In the dog-eat-dog world of raising and training canines for government patrol and detection duties, federal agencies increasingly are competing not only among themselves, but also with foreign governments for a dwindling supply in a global market.

The Air Force is the executive agent for Defense Department working dogs — buying, training and breeding them at Lackland Air Force Base in San Antonio, where the Transportation Security Administration also trains its dogs.

Late last year, Jaclyn Rubino, the director of the strategic sourcing program office at the Homeland Security Department and manager of the governmentwide security and protection category, appointed the Air Force to lead creation of the governmentwide working dog category intelligence report (CIR). In so doing, Rubio signaled support for the robust, analytics-based, requirements-focused and market-facing category management approach the Air Force follows.

Not only is the Air Force leading the pack in the working dog category, it also has been charged by the Defense Department to help its fellow services learn from the Air Force approach to category management.

Category management is a mission-oriented business approach.

The Air Force and the Office of Management and Budget category management programs began in the same year, 2014, and both focus on goods and services purchased commonly across their enterprises — valued at $325 billion governmentwide in fiscal 2018 and $28 billion for the Air Force.

In the Air Force, category management is a business approach focused on an organization’s mission. The bottom line is to deliver more mission capability per dollar spent. Air Force category management considers, analyzes and deploys four primary strategies often in combination:

•  Demand management
•  Policy changes
•  Strategic acquisition
•  Process improvements

The Air Force concentrates on managing demand because the best way to save money is not to buy what you don’t need. In the governmentwide category management program, led by OMB, money has been considered saved if spending goes through a specified set of contracts, such as those OMB designated as best-in-class (BIC) contracts.

In its March 20 category management guidance, OMB expanded its treatment of demand management as one of five key recommended actions. For OMB, demand management has a more diffuse focus than preventing unneeded purchasing. The guidance defines it as reducing total cost of ownership by standardizing requirements, coordinating agencywide buying, sharing strategies and negotiating volume-based (tiered) pricing.

For the Air Force, category management is part of a broad effort to shift programs and procurement offices from focusing on budget execution to performing strategic cost management.

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As a result, the Air Force conducts rigorous, wide-ranging market intelligence to make data-driven decisions to cut costs and improve capability and compliance. The products of Air Force category management are informative, detailed, painstakingly assembled category intelligence reports; concise recommended courses of action; and practical execution plans.

Air Force category managers are functional domain experts, not contracting officers, who have procurement personnel, data analysts and others on their teams. Air Force category managers have been appointed for 6 of 10 common goods and services categories. Those six comprise 94% of the $28 billion in Air Force spending across the 10 categories.

The Air Force Installations Contracting Center (AFICC, formerly the Air Force Installations Contracting Agency), where the service’s category management effort was born, has built a host of tools, an experienced team, and a Business Intelligence Competency Cell (BICC). The center helps cross-Air Force and operational installation category management teams apply the approach, account for resulting savings, and reap the rewards in the form of funds to reinvest in critical readiness programs.

AFICC adopted category management to answer calls from then-Air Force chief of staff Mark Welsh and other senior leaders for help in cutting the cost of Air Force operations by $20 billion to put more dollars into mission programs. In 2015, AFICC set a five-year category management savings goal of $1 billion, but doubled it to $2 billion by 2020 after hitting the $1 billion target in just three years. In December, the Air Force cost-cutting tally stood at $1.5 billion. That amount is equal to 16% of the $9.8 billion in cost avoidance generated by the entire OMB governmentwide program in fiscal 2018.

Today, the Air Force is guiding and supporting the Army, Defense Health Agency and Veterans Affairs Department in adopting category management. The AF formula begins with revved up spend analysis using a homegrown Air Force business intelligence tool, which ingests data from the Federal Procurement Data System-Next Generation, the System for Award Management, and Air Force, Army and Navy contracting systems. AFBIT cleans the data and allows users to visualize, explore and manipulate the numbers showing how much is being spent by whom using what contracts to buy what from whom for how much.

Another AFICC analytical tool plumbs spending data to target the best candidates for management within each category’s portfolio. It finds the spending that is most important to the Air Force in markets where the service has the most buying power so it can leverage its spending to get better outcomes. That tool taught the Air Force an important lesson: Dollar value alone is not a good guide to the highest return on investment for category management. The competency cell provides targeting reports so category managers can focus on managing high-ROI spending, no matter its size.

The competency cell also teaches organizations Air Force-wide how to compile category intelligence reports using spend analyses to surface questions about why and how the service buys in each category. Category teams then interview companies that are and are not selling to the Air Force, study the markets they buy from, benchmark against the practices of similar purchasers, and use that wealth of data to recommend new approaches.

Part 2 of this series explores real-life cases of mission improvement, realigned resources, and savings the Air Force has delivered using its version of category management.

