's supply chain

1. Re-envision the role of government purchasing from managing purchases and price to managing supply chains and total cost.
2. Appoint a chief federal supply chain officer to lead a new Office of Federal Supply Chain Management.
3. Strengthen the role of departmental headquarters and redefine the role of chief procurement officers.
4. Strengthen strategic sourcing and centralize management of common categories.
5. Establish supplier performance and relationship management programs.
6. Implement TechStat-style reviews of major acquisition programs.
7. Restructure the workforce and transform the culture.
8. Streamline the Federal Acquisition Regulations and the procurement process.
9. Leverage technology to improve transparency, maximize competition and drive down cost.

Source: Rethinking Government Purchasing and Supply Chains from the book Governing to Win, written by Raj Sharma, president of the FAIR Institute and CEO of Censeo Consulting Group.

The management of those processes and the supply chain is where GSA FAS is heading with its survey.

Kempf said the survey provided good and bad news for FAS.

"The higher scoring areas, interesting and maybe not so interesting, is the contractors' long-term commitment to GSA and FAS in particular," he said. "That is where we scored the highest. I think that is really good because one of the things you really want is a commitment from the people you are doing business with. I think they value their relationship with GSA. We also scored really good with our integrity."

Some of the areas where vendors said GSA needs to work better is how they share risk and how easily GSA makes it for contractors to work with them.

The idea of presenting one face to industry is something GSA is trying to address. Kempf said the Office of Acquisition Management's Emile Monett is leading that effort.

But he said FAS currently has multiple business lines that all treat and interact with industry differently. This is part of the reason why their score is low.

"We are looking at some sort of action planning around some of the information we are finding out, sharing across the organization with best practices and concentrating on perhaps a few of these we decide to pick to really concentrate on and improve because we think that will drive more value into that relationship and perhaps we will get better at allowing industry to bring innovation to our services faster," he said.

Next generation schedules

Kempf said the survey also will influence GSA's work on its next generation of schedules initiative.

He said the updates to the schedules program will focus on greater transparency in agency spending habits, help for vendors to market their products and services and simplifying the acquisition process.

"When we move toward the next generation of schedules, how do we build that in a way that it's in line with understanding how industry operates? How do we adopt and adapt commercial practices that we can use in the schedules program because it's supposed to mirror closely commercial acquisitions to the extent we can?" Kempf said. "What are the things we are doing in schedules that make it hard for businesses to operate, and can we change those? What are we doing well? What can we do more of? What kinds of things do we need to do in order to shape and evolve the next generation of schedules in order to support the customers, their needs, drive costs out of the system and improve risk management as we go forward?"

In the next six months, FAS will have more details on the plan to move to the next generation of schedules.

Improving supply chain management also could mean cost savings. Sharma said he's seen double-digit reductions in price for products and services at some clients.

"We see anywhere from 10-to-20 percent, but then there are also things you can do without having to do an acquisition," he said. "There is an area called demand management where you can look internally to say, Do we have excess capacity? Are we potentially gold-plating requirements where we don't need certain things but they add cost?' So things you can start to reduce yourself," Sharma said. "What we are seeing in those, by themselves without having to go through the pain of an acquisition, you can actually reduce 10-to-20 percent [of your costs] there. On average, what we've seen is there is easily 10-to-15 percent on the whole and in some instances we've seen 20-30, even 40-percent in savings."

Kempf added improving supply chain discipline is a major change for FAS. But, he said, it's all about more effectively managing the relationship between the agency or GSA and vendors, and that makes the change worthwhile.

RELATED STORIES:

Commerce to buy IT more strategically

'Forecasting' key to successful supply-chain management strategy

QUICK LINKS:

Inside the World's Biggest Buyer (Main Page)

Part 1: Agency Acquisition

Part 2: Acquisition Workforce