Wireless sourcing initiative saves the Army and Air Force millions by analyzing spending patterns
- By Mark Tarallo
- Jun 21, 2006
STRATEGY: Army and Air Force officials are buying cell phone service in bulk to save millions of dollars annually.
Master Sgt. JamesS M. Bowman, U.S. Air Force/DOD
Warfighting is not the only military activity that requires great strategy'IT acquisition does, too. That's a view that is increasingly popular under the Defense Department's recently implemented strategic-sourcing initiative, and it is beginning to result in substantial savings.
In the last few months, acquisition officials working under the strategic sourcing program have signed two new blanket purchasing agreements with Verizon Communications Inc. of New York and Sprint-Nextel Corp. of Reston, Va., for cell phone use by the Air Force and Army. The agreements are expected to save an estimated 20 percent to 30 percent of the roughly $50 million to $100 million that the two services currently spend on such services annually.
And two more cost-saving cell phone service agreements are in the works with AT&T Corp. and T-Mobile USA Inc. of Bellevue, Wash., according to Bryon Young, director of the Army's Information Technology and Electronic Commerce Commercial Contracting Center.
'In the next 60 days, I expect we will reach an agreement,' Young said.
Next up are negotiations for new purchasing agreements for pagers and hand-held devices such as BlackBerrys from Research in Motion Ltd. of Waterloo, Ontario. Eventually, DOD officials are planning to make strategic sourcing the norm in IT procurement.
'Through strategic sourcing, we will fundamentally change the way the Department of Defense does business,' DOD said in the initiative's mission statement.
Bulk buying is nothing new for the Air Force and Army. Both have commodity councils that buy IT hardware in bulk. The Air Force, for instance, has saved a lot of money through its council, which was established in July 2003, officials said. Through the power of volume purchasing, the service standardized the purchase of more than 108,000 desktop and notebook PCs.
Meanwhile the Army last year mandated twice-yearly commodity buys of desktop and notebook PCs, and other hardware devices through the Army Desktop and Mobile Computing procurement vehicle.
Now the services are moving this idea to wireless devices, Young said.
Strategic sourcing puts an organization's spending and commodity use through a rigorous critical analysis, and the results of that analysis are used to design an acquisition plan that will achieve savings.
The practice has been used fairly widely in the private sector for more than a decade. But the government has been slow to catch on'a fact noted by a January 2002 Government Accountability Office report titled Taking a Strategic Approach Could Improve DOD's Acquisition of Services. In response, DOD established the Department of Defensewide Strategic Sourcing (DWSS) Program in May 2003.
In July 2004, DOD began the wireless initiative under DWSS and hired Censeo Consulting Co. of Washington to help lead the effort. Censeo chief executive officer Raj Sharma said his company avoided the 'very narrow way' in which some organizations implement strategic sourcing concepts'namely, focusing on consolidating purchases in bulk to reduce the per-unit price.
'Strategic sourcing takes a much deeper dive into understanding (an organization's) requirements, and the market, than traditional procurement,' said Jim McIntosh, a managing director at Censeo. 'It moves procurement from transactional to strategic.'
The new cell phone agreements signed under the wireless initiative offer some examples of the benefits of strategic sourcing, Young said.
With cell phone usage, he said, there are two components to pricing: the actual price and the 'effective price.' Paying $20 for 200 minutes a month, for example, puts the actual price at 10 cents per minute. But if the user only uses 100 minutes, the effective price is 20 cents a minute. And if the user goes over 200 minutes, overuse surcharges will drive up the effective price.
As part of the analysis, the wireless acquisition team looked at cell phone usage agencywide and found wide variations, Young said. Army field recruiters, for instance, typically have much higher usage than desk-bound workers. These variances meant a relatively high effective price per minute under the old system, with low-end users buying more minutes then they could use, and high-end users incurring over-limit charges.
Thus, an acquisition strategy was designed to negotiate a purchasing agreement that would charge for minutes under a modified pay-as-you-go system.
'There's savings on the actual price, and (the new rates) are really, really lower than the effective price,' Young said.
Overall, Young said he was very pleased with the strategic-sourcing concepts and the results generated by their use. He attributed some of their success to the way they break procurement officials of the habit of treating IT acquisition budgets on a department-by-department basis, and encouraging a wider perspective.
'It required us to look at spending on an enterprisewide basis,' Young said. 'And it wasn't all that dramatically hard to do.'