Image via WikipediaWant more evidence of why reverse auctions are especially suitable for information technology acquisitions – especially in comparison to long-term, fixed price contracts? Look to the experience of the U.S. Department of Homeland Security.
Introduction
Here is a quick analysis of a great piece that is hot off the presses from our friends at Contract Management magazine. Written by Lenn Vincent, who is the Industry Chair at Defense Acquisition University, this article chronicles how the U.S. Department of Homeland Security (DHS), under the leadership of Soraya Correa, who serves as the Director of DHS’s Office of Procurement Operations (OPO), has secured millions of dollars in price savings, achieved important process improvements and improved transparency in the process. You can read the full article here below:
“Moore” Money: How the Department of Homeland Security Captures Big Savings from Falling IT Prices
“Price Deterioration”
So what is price deterioration? Well, think of it this way – what happens every time you buy a new computer, a new flat-screen TV, a new electronic or computing anything. You know that wherever you ordered if from on the Interweb or what store you bought it from (even on “Black Friday”), you can rest assured that at some point in the not too distant future – the next quarter, the next month, the next week, heck, even tomorrow – that item can be bought at a lower price. The same thing happens to every organization – public or private – that enters into a year-long or multi-year purchasing contract in place for its information technology needs. The Defense Acquisition University’s Lenn Vincent, the author of the Contract Management article, described the impact of price deterioration on federal agencies in the following manner:
What is price deterioration? Put simply, long-term contracts, which have been foundational to the concept of strategic sourcing for years, provide perceived value by locking in an initially aggressive pricing structure. The downside is a minimal ability to capture future savings as IT items are refreshed and obsolescence drives real-market pricing lower. This can result in the U.S. government paying too much for its IT purchases, even within months after contract award.
So what was the experience at DHS? The Director of DHS’s Office of Procurement Operations, Soraya Correa, reports that in Fiscal Year 2009, the agency saved $27 million dollars on its IT acquisitions working with FedBid’s online marketplace for reverse auctions. The change to reverse auctions not only brought documented cost savings through increased competition and real-time market prices to IT procurement, but it also helped DHS achieve process efficiencies. For example, the shift to using FedBid’s online marketplace brought about an over 15% decrease in the lead times necessary for IT acquisitions to take place. In recognition for the change in procurement practices she spearheaded at DHS-OPO, Ms. Correa has been recognized with the Chief Acquisition Officers Council’s 2010 Acquisition Excellence Award and a 2010 Federal 100 award.
Analysis
So clearly, the DHS experience shows that real-time pricing through reverse auctions is better than long-term, fixed price agreements in acquiring IT resources. Thus, every procurement executive at every organization should recognize that long-term contracts may be good for acquiring a variety of goods and services, but as Vincent pointed-out, Moore’s Law (which in a nutshell holds that computing power will grow very quickly, and yet, grow increasingly cheaper over time – learn more at Moore’s Law) means exactly the opposite when it comes to the information technology area. Indeed, long-term contracts for IT will mean unnecessary, wasteful expenditures on what technology that may not be state-of-the art – even obsolete – when IT resources are bought through these contractual relationships that have become standard at all levels of government and in many large, private sector organizations. As the case study of DHS shows, reverse auctions can enable organizations anywhere to take advantage of Moore’s law to not only save money and time in their IT acquisitions, but to secure newer and better technology for their employees.
Would you like to learn more about how reverse auction-based procurement can help save your organization time and money on not just your information technology acquisitions, but produce savings across the scope of your purchasing? Contact us here at the Reverse Auction Research Center (http://reverseauctionresearch.blogspot.com/) today to learn more.
Here is a quick analysis of a great piece that is hot off the presses from our friends at Contract Management magazine. Written by Lenn Vincent, who is the Industry Chair at Defense Acquisition University, this article chronicles how the U.S. Department of Homeland Security (DHS), under the leadership of Soraya Correa, who serves as the Director of DHS’s Office of Procurement Operations (OPO), has secured millions of dollars in price savings, achieved important process improvements and improved transparency in the process. You can read the full article here below:
“Moore” Money: How the Department of Homeland Security Captures Big Savings from Falling IT Prices
http://www.ncmahq.org/publications/CMMArticleDetail.cfm?ItemNumber=7496
This Contract Management article should be a must read for all procurement and IT execs, in government at any level and indeed, in the private sector as well. As shown in the case study of the Department of Homeland Security and Vienna, Virgina-based FedBid, Inc. (http://www.fedbid.com/), the private sector partner who provides DHS access to its online marketplace and large network of vendors, all organizations should question the use of long-term contract to acquire all forms of IT resources – hardware, software, networking. Why? Namely because of a phenomenon known as “price deterioration.”
