Companies providing acquisition help find themselves in high demand

As agencies look for ways to improve the way they buy goods and services, companies that specialize in acquisition are selling their wares more aggressively.

Specialized consultants such as Censeo Consulting Group work with agencies to improve their overall acquisition approach, while suppliers like Environmental Systems Research Institute, a computer technology company, and BCOP Federal, an office supply provider, alter their own business models to meet agencies' changing needs. Veramark Technologies, Inc. and Ariba Inc., two software makers, sell packages that help agencies analyze the way they're spending money.

All these companies have found that strategic sourcing (also known as "spend management"), an increasingly popular acquisition technique that involves streamlining contracts, has increased demand for their products. They tend to describe their services as unique and necessary to federal agencies.

Veramark sells software programs that analyze agencies' phone bills to determine where money can be saved. Allison O'Malley, the company's director of marketing, says agencies' phone bills usually contain errors.

In addition to catching mistakes and fraud, Veramark's programs locate areas that are frequently called, which enables agencies to negotiate better rates with their phone companies.

"If you know 50 percent goes to this location, it gives you leverage to negotiate," said O'Malley. Because telecommunications costs are usually within the top five expenditures for companies and agencies, those savings can be significant, she said.

The FBI, CIA and Labor Department have used Veramark's products.

Ariba offers a software and services package that analyzes how money is spent, checks that employees and suppliers are using the contracts in place and evaluates how well suppliers are fulfilling their contracts.

"Spend management is more than just technology, it's a discipline," said MJ Mather, business director at Ariba. The company estimates that strategic sourcing saves 7 percent to 13 percent off original prices in addition to time savings of 33 percent, because employees can purchase goods and services more easily.

Ariba's customers include the Energy Department and the Naval Supply Systems Command.

David Shea, chief of procurement policy at the Agriculture Department, said agencies don't need software programs to begin strategic sourcing. He started analyzing office supply purchases by looking at data on employee purchase cards. Agriculture now saves $2.5 million a year on office supply purchases.

"You don't have to spend a lot of money on involved software if you're looking at office supplies," he said, adding that "when you get into more complicated commodities, you might need more complicated tools."

When Mark Heuer, federal business manager for BCOP Federal, first started talking with Agriculture about strategic sourcing, he had to figure out what kind of contract would fit best.

BCOP Federal has about 35 blanket purchase agreements with agencies, including several at the Defense Department, which are layered on top of contracts offered by the General Services Administration, and it negotiates independently of GSA with other agencies, including the Postal Service. The best approach depends on what kind of information BCOP Federal has about how agencies are purchasing goods and services and how they want to approach strategic sourcing, Heuer said.

In 2001, Agriculture and BCOP Federal decided to enter into a blanket purchase agreement, which provided an additional 10 percent discount off the 40 percent discount on the GSA Schedule contracts.

Heuer said he was not concerned about losing money on the deal. "When you have a scale of business like at USDA, that allows you to plan your business in a certain way, that allows you to have additional efficiencies.… It's much easier to do business with one large customer that you develop a pattern of doing business with. You can pretty much predict what that business is going to be," he said.

Jack Dangermond, president of the Environmental Systems Research Institute, also put a positive spin on streamlined contracts, even though they typically result in lower prices for suppliers.

"We probably did not gain revenue for this, but it simplified our administration for supporting the federal agencies.… We saw this as a way for them to simplify their lives, and our lives," he said.

ESRI was a supplier of SmartBUY, an early strategic sourcing effort that was limited to software products. GSA administered the program, which was created in 2003 by the Office of Management and Budget.

Rajesh Sharma founded Censeo Consulting Group in 2003 after deciding he wanted to create a team of experts on strategic sourcing. Now, his clients include the Homeland Security, Interior and Defense departments, as well as Fortune 100 private sector clients that he declined to name.

His team, he said, not only walks agencies through the analysis required for strategic sourcing, but also the human psychology element. "One of keys to making strategic sourcing work is understanding the importance of change management," he said, referring to the supervision of people as new acquisition strategies are introduced. Affected employees should be involved early, or they will be concerned about their changing responsibilities, he said.

He said understanding how strategic sourcing should be applied to federal agencies is much more complicated than simply translating private sector best practices. "You can't apply the same strategies in government. You have to incorporate complex, overall regulations into the framework. It forces you to be more creative, to really think about how can we bring that same type of value into this environment," he said.

Censeo began working with Defense in April 2004, and has set up three departmentwide councils-for administrative services, wireless devices and services, and medical services-to examine how money is spent. Sharma said for the first time, agencies across the department are working together to coordinate purchases.

"Strategic sourcing has been elevated from a back office function to a really strategic function," said Sharma.