Cooperation benefits both buyers and sellers in the e-marketplace.
The increasing use of the World Wide Web as a platform for communication, e-commerce and procurement is paving the way for a new partnership between branches of the U.S. government and the commercial sector. The government is reviewing its procurement practices and related legacy systems and merging this analysis with its plans for Internet use. Studies indicate that by 2003, 60 percent of local, state and federal agencies could be participating in Internet procurement, and online government spending could climb to more than $6.5 billion annually by 2005.
At the same time, the Internet is proving to be the medium of choice for corporate communication networks, and buyers and sellers are showing significant acceptance of commercial electronic marketplaces. As a result, the government is turning to commercial partners to aid in the expansion of the opportunities created by the new generation of Internet technology. When implemented effectively, these partnerships save the government and taxpayers significant amounts of money, speed government communication and accelerate the development and time-to-market of e-commerce-based procurement systems.
In procurement, government agencies are developing large software-based initiatives, or portals, that provide Web-based information and commerce centers for discrete sets of users. For example, the U.S. Navy has created its One Touch Portal, which serves as the electronic gateway for all naval personnel. Through this password-protected portal, service people can search for new housing, check assignments and purchase essential items. The platform is being developed with prepackaged software and consulting services from vendors such as IBM, Ariba and Vignette.
For the most part, the relationship between these vendors and the government is a traditional one in that the commercial project manager and subcontractors are defined and paid based on traditional software pricing, such as set-up, maintenance and consulting fees.
These software-based contracts for portals and intranets are different from the ones awarded in the past. Before the advent of the Internet as a platform and attendant software technology as a facilitator, the government often contracted for highly customized versions of enterprise software that did not resemble anything in the commercial marketplace. One branch of the armed forces would select proprietary systems software that was completely different from the one selected elsewhere. This was not only more expensive but also led to incompatibilities between software makers’ and government-funded platforms.
On the other hand, the new Internet-based software being used for projects such as the One Touch Portal is compatible with similar Internet-based procurement systems that are popping up all over the commercial sector. By using more standard software, the sponsoring government agency is creating an opportunity to partner with commercial organizations and extend the portals into extremely sophisticated areas of procurement. Consequently, each of these government-sponsored portals has an opportunity to extend to specific plug-and-play style e-commerce marketplaces to complement the superstructure presented by the portal.
Portals similar to the Navy’s One Touch currently under development also will provide this type of compatibility. For example, the U.S. Air Force is creating My.Airforce, which uses technology provided by Broadvision and Verity. Similarly, CommerceOne, another software provider, is serving as the software of record behind several projects for the U.S. Postal Service, NASA, National Library of Medicine and Department of Agriculture. Ariba, the software behind the Navy’s One Touch, also serves as the commerce platform for the Department of Energy’s Internet-based procurement efforts and many other local government projects.
If the U.S. Defense Department wanted to create a specific e-commerce marketplace around a type of equipment and specified that its design needed to be compatible with the software provided by certain vendors, the military’s marketplace could link directly with all these initiatives without building separate marketplaces for each portal. Such compatibility already exists in the commercial sector as a matter of practice for many electronic marketplaces.
During the past 20 years, the government has moved away from stocking vast amounts of technical equipment to more just-in-time (JIT) procurement practices. This is especially evident in the acquisition of sophisticated electronic technical equipment from the original equipment manufacturers (OEMs). Rather than ordering units by the hundreds and having them sit in large warehouses, the government’s inventory control points are aggregating demand and then placing orders on behalf of their customers. As a result, the customer, such as an end-user or procurement specialist, may place an order for as few as one item against an existing OEM contract. This change in practice is complemented by new government procurement practices where federal agencies are focusing on fewer highly customized product sets and instead are awarding contracts for product versions that more closely resemble their commercial off-the-shelf cousins. By doing so, the OEM has more flexibility to accommodate JIT and smaller orders.
As these initiatives come online, the need to streamline the JIT procurement of these sophisticated electronic goods increases. If the product is no longer going to be available through a controlled inventory point, the government needs reasonable visibility into the OEM’s ability to produce the items in an acceptable timeframe and to follow a more complex set of logistics and support instructions.