Tim Cooke, the president and CEO of ASI Government LLC, is an award-winning thought leader in federal acquisition policy and practice.

Anne Laurent is the founder of The Acquisition Innovators Hub, LLC, where she publishes the Acquisition Innovators Weekly newsletter.

Copyright © 2019 Federal News Network. All rights reserved. This website is not intended for users located within the European Economic Area.

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When the Air Force identified fire protection suits as a target for better management, the priority was improving firefighter safety by standardizing equipment. Market analysis had revealed that assembling fire protection ensembles using boots, helmets, gloves and suits bought from different suppliers was a safety problem. It took more training to learn to properly use equipment from different manufacturers, and that opened the possibility for dangerous errors. Mismatched pieces also could expose firefighters’ skin to chemicals and burns.

Buying from a Defense Logistics Agency contract wound up costing more than necessary because the Air Force wasn’t aggregating its demand. Pricing was based on orders from individual bases rather than on the average of 5,000 ensembles bought every year for 10,500 firefighters Air Force-wide.

Benchmarking fire departments in New York and California showed that they buy standard suits for all their firefighters and develop longstanding relationships with the suppliers. So, Air Force firefighters narrowed down their requirements to an overall ensemble configuration. That led to a reduction from 109 to 14 contract line items and 14 contracts to nine—one for chem-bio boots, five for ensemble pieces, and three for suit care and support. The changes saved $1.1 million in fiscal 2018, alone.

In the Air Force’s best-in-class business approach to category management, contracts aren’t the main event. In fact, while the strategy rarely leaves current practice unaltered, it doesn’t always end with changed or new contracts.

Instead, Air-Force-style category management delivers a range of demand-shaping, policy and process improvements aimed at achieving desired outcomes, saving on outlays and redirecting resources to increase readiness and lethality.

Even when category management is focused on improving solutions, it also saves money and improves processes.

The Air Force category management approach can wring efficiency from a mammoth contract like the General Service Administration’s IT Schedule 70.

Agencies come to IT 70 with their individual buys and often end up paying higher prices than they could be. When a company sees an order for 50 printers, it has no idea or expectation that tomorrow another order for 50 or 100 is coming, so it prices according to 50. The Air Force sought to harness the full power of having a bigger contract.

It created a computing blanket purchase agreement (BPA) on IT 70. Every six months, the Air Force puts its entire client computing demand up for bid on the BPA and provides the winner all the Air Force orders for the following six months. The Air Force gives bidders its historical spend data. Eyeing that demand, contractors sharpen their pencils and might even take a loss in the first three months, planning to make it up plus more in the next three because they are confident the orders will be there.

 Again, and again, the Air Force has found that the most important lever for spending efficiency is managing demand.

Redirecting demand to substitute products can end inefficient processes and produce human and monetary resource savings, as demonstrated in the case of taxiway lighting. Air Force airfield taxiways need to be lighted at night, and they require a lot of light bulbs. The Air Force was using incandescent bulbs in taxiway fixtures, and they often burned out. Every time one did, a civil engineering troop had to drive a truck out to change the bulb.

Those out-and-backs were creating big manpower and materiel costs. Bases were spending an enormous amount on lighting, not even accounting for the cost of electricity. Shifting demand to substitute LEDs for incandescent bulbs increased bulb life expectancy 100 times, reduced electricity costs by 60%, achieved off-the-charts civil engineering process cost reduction, and is on track to save $4.7 million over 10 years.

Improving outdated or inefficient policies, as in the case of an Air Force elevator maintenance directive, can produce impressive savings by itself. With every base handling its own elevator maintenance contracts, the Air Force Installations Contracting Center (AFICC) had expected that imposing one big contract would be the right way to generate savings. But it turned out that the Air Force hadn’t updated its elevator maintenance policy in 30 or 40 years, even though elevator technology had evolved significantly.

The policy required monthly and quarterly inspections. Because it was an Air Force directive, no base could deviate from it. It wasn’t that costs were so out of line, it was that the policy, and thus the requirement, was out of date. So, AFICC wrote a standardized requirement based on current private sector best practice—some elevators now self-report when they need repairs, for example—and collapsed maintenance costs by 27%.

Follow the Air Force Model

In 2018, then-Acting Defense Secretary Patrick Shanahan directed the other military services to adopt the Air Force’s business-oriented category management approach.

Now, the Army is standing up five categories for an Army-wide program and category management is the number two priority for Army acquisition. AFICC is helping the Defense Health Agency and other federal organizations apply the Air Force approach. Air Force category managers also are cooperating with those leading the governmentwide program.

Government-wide category management performance measures such as increasing spend under management (SUM) and moving up the governmentwide program’s tiers of SUM can be important metrics for some purposes, but they don’t change incentives. They won’t help reinvest money from support to mission. They won’t add rigor to focus category management on the spending that will produce the greatest return on investment, and they won’t correct the mistaken belief that a bigger contract is always better.

