DEPARTMENT OF DEFENSE: Defense and E-Commerce

Defense E-Commerce Initiatives Equal Big Business<@VM>The Role and Roots of JECPO<@VM>When Customers Speak, Defense Center Listens<@VM>Defense E-Commerce Game Draws Players of All Stripes<@VM>Selected Defense E-Commerce Resources

Reuven Battat

By Trish Williams

A wide-ranging effort to accelerate the use of electronic commerce throughout the Defense Department is turning heads across corporate America, where executives are talking up the vast potential of products and practices that will revolutionize the way the military does business.

Driving industry interest is the lure of landing a lucrative contract and a prestigious customer. With the federal government spending $54 billion on maintenance and repairs in 1999 alone, the potential is huge for business-to-government electronic commerce.

"E-commerce is everywhere. Everything we seem to be doing these days is related to e-commerce. It's a huge growth market and a sweet spot for us," said Dean Mericka, regional manager for Defense Department and National Defense Programs at BMC Software Inc., Houston.

BMC, which provides software solutions to ensure the availability, performance and recovery of mission-critical applications, is positioned to manage every component of the e-commerce environment "inside and outside the firewall," he said.

As the U.S. government makes strides to transform itself into an e-government, the military is making sweeping changes in its buying, financial, logistics and transportation processes that make this market ripe for innovation for the foreseeable future, industry officials said.

"People usually think DoD is way behind the commercial sector, but some of the new initiatives are definitely ahead of the game," said Reuven Battat, chief executive officer of ProcureNet Inc., a provider of Internet B2G solutions and services in Great River, N.Y.

Battat ought to know. The company, which has 250 employees and pulled in $70 million in 1999 revenue, primarily from public-sector business, counts the Defense Department as its biggest customer. Its defense business is spread among many agencies, including the Army, Marine Corps and the Defense Logistics Agency and its supply centers in Philadelphia and Columbus, Ohio,

Fresh e-commerce wins for Battat's company include an extension announced in September by the Defense Supply Center of the Automotive Prime Vendor Overseas contract signed in 1998. Under the terms of this contract, ProcureNet will continue to provide automated, one-stop shopping for automotive items to more than 220 military locations outside the United States. The center created this program to streamline the acquisition and delivery of parts for military vehicles overseas.

In June, the Defense Supply Center in Columbus awarded its Fleet Automotive Support Initiative (FASI) contract to ProcureNet. The deal covers the gamut of logistics services in several U.S. regions. This contract is conservatively estimated to be worth $500 million over the next 10 years, but that figure would increase significantly if the Defense Department decides to expand the system, defense and industry officials said.

This extensive contract to supply spare parts and comprehensive logistics support for the Defense Department's military, industrial and commercial vehicle fleets initially stirred the interest of companies such as Caterpillar Inc., Peoria, Ill.; Oshkosh Truck Corp., Oshkosh, Wis.; and TRW Inc., Cleveland, said Army Lt. Col. Timothy Dixon, chief of the Combat Vehicles and Tailored Support Acquisition Unit at the Defense Supply Center in Columbus.

The center, commonly called DSCC, is known to more than 24,000 military and civilian customers and 10,000 contractors as the largest supplier of weapon systems spare parts and items, managing almost 1.8 million pieces, including land-based wheeled and tracked vehicles. It accounts for more than $1.8 billion in annual sales.

Through its Web site, ProcureNet provides its customers a one-step, automated procurement process of military and commercial vehicle parts, plumbing, electrical and hardware supplies and other repair and maintenance supplies. Its OneSource product suite integrates Web-based procurement applications, global buying portals and value-added purchasing services.

Under the terms of the FASI deal, ProcureNet will handle procurement and delivery of parts and services to a wide-ranging group of military sites in three regions. They include Camp Pendleton and Fort Irwin in California, Camp Lejeune in North Carolina, Fort Stewart in Georgia and Fort Hood in Texas.

Dixon said his organization is poised to make awards for the remaining two regions under the FASI program, covering eastern and western parts of the nation, in the first quarter of the new fiscal year.

The supply center's fleet support initiative "is a very aggressive attempt to take a lot of stuff that is completely Internet based" and streamline its purchasing processes, increase efficiency and reduce procurement-related costs, Battat said.

The trend to have more mission-critical parts and weapon systems "done over the Web" will certainly continue, he said.

