By Lt. Col. Rachael HoaglandApril 6, 2018
DOD could save billions, fast, and get commercial products to commanders, fast, if it switched to an e-commerce platform--an 'Armyzon' where businesses large and small could compete for government contracts.
The federal government purchased $53 billion in commercial off-the-shelf (COTS) items in 2016, according to a memo from the Coalition for Government Procurement, a nonprofit association of commercial contractors.
If the government reduced those costs by just 5 percent, it would save $2.5 billion annually. And those savings are just the low-hanging fruit from the purchasing part of a multipart equation.
As an example, four Xerox printer toner cartridges--magenta, yellow, cyan and black--cost $1,102.34 on the U.S. General Services Administration's (GSA) Advantage portal. However, through the Amazon Business portal, the same Xerox cartridges were, at this writing, $962.99. The difference may not seem that enormous, but given the volume at which the federal government buys such products, that savings of $139.35 adds up fast.
In a high-volume office, where printer cartridges may be replaced monthly, the total savings for a year would be $1,672.20. Even if that replacement rate were halved to just six times a year, there would still be a savings of $836.10 a year for a single printer. But we are not talking single printers.
If we narrow the picture to just DOD, in the Pentagon alone there are about 10,000 printers. Let's just say, hypothetically, that all of those printers are the same model. If so, and if each set of toner cartridges were replaced once a year, the savings would be $1,393,500. If the toner cartridges in each of those printers were replaced six times per year, the savings jumps to $8,361,000, and if they were replaced monthly, the savings climbs significantly to $16,722,000. Of course, prices fluctuate, as does usage. The idea here is not that DOD should stop buying from GSA and start buying from Amazon. The idea is that in an online marketplace where vendors could compete with one another for DOD's business, there is a huge, untapped potential for savings--and this is just toner cartridges. That marketplace exists today. It's the Amazon Business platform.
SAVINGS, AND THEN SOME
Savings to be had in this marketplace could be massive, but there also would be a variety of collateral savings. There are lots of ways these savings could accrue, from the small to the large. In addition to lower cost as the benefit of competition, there are also the tax implications. But the government doesn't pay sales tax, so purchases through Amazon Business would be tax-free. The Army has many warehouses, and while an e-commerce platform wouldn't mean that it could get rid of all of them, there are real potential operational savings to GSA for no longer having to maintain warehouses stocked with COTS products. I have been very conservative in my estimations of cost savings here, with 5 percent as likely savings on purchases, but it seems very likely that savings across the Army and DOD could increase significantly once the change happens.
In addition to those savings, such an e-commerce platform also would have workforce savings. No one would have to go to the GSA store to order purchases, then pick them up. Contracting officers would have more time to concentrate on higher-priority efforts, such as major defense acquisition programs, which currently take 2 1/2 years to move from request for proposal to contract. During congressional testimony on Dec. 7, the Hon. Ellen Lord, then the undersecretary of defense for acquisition, technology and logistics (and now the undersecretary of defense for acquisition and sustainment), set a goal of reducing that timeline to 12 months.
By authorizing Army-designated purchasers to buy commercially available items online, more time could be spent on contracts that help build a more agile and adaptive Army. Shifting from writing contracts for COTS products to contracts that support the Army chief of staff's six modernization priorities, which represent the core of the Army's mission, would save time and money.
THIS COULD HAPPEN NOW
The flexibility and agility for designated personnel to purchase and receive commercial products through online marketplaces like Amazon, Grainger, Staples and Walmart could exist today. With very little development and potentially very little cost, the government could place an application on an e-commerce portal that would meet Federal Acquisition Regulation (FAR) requirements to allow warfighters to order and receive commercial products directly.
The focus needs to be on simplified acquisition and on the type of supplies that already are delineated within the simplified acquisition threshold of up to $250,000. Doing so would put purchasing power into combatant commanders' hands, allowing them to buy what they need, and would very likely speed delivery. E-commerce would lessen the burden on contracting commands, provide greater transparency--and could be easily implemented within the next six months.
Many labor under the misconception that purchasing through e-commerce sites such as Amazon or Walmart would amount to a sole-source contract to those companies. In fact, those e-commerce platforms could easily be made to comport with DOD regulations to be a marketplace.
The Amazon Business marketplace, for example, is essentially an online shopping mall, with millions of vendors selling hundreds of millions of products. The vendors in these marketplaces compete on price and use the marketplace to attract buyers. Therefore, e-commerce portals are the embodiment of competition.