By tracking the savings from reducing common spending and apportioning those dollars to successful category management practitioners, the Air Force is attempting to move the incentives from “spend all your money on time” to “spend as intelligently as possible.” With help from financial managers, those who take a business approach like the Air Force’s to category management will be able to free up cash flow to invest in mission capabilities.

The United States must move faster than our adversaries can keep up. This requires thinking critically and seeking mission-focused business opportunities. The Air Force example demonstrates that aligning incentives and protecting and encouraging disruptive thinkers and actors can spread exceptional outcomes governmentwide.

Tim Cooke, the president and CEO of ASI Government LLC, is an award-winning thought leader in federal acquisition policy and practice.

Anne Laurent is the founder of The Acquisition Innovators Hub, LLC, where she publishes the Acquisition Innovators Weekly newsletter.

Copyright © 2019 Federal News Network. All rights reserved. This website is not intended for users located within the European Economic Area. https://federalnewsnetwork.com/commentary/2019/10/air-force-category-management-spend-intelligently-not-just-by-years-end/

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The proposal appears in Section 801 of the House-passed 2018 National Defense Authorization Act (NDAA). It gives GSA authority to choose two online marketplaces for government without using competitive procedures.

“We think that’s a real step in the right direction, and from our standpoint, we’re supportive,” Thomas told the House Oversight and Government Reform committee in testimony last week.

A group of contractors that sell through the GSA multiple award schedules is far less enthusiastic about the measure. “Hundreds, if not thousands, of commercial firms with their own online platforms will see their access to the federal market limited to the two online platform providers GSA selects,” the Coalition for Government Procurement wrote on June 29. “Firms that previously contracted directly with the federal government likely will pay fees to, and, largely dictated by, an online provider for access to the federal market.”

Thomas acknowledged that the marketplaces would have to meet federal procurement mandates. “There are, as you know, some specific regulatory and policy concerns that the federal government has that those of us who just buy as private citizens through Amazon don’t necessarily have to take into account,” he said. “So we want to make sure that those are accounted for in the appropriate way.”

According to the House Armed Services Committee report on the 2018 NDAA, “Marketplaces would be limited to those that are commonly used in the private sector; provide a dynamic selection of products and prices from numerous suppliers; provide procurement oversight controls, such as two-person approval for purchases; and can screen suppliers and products to ensure compliance with suspension and debarment, domestic sourcing, and other similar statutes.” Nonetheless, Thomas said, online marketplaces offer speed and savings.

Rep. Mac Thornberry (R-Texas), who chairs the House Armed Services Committee (HASC) and sponsored the bill that became the NDAA provision, favors online markets because they would enable the Pentagon to buy “commercial-off-the-shelf goods, ranging from bottled water to treadmills or even MRI machines,” faster and at lower cost than through the DoD contracting process or through GSA,” according to a HASC summary of the measure.

The House concedes that it may be prudent to still buy some commercial items through traditional means, so it expects “the Secretary of Defense to issue implementation guidance that may limit the products that the Department of Defense may purchase on marketplaces,” according to the committee report. Nevertheless, the report notes, “marketplaces generally ensure competition and price reasonableness, and therefore would obviate many of the time-consuming government-unique procurement processes GSA and the Department of Defense perform today.”

Use of marketplaces also would allow government to track and analyze procurement data. “Any business will tell you that this ‘spend analysis’ is critical to efficient operations. For the government, that kind of transparency and accountability would be revolutionary,” according to the HASC summary.

When backers of the measure talk about online marketplaces, they frequently refer to Amazon, the most commonly used consumer online marketplace in the United States. Amazon’s work-focused e-mall, Amazon Business, clearly has expressed an appetite for government sales, having inked a deal in January with U.S. Communities, a buying cooperative for more than 55,000 state and local public-sector agencies,that could run 11 years and rake in $5.5 billion.

The Senate Armed Services Committee has passed its version of the 2018 NDAA, but the full Senate has not yet voted on it. The Senate committee bill has no references to online marketplaces.

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To manage a $50 billion portfolio of operational contracting for eight Air Force major commands, AFICA employs a souped-up form of market research within its Business Intelligence Competency Cell (BICC). Stood up in early 2015, the BICC analyzes Air Force contract spending, suppliers and markets and total costs of ownership. Its focus is categorizing spending into related areas, developing Category Intelligence Reports (CIR) and maintaining a data repository on Air Force’s contract spending. Whether for a CIR to support management of a category, or for a specific piece of market research to meet a current need, AFICA’s approach encompasses
continuous assessment of markets and suppliers.