Before the advent of the Internet as a procurement and communications platform, commercial and government organizations turned to connections like electronic data interchange (EDI) to accommodate more sophisticated electronic procurement and communication. However, the costs of these interfaces may be high, the set-ups cumbersome and intricate, and ongoing support increasingly difficult. In addition, these initiatives typically need to run through a centralized procurement facility or inventory control point and require significant logistics support. In the government sector, the military and federal standard requisitioning and issue procedures payment methods were modified to support this process. Each of these EDI setups is stand-alone and is not portable to other areas of the government or between OEMs.
As the Internet becomes ubiquitous for procurement, OEM connections are taking place on the Internet more frequently. This allows anyone with a secure Internet browser to place orders directly with the OEM, which results in reduced costs and more robust trading environments that may now include online catalogs and other content. This initiative also better complements the governmentwide purchase card initiative, which is a way of decentralizing procurement practices even further.
The government is progressing toward Internet-based portals that rely on commercial software packages and making strong advances toward more efficient and decentralized procurement practices especially in the area of sophisticated electronic equipment. The combination of these factors has created an opportunity for the development of many Internet-based e-commerce marketplaces or procurement sites that deal with highly complex electronic products. This provides the opportunity to make these marketplaces compatible with one or more of the standard software platforms being adopted for the larger portal initiatives.
One type of marketplace development effort that the federal government is adopting is a modified version of a commercial organization’s existing e-commerce marketplace. In addition, the government is structuring unique partnerships to not only adopt the technology but also to leverage the marketing expertise of the commercial entities to help make the marketplaces well trafficked and of high enough quality to encourage repeat business.
In these new partnerships, costs are kept low because the technology platform is already in place. Time-to-market for a portal is faster than if the government agencies built and hosted these marketplaces themselves, and upgrades to security and software are made more easily. Compatibility with existing or future portal initiatives is simpler and can be accomplished at a lower cost because the government brings established and deeply discounted contract relationships with its key suppliers to the partnership. It provides guidance about who can buy and defines the rules for purchase. The commercial entity brings the technology platform, the e-commerce system, prepackaged content and search functionality as well as traffic building and market development skills. Fixed expenses are significantly lower than for typical software and service contracts as the commercial partner has developed many of the tools in advance.
As a result of this arrangement, the commercial partner can share risk with the government rather than look to the government as a source of fixed income. In such cases the commercial partner operates on a transactional fee basis. Both parties have a vested interest in the success of the marketplace.
One of the keys to the success of these partnerships is to ensure that the government is partnering with a commercial entity that is already a proven operator of a marketplace similar to that which the agency desires. The commercial partner must have pre-existing, relevant content and experience in hosting, operating and maintaining security on a commercial-grade e-commerce Web site. Included should be reporting tools, and an ability to screen users for best practices also is required. The firms should have the ability to process the types of financial transactions required by the government such as purchase or credit cards and purchase orders.
The ultimate success of this new breed of government sponsored e-commerce marketplace is the ability to generate usage. Because the government currently has varying procurement practices that overlap and contradict, procurement rules are not strictly enforced and government employee participation in any electronic marketplace is voluntary. As a result, the job of creating awareness, promoting the value of using e-commerce as well as generating traffic and business falls squarely on the partner. In many cases, while the sponsoring government agency can provide access to a discrete group of potential users and will always provide the catalog content, the job of marketing may rest with the commercial partner.
For the procurement marketplace to work effectively, all trading partners must participate, but they also need to understand the specific benefit of working with the marketplace operator instead of directly through the government agency. The pricing, quantity and delivery negotiation is done directly between the government and the OEMs, but the logistics and order placement runs through the marketplace.
Effective use of the Internet as a platform for government e-procurement requires that both the government and industry participants create a marketplace that provides value to the intended audience, including price, delivery, ease of use, flexibility in payment types or terms, technical support and useful research devices.
Peter Ostrow is the president and chief executive officer at TestMart, San Bruno, California.