IN ADDITION TO WHICH, IT'S A CONGRESSIONAL MANDATE
In Section 846 of the National Defense Authorization Act for Fiscal Year 2018, Congress mandated that the government establish a program to procure COTS items through e-commerce portals without creating a government-unique portal. The purpose of shifting to commercial e-commerce is to expedite procurement, enable market research, enhance competition and ensure reasonable pricing.
Given the congressional mandate and how advanced industry is in regard to supporting government requirements, commanders could start purchasing from a commercial marketplace within six months of proposal. The Amazon Business portal is working to become fully FAR-compliant and has done so at no cost to the government.
PUTTING IT TOGETHER
As previously mentioned, there is no need to write a contract for COTS items already available on the marketplace. The contract with Amazon to use its business portal would instead focus on configuring an application with Amazon's existing portal to meet our government needs. Even with all that Amazon already has accomplished, there is still work to be done, but most of it is just software development.
First, we need credentialing. The most sensible thing for DOD would be to use the almost-ubiquitous Common Access Card (CAC). Each card has a unique number and certificates. Those could be tied together with a database to control purchasing permissions, tying users to commands, budgets, accounts and so forth, much as CACs identify us in nearly everything else we do online.
Next, the platform would have to comply with the AbilityOne Program, which employs people who are blind or significantly disabled. Since Amazon already has certified small disadvantaged business vendors, it would need to ensure that AbilityOne vendors are selling on Amazon Business as well. There also would need to be a way to ensure that vendors have the correct certification to classify themselves as such. I am by no means asking Amazon to certify all its vendors--with hundreds of millions of vendors that would be an impossible task. What needs to be in place is a way for the vendor to self-certify and a way for the government to be able to see and verify that certification.
Finally, we need a way to link to the government payment system. That would be the General Fund Enterprise Business System (GFEBS). For the user, the payment system would be transparent, much in the way it is now for conventional Amazon customers. In this case, though, the government would pay the bill. Again, this would just be a matter of developing software to tie the user to the CAC and the system.
Current payment methods, such as government purchase cards, purchase orders and invoices, as well as the ability to load your tax exemption form, are available on Amazon Business today. Direct interface with the Army GFEBS for payment could easily be implemented into the current payment system.
One of the major side benefits of such an e-commerce platform would be the transparency to both the government and to the user. That's because a platform like the Amazon Business portal provides an analytics dashboard that makes it easy to track and analyze an organization's spending. Army leadership could gain greater insight into what, when, how and from whom the Army is buying. Users could create and download custom reports to meet any government requirement. If a user wanted to know how much an organization spent on toner, all she would have to do is simply click a box.
Amazon's search algorithm allows users to filter small business categories, which would help an organization to achieve its small business goals (e.g., making a certain percentage of purchases from woman- or minority-owned businesses). Amazon's data analytics would enable the Army to measure its socioeconomic goals for small and disadvantaged businesses. Small businesses certified through the U.S. Small Business Administration could be loaded directly into the Amazon database for easy identification. Currently on the Amazon portal, users need to check blocks to activate the vendor credentials they want to search by. Part of the contract with an e-commerce portal would adjust search results or control what gets into the "buy box," so that the top option supports FAR requirements.
The user could request spend-analysis reports, which would provide transparency and accountability, vital for efficient operations. With such information, users could identify items purchased in large quantities from across units, which in turn could lead to more efficient bulk purchases.
In addition, exclusive price and quantity discounts exist on more than 5 million products for those with an Amazon Business account. Price breaks on multi-unit product purchases mean an additional cost reduction when buying in bulk. Finally, business purchasers can negotiate prices with vendors through the portal. Within the portal, the purchaser can see whether it is beneficial to purchase goods in bulk and can negotiate with vendors for discounted products.
Items requested through Amazon's e-commerce portal could be delivered within two days in the continental United States. This would provide users a better way to manage their funds by using just-in-time supplies. Amazon's world-class logistics network also provides choices for how and when orders are delivered, so commands could consolidate deliveries. Of course, Amazon's logistics model would have to expand to manage the enormous increase in orders if the United States government started doing much of its purchasing through Amazon.
In addition, the same items can be shipped to locations around the world. Amazon uses local companies to cover the last mile, and has "lockers" for pickup in locations where address information isn't reliable or package theft is common. Authorizing commanders to shop on e-commerce portals would increase efficiency and decrease waste by having them receive goods as they are needed, thereby reducing inventory. These processes would prevent units from stockpiling items "just in case we need it." Many governmental units or offices maintain cabinets full of paper, toner, cleaning supplies, etc. This abundance of inventory is because of the lack of transparency, slow delivery and lack of faith in the acquisition system.