"In the last few years, we have seen [U.S. government officials] trying to move aggressively, especially on the purchasing side, he said. "We have 14 major contracts with the government. They started on the commodity side and are now moving to more mission-critical areas."

Indeed, companies are flocking to the government sector, as the demand for online marketplace developers expands amid a growing sentiment among industry officials that the military's far-flung operations and 24 hours a day, seven days a week mission puts it on the leading edge.

Joining ProcureNet in this realm are names such as Digital Commerce Corp., Herndon, Va.; World Wide Technology Inc., St. Louis; and VerticalNet, Horsham, Pa.

Traditional government players such as systems integrators and leading software manufacturers also want a piece of the action. Companies such as BMC; Oracle Corp., Redwood Shores, Calif.; and Litton-TASC, Chantilly, Va., are actively pursuing major defense e-commerce business.

If industry officials like what they see ahead, so do the nation's military planners.

"We have made great progress over the last few years in moving to Web-based technology and to XML," said Stuart Scott, electronic commerce program manager at the Defense Automatic Addressing System Center. XML, or extensible markup language, technology is expected to play a big role in smoothing the way for e-business.

The advent of e-commerce and exchange of information using electronic data interchange "has been a big money saver, and we've increased our efficiency and timeliness," said Scott, whose organization processes food orders and medical and pharmaceutical supplies for the military's just-in-time delivery system.

"We're trying to streamline the way that we do business, and we took this as a good opportunity to get into the business of managing contractors rather than items," said the supply center's Dixon. "It's been a great opportunity to partner with industry and be more like industry.

"We're always running away from the image we have at large that we're a great big bureaucratic animal" that cannot keep pace with how industry does business," Dixon said. But the military is now embracing a system "that is progressive and price worthy."
Paper intensive, costly and slow ? that was the conclusion regarding the state of the Pentagon's business affairs, reached following a comprehensive review performed at the behest of Defense Secretary William Cohen. This finding was the impetus for creating the Joint Electronic Commerce Program Office in May 1998.

JECPO, which serves as the Defense Department's electronic commerce integrator, is responsible for spurring paperwork reduction as well as economies and efficiencies in areas such as acquisition, finance, medical, logistics and transportation.

The Defense Logistics Agency and the Defense Information Systems Agency share leadership of the office, which among other things:

? Provides shared electronic commerce services to the Defense Department.

? Partners with the services, agencies and Defense Department customers as they transition to e-commerce strategies and techniques in their respective business practices.

? Recommends appropriate technology for e-commerce to the Defense Department's chief information officer and assists with implementation throughout the department.

? Provides architectural, technical and operational support for issues that arise during the engineering or re-engineering of e-commerce processes.

? Represents the department on e-commerce matters with other federal agencies and ensures implementation of Defense Department e-commerce policies and agreements reached with international and federal partners.

? Provides program oversight for all JECPO funded e-commerce projects.

? Ensures consistent planning and implementation of e-commerce based upon open standards for interoperability in a common business environment.

? Assists the services and agencies in their e-commerce outreach programs in coordination with the Electronic Commerce Resource Centers.
By Trish Williams

When the Defense Supply Center in Columbus, Ohio, got down to the business of planning the Defense Department's ambitious Fleet Automotive Support Initiative, officials wasted little time in asking what military customers wanted to see for their motor fleet.

The Columbus center is known to more than 24,000 military and civilian customers as the largest supplier of weapon systems spare parts and items. One of three Inventory Control Points of the Defense Logistics Agency, it manages almost 1.8 million different construction and electronic spare parts and accounts for more than $1.8 billion in annual sales.

What center officials heard loud and clear: Defense Department customers do not necessarily want new equipment or a system that would impose burdensome training requirements.

Also, each of the services had its own time frame for getting equipment into the field, said Army Lt. Col. Timothy Dixon, chief of the Combat Vehicles and Tailored Support Acquisition Unit at the Defense Supply Center.

As a result, defense officials determined that the winning contractor would need to use the legacy requisitioning system in the initial stage of the program. Planners also made clear that the winning contractor would have to demonstrate established e-business connectivity ties with numerous suppliers, or prove they could establish such ties in fairly short order, Dixon said.

Because the winning contractor's performance would be tied to the delivery of parts in quick order, the bidders either had to "have slick, well-connected suppliers or might have to do some stockage," he said.

Upon receipt of an equipment order, the