Defense E-Business Tool Streamlines Payment Process
Defense E-Business Tool Streamlines Payment Process
By Patrick Seitz
An Internet-based freight payment system U.S. Bancorp developed for the Department of Defense is stirring interest from other federal agencies seeking similar services.
The Minneapolis-based company just received a contract to provide the same e-business solution to the Navy and is in negotiations with other agencies, company officials said.
"They're aggressively seeking us out," said Rick Langer, vice president of business development for U.S. Bancorp's Corporate Payment Systems unit. He hopes to sell the company's PowerTrack system to such agencies as the Energy Department, General Services Administration and the U.S. Postal Service.
U.S. Bancorp, the 13th largest bank holding company in the nation, announced in April that the Defense Department had chosen PowerTrack as its standard method to pay transportation companies contracted by the Army, Air Force, National Guard, Defense Logistics Agency and U.S. Transportation Command. These branches of the military make about $1 billion in land, sea and air freight payments a year.
The Defense Department expects to save more than $11 million a year with the system, which will replace all paper-based and electronic data interchange freight payment processes. Much of the savings will come from eliminating government centers that process payments for the transportation services.
PowerTrack will streamline the freight payment process by automatically paying carriers and electronically billing shippers. It will be used by more than 600 commercial carriers that do business with the Defense Department, including giants such as DHL Airways and Emery Worldwide.
Plans call for the system to be phased in over two years. The Defense Department has installed PowerTrack at 130 sites. That number should grow to 500 by the time the system is installed fully in late 2000. PricewaterhouseCoopers LLP of New York is the contractor supporting the rollout.
U.S. Bancorp's contract with the Defense Department has a three-year base and four one-year options. The company's Navy contract, awarded in July, has a three-year base and two one-year options.
For its part, U.S. Bancorp receives a transaction processing fee much like a credit card company. It receives between 1 percent and 2 percent of the billing charge, depending on the size of the shipment. That translates to about $10 million to $20 million in annual revenue from the Defense Department contract alone.
The Navy contract should help speed implementations in civilian agencies because it is open to other agencies, according to Langer. By contrast, the Defense Department work is being done as a task order off the General Services Administration's Smart Pay contract, which covers purchasing cards and travel cards.
The military's use of online freight payment systems is a natural extension of successful purchase card programs. Defense officials wanted a less expensive and more efficient method of tracking and reconciling freight shipments, said Ken Stombaugh, assistant for travel and traffic management in the Office of the Assistant Deputy Undersecretary of Defense, Transportation Policy. "It's a credit card-type approach to buying transportation," Stombaugh said. Defense officials receive a single, consolidated statement each month from the carriers instead of an invoice for every shipment, he said.
The Defense Department has procured separate freight payment systems because various branches used different purchase card vendors. Most of the Defense Department used U.S. Bancorp's Visa purchasing cards, while the Navy used Citibank cards.
Government customers wanted to use the purchasing cards for freight payments to eliminate paperwork, but the cards were designed for much simpler purchases, Langer said.
About $25 million worth of freight was shipped using the fledgling system between February and June, Stombaugh said.
"Like any new program, it's a major cultural change. You can't overestimate the impact of those changes," Stombaugh said.
The system affects over 500 activities and hundreds of carriers. "Obviously, there are going to be hiccups as we completely revamp our business processes," he said.
So far, there have been no unexpected problems, he said. Transportation companies initially were put off by the fee placed on carriers, but now the companies like the system because they get paid faster and save money.
"The supply chain has to be a core competency of the military. After all, they invented the word logistics," Langer said.
Mark Coronna, senior vice president of U.S. Bancorp's Interactive Commerce Group, said the PowerTrack system was designed to work with existing systems, including enterprise resource planning and shipping management systems.
In addition, the PowerTrack system collects a pool of data that can be used to improve efficiencies in the transportation of goods, including information about shipping times and storage, he said.
PowerTrack's origins date back to January 1997. That is when U.S. Bancorp convened a "United Nations of logistics" in response to requests from large government and commercial customers for a paperless, electronic freight payment system, Coronna said. The bank hired as consultants such firms as Andersen Consulting, A.T. Kearney and IBM for a weeklong series of brainstorming meetings.
The PowerTrack system draws on U.S. Bancorp's core competency of business-to-business payment processing, Langer said.
The company already handles $6 billion a year in payments for the federal government through its purchasing card programs. Including commercial customers, the bank handles $54 billion in payments annually.