Its market intelligence seeks to:
• Understand how and where products and services are created and provided
• Identify all major industry players including small businesses and mandatory government sources, such as AbilityOne
• Know and take advantage of market trends, e.g., price, suppliers, materials, emerging technologies and processes
• Analyze factors contributing to the price, availability and lead time of goods and services
• Know the capacity, capability and financial viability of all potential offerors

AFICA gathers this intelligence through a broad range of interviews with similar organizations, including other federal and defense agencies, universities, towns and state governments. The agency also consults industry analyses and benchmarks, such as IBISWorld and DUN & Bradstreet, to which AFICA subscribes on behalf of the entire Air Force. AFICA also issues requests for information and conducts industry days and spend analyses and benchmarks industry leaders. This enhanced research gives AFICA buyers a deeper understanding of the market, which helps the agency innovate in acquisition strategies, cut cost and increase competition and small business participation, where appropriate. Adopting private sector best practices helps improve processes, while analyzing industry spending helps establish reasonable pricing and identifies opportunities to leverage Air Force spending and partner with other buyers.

AFICA couples in-depth and ongoing market and supplier analysis with comprehensive analysis of $114 billion in annual Air Force spending on commonly purchased goods and services using the BICC’s Air Force Business Intelligence Tool (AFBIT). The analytical base of spending and market analysis supporting AFICA’s category management program won the 2017 Acquisition Team Excellence Award for Category Management from the Chief Acquisition Officers Council in June, as well as the 2015 Assistant Secretary of the Air Force for Acquisition Excellence Team Award for Continuous Process Improvement.

The Professional Services Council’s February 2017 White Paper, “Enhanced Market Research Drives Better Acquisitions,” underscores the power of approaches like AFICA’s. As the paper points out, “In depth market, buyer, seller and customer information allows procurement teams to focus on defining the core challenge: What is the mission, what is the intended outcome and how does this procurement help?” Led by ASI Government CEO Timothy Cooke, the PSC Outcome-Oriented Acquisition Working Group wrote “Enhanced Market Research” to help federal agencies identify, measure and achieve desired objectives by focusing on the intended outcomes of procurement actions. Like ASI, the working group seeks to identify examples and best practices for successful performance-based acquisitions, illustrate how outcomes orientation improves service delivery and assist agencies in adopting outcomes-oriented procurement.

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The latest indications of potential Amazonization of government come in newly introduced Defense acquisition reform legislation and a venture capital investment by Health and Human Services Department Secretary Tom Price.

Chairman of the House Armed Services Committee and Texas Republican Mac Thornberry introduced his 2017 Defense Acquisition Streamlining and Transparency Act May 18. Its first section calls on the Pentagon to “procure commercial products through online marketplaces for purposes of expediting procurement and ensuring reasonable pricing of commercial products,” and to do so through one or more contracts with commercial providers. It goes so far as to stipulate that the online markets DoD adopts be “used widely in the private sector, including in business-to-business e-commerce.”

“If you’re buying office supplies, you ought to be able to go on Amazon and do it,” Thornberry said. 

“Because we are tapping into an existing commercial marketplace we can leverage all the features of this mini free market. Inherent in this commercial marketplace is market research … also competition is built in. It’s its own mini free market, so prices are reasonable. The market is clear. The prices are the appropriate, best, most reasonable price for the item,” said a House Armed Services Committee aide during a May 17 meeting with reporters.

Amazon is just one of the many online marketplaces for office and industrial goods, but it is surging ahead in the market. Others include Grainger, and office supply giants such as Staples and Office Depot , as well as Walmart, which bought Amazon competitor Jet.com. The Defense Department itself runs DoD EMall, but unlike the commercial online marketplaces, it is a closed garden–defense organizations are the only buyers. Observers have called the online market provision a broadside against the General Services Administration’s multiple-award schedules contracts.

Amazon is seeing remarkable success with its own work-focused e-mall, Amazon Business. It launched in April 2015, and within a year had  $1 billion in revenue and 400,000 registrations—an annual rate of growth of 20% month over month, according to Daniel Smith, general manager of worldwide education for the company. In January 2017, U.S. Communities, a buying cooperative for more than 55,000 public-sector agencies, signed a five-year contract with Amazon Business for ten product categories: Office Supplies; Classroom, School, Art Supplies and Materials; Home Kitchen, Food and Grocery; Books; Musical Instruments; Audio Visual and Electronics; Higher Education Scientific Equipment and Lab Supplies; Clothing; Animal Supplies Equipment and Food; and Miscellaneous. Spending under the deal is expected to be $500 million.

Not to be left behind, the Health and Human Services Department also is dipping a toe in the swirl of online shopping. Their entrant is an internal, venture-funded startup to create an online marketplace to be used by laboratories across HHS. The marketplace was one of five projects to receive growth-stage funding from the HHS Secretary’s Ventures Fund, designed to support the ideas of employees for initiatives to dramatically improve the department.

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