Page 34 - FCW, August 30, 2016

AcquisitionMatters vices and software. So in managing
the IT category, teams should closely examine widespread use of resellers to ensure that government receives demonstrable value for additional costs incurred. The agency software license inventories required under category management will help provide data for that exploration and many others.
Those inventories should also help reveal the degree to which agencies acquire software through IT services contracts with systems integrators, another indirect route where money might be saved.
Close the knowledge gap
Managing categories of spending will supply the government with intelli- gence about everything from price dif- ferentials and profit margins to supply chains and logistics in IT goods and services markets. Marshaling govern- mentwide spending data will allow the government to meet with its largest suppliers on a more equal footing. In today’s fragmented and decentralized federal market, contractors often know more about their government custom- ers than do the agencies themselves.
For example, at $6 billion in obliga- tions in fiscal 2015, software is the third largest governmentwide IT subcatego- ry, and it’s growing about 17 percent a year — compared to 7 percent in the overall U.S. market. But because gov- ernment software purchases are not centralized, agencies’ use of suppliers, types of licenses and prices paid for similar products vary widely. Require- ments aren’t standardized or optimized across government, and best practices for managing licenses are sporadically implemented.
Managing software as a category will reduce total cost of ownership, improve license management, and gen- erate significant savings and acquisition efficiencies.
For example, the Navy faces a $600 million claim in the U.S. Court of Fed- eral Claims for allegedly copying and
installing collaboration software on 558,466 computers when it had paid for only 38 licenses of the application. With a best-practice software asset and license management program, an agen- cy could quickly dispense with such claims, if they even arose. When buyers can negotiate based on precise usage data, IT companies are less likely to have the need or the grounds to sue or initiate expensive audits.
Using license inventories to chart the buying behavior, top suppliers, usage patterns and contracts of the largest federal software buyers will help the Enterprise Software Category Team improve transparency, flexibility, and terms and conditions; manage demand; and negotiate pricing governmentwide.
Capitalize on trends
Market and supplier analysis also will help government manage risks, understand how prices are set and take advantage of trends in the global and U.S. IT markets. For example, the trend across all markets is increasingly for suppliers to license software as a service (SaaS) online versus on premis- es, so agencies will need ways to keep track of licenses for software provided via the internet.
Licenses generally are either sub- scriptions for a set period, which enable buyers to pay fees in install- ments, or perpetual, for which buyers pay annual maintenance and support fees and automatically are notified of and can download updates for free. The market is shifting from on-prem- ises perpetual licenses to the SaaS subscription model, and agencies must shift their buying practices accordingly.
Better supplier relationships will help the government discover other ways to change how it buys and man- ages IT to better match industry prac- tices and thereby create seller effi- ciencies that result in cost and price reductions. Wherever possible, the government should streamline procure- ment practices to cut vendors’ costs in
responding to bid solicitations.
The benefits suppliers gain from sell- ing to many agencies at different prices could be overshadowed by the efficien- cy of responding to the consolidated demand of the entire federal enterprise
— or at least larger swaths of it.
Redeploy savings to the mission
By understanding what incentivizes sup- pliers, agencies can take advantage of IT supply chains to negotiate better pric- ing. For example, by knowing the true volume of government purchases, buy- ers can get better OEM pricing and have resellers agree to charge accordingly. And buyers who know the optimal OEM supply routes for IT products can whit- tle down costs by getting resellers to piggyback on OEMs’ distribution deals.
Category management of IT expen- ditures lets government buyers build deep knowledge, business acumen and understanding of their own spending, plus the workings of the companies and markets they buy from. The cat- egory management approach also sup- plies a range of buying tools based on that extensive knowledge base — from demand and total cost management to strategic sourcing and supplier relation- ship management.
Best of all, large companies that use the approach generally reap 10 percent savings on their annual procurement spending for years.
If the government can duplicate industry’s success, the next president and Congress could have as much as $5 billion a year in savings from the $50 billion annual IT procurement bill to invest in new projects or technol- ogy and to apply directly to achieving policy goals. That’s effective buying in anybody’s book. n
David Shields, former managing director of the U.K. Government Pro- curement Service, is managing direc- tor for procurement transformation and category management at ASI Government.
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