Sourcing requirements could be satisfied with multiple sellers' offers on a single page. The portal could save data showing three prices from three vendors; operational needs statements could be typed directly into the portal or uploaded; additional notes from the purchaser or approver could also be added; and all of the information could be tracked for auditability. The screenshot on Page 20 shows Amazon Business portal prices from four vendors and a recommendation of a vendor; eventually, it's possible the same screen could display why Amazon recommended the vendor it did.
Automated workflow approvals can be set up easily on Amazon Business, which quickly processes requests for purchases. Workflow rules enable the user to have email alerts sent to higher-level purchasers for approval. Depending on how many approvers a commander would prefer, Amazon could implement the roles for purchasing officials, approving official (is the purchase appropriate?) and authorizing official (are funds available for the purchase?). For example, a company supply officer could go onto the e-commerce portal and put the items he would like to purchase in the organization's virtual shopping cart. Then the next higher purchasing official at the battalion level would get an email alert to approve it.
In addition to workflow approvals, unauthorized items can be flagged. The Army has mandated that the Army's Computer, Hardware Enterprise Software and Solutions contract be the primary source for purchasing COTS software, desktop and notebook computers regardless of dollar value. If a user attempts to purchase one of these items on the e-commerce portal, a notification would inform them that it is against policy to purchase this item.
It's hard to calculate the potential cost savings that an Armyzon would accrue. If, for example, DOD started with Amazon Business, others, such as Staples, Office Depot, Grainger or Walmart, might decide to build FAR-compliant platforms. That would further increase competition and make for more savings. But there are other possibilities for savings, too.
If implemented correctly, opportunities exist to use artificial intelligence to do predictive analysis for combatant commanders. E-commerce portals could contact ordering officials about purchasing an item again based on their purchase history. For example, the platform might send an email asking, "Over the last six months, we noticed you purchased four black ink cartridges every month. Would you like us to set up an automatic monthly delivery of four black ink cartridges?" This would cut down on the manpower needed to manually track and order supplies on a daily, weekly or monthly basis.
Having an e-commerce company analyze government purchasing data and highlight opportunities for savings would take the burden off commanders and contracting personnel.
Peter Drucker, the late consultant, educator and author who has been called "the inventor of modern management," suggests that what hinders innovation is not the lack of good ideas, but the failure of teams and organizations to be willing to discard old ones. With current technology and a multitude of options, now is the time to change our culture and make the shift to e-commerce. By doing so, we can provide flexibility and agility to combatant commanders and save billions of taxpayer dollars.
While spending a year with Amazon as a Training with Industry fellow and seeing the inner workings of e-commerce, it became clear that online marketplaces were the way of the future for the Army. I tried to establish a pilot program with the Army and Amazon to show the possibilities and savings. However, I met with resistance and negativity.
Upon reflection, I realized that it wasn't policy I needed to change, but the culture. Henry Kissinger said, "The basic motivation of a bureaucracy is its quest for safety." It measures success by errors avoided rather than goals achieved. We think nothing of putting guns, ammunition, rockets, missiles, tanks or Soldiers' lives in the hands of combatant commanders, but allowing them to purchase what they want when they need it is considered too risky.
In an effort to change the culture, I am working with Defense Acquisition University (DAU) to develop a case study illustrating how a great idea that could save billions of dollars was met with such strong resistance. As a future commander, I want the power and flexibility of e-commerce to purchase what I need, when I need it, and get it fast. As a taxpayer, I want the transparency, accountability and cost savings e-commerce would provide. We must change the culture within the Acquisition Corps to ensure that we have a premier Army that is ready to fight tonight.
For more information, contact the author at email@example.com.
Lt. Col. Rachael Hoagland is the assistant executive officer for the Deputy CIO G-6. She has an M.S. in global leadership from the University of San Diego School of Business, a B.S. in diplomacy and military history from Hawaii Pacific University, a B.A. in communication from the University of Tampa and an associate degree in photography from Mohawk Valley Community College. She spent a year as a Training with Industry fellow at Amazon.com Inc. She is a graduate of DAU's Program Manager's Course, PMT 401, and is Level III certified in program management.
This article will be published in the April- June 2018 issue of Army AL&T magazine.