This Contract Management article should be a must read for all procurement and IT execs, in government at any level and indeed, in the private sector as well. As shown in the case study of the Department of Homeland Security and Vienna, Virgina-based FedBid, Inc. (http://www.fedbid.com/), the private sector partner who provides DHS access to its online marketplace and large network of vendors, all organizations should question the use of long-term contract to acquire all forms of IT resources – hardware, software, networking. Why? Namely because of a phenomenon known as “price deterioration.”
“Price Deterioration”
So what is price deterioration? Well, think of it this way – what happens every time you buy a new computer, a new flat-screen TV, a new electronic or computing anything. You know that wherever you ordered if from on the Interweb or what store you bought it from (even on “Black Friday”), you can rest assured that at some point in the not too distant future – the next quarter, the next month, the next week, heck, even tomorrow – that item can be bought at a lower price. The same thing happens to every organization – public or private – that enters into a year-long or multi-year purchasing contract in place for its information technology needs. The Defense Acquisition University’s Lenn Vincent, the author of the Contract Management article, described the impact of price deterioration on federal agencies in the following manner:
What is price deterioration? Put simply, long-term contracts, which have been foundational to the concept of strategic sourcing for years, provide perceived value by locking in an initially aggressive pricing structure. The downside is a minimal ability to capture future savings as IT items are refreshed and obsolescence drives real-market pricing lower. This can result in the U.S. government paying too much for its IT purchases, even within months after contract award.
So what was the experience at DHS? The Director of DHS’s Office of Procurement Operations, Soraya Correa, reports that in Fiscal Year 2009, the agency saved $27 million dollars on its IT acquisitions working with FedBid’s online marketplace for reverse auctions. The change to reverse auctions not only brought documented cost savings through increased competition and real-time market prices to IT procurement, but it also helped DHS achieve process efficiencies. For example, the shift to using FedBid’s online marketplace brought about an over 15% decrease in the lead times necessary for IT acquisitions to take place. In recognition for the change in procurement practices she spearheaded at DHS-OPO, Ms. Correa has been recognized with the Chief Acquisition Officers Council’s 2010 Acquisition Excellence Award and a 2010 Federal 100 award.
Analysis
So clearly, the DHS experience shows that real-time pricing through reverse auctions is better than long-term, fixed price agreements in acquiring IT resources. Thus, every procurement executive at every organization should recognize that long-term contracts may be good for acquiring a variety of goods and services, but as Vincent pointed-out, Moore’s Law (which in a nutshell holds that computing power will grow very quickly, and yet, grow increasingly cheaper over time – learn more at Moore’s Law) means exactly the opposite when it comes to the information technology area. Indeed, long-term contracts for IT will mean unnecessary, wasteful expenditures on what technology that may not be state-of-the art – even obsolete – when IT resources are bought through these contractual relationships that have become standard at all levels of government and in many large, private sector organizations. As the case study of DHS shows, reverse auctions can enable organizations anywhere to take advantage of Moore’s law to not only save money and time in their IT acquisitions, but to secure newer and better technology for their employees.
Would you like to learn more about how reverse auction-based procurement can help save your organization time and money on not just your information technology acquisitions, but produce savings across the scope of your purchasing? Contact us here at the Reverse Auction Research Center (http://reverseauctionresearch.blogspot.com/) today to learn more.
BIOGRAPHY
David C. Wyld (dwyld.kwu@gmail.com) is the Robert Maurin Professor of Management at Southeastern Louisiana University in Hammond, Louisiana. He is a management consultant, researcher/writer, and executive educator. His blog, Wyld About Business, can be viewed at http://wyld-business.blogspot.com/. He also serves as the Director of the Reverse Auction Research Center (http://reverseauctionresearch.blogspot.com/), a hub of research and news in the expanding world of competitive bidding. Dr. Wyld also maintains compilations of his student’s publications regarding management concepts (http://toptenmanagement.blogspot.com/), book reviews (http://wyld-about-books.blogspot.com/) and international foods (http://wyld-about-food.blogspot.com/).
Read more:
You Can't Fight Moore's Law: Why Price Deterioration Means That Reverse Auctions Make Sense and Produce Savings in The Acquisition of Information Technology Resources
+++++++++++++++++++++++++++++++++++++++++
You Can't Fight Moore's Law: Why Price Deterioration Means That Reverse Auctions Make Sense and Produce Savings in The Acquisition of Information Technology Resources
+++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++
No comments:
Post a Comment