Internaut: It pays to link IT procurement into the supply chain

Shawn P. McCarthy

Not all dot-com business innovations have gone bust. Take, for example, supply chain management.

Even before the Internet enabled instant data sharing, the Defense Department was testing supply chain management technology for its logistics needs. But oddly enough, supply chain management has never been adapted to IT procurement.

That's a shame. The cost savings could be substantial.

Automakers invented supply chain management to ensure multiple sources for their parts and services. Once they identified all their potential suppliers, they began building applications to link their buying systems directly to supplier databases. That trimmed their acquisition costs and allowed fast, convenient ordering at known prices.

By now, auto parts suppliers who cannot plug into such supply chain management systems risk going out of business for lack of orders.

Large retail stores were quick to adopt supply chain management technology to play off their suppliers against each other.

That retail model could help government procurement officials comply with the administration's push for competitive sourcing'but they will have to move away from the classic request for quotations. 1990s-style IT procurement doesn't mesh well with the supply chain approach.

Instead of locking in a single price for thousands of machines, agencies would approve multiple suppliers to compete on price and quantity. The first few computers might cost the government more, but they would eventually become cheaper as vendors competed.

The closest the General Services Administration has come to using SCM is the GSA Advantage ordering site and reverse auction trials.

'Reverse auctions let us take advantage of current market pricing,' said Kathy Garrett, co-director of the Information Technology Acquisition Center at GSA's Federal Technology Service. 'Offerors can see the current bids and make a business decision as to whether they want to continue to compete. We realized significant savings'as much as 40 percent'during our pilot.'

But a reverse auction still represents vendor response to a specific request. Pure SCM is different. It keeps the database prices evergreen until vendors update inventory. Procurement choices can be made immediately without the delay of seeking bids.

And vendors are obliged to give their best prices up front.

The GSA Advantage approach is closer to pure SCM, but it too could benefit from a wider range of suppliers. It doesn't cover the full range of specialty products that agencies order.

For an overview of electronic commerce, reverse auctions and SCM, visit www.treasury.gov/procurement/training.

To see how the Defense Logistics Agency's Columbus Defense Supply Center set up its supply chain relationships, visit www.dscc.dla.mil/offices/supply_chain/Program.html.

For a good presentation on how multiple awards work in procurement, see apps.fss.gsa.gov/pub/pdf/mashandFinal.pdf.

Shawn P. McCarthy designs products for a Web search engine provider. E-mail him at smccarthy@lycos-inc.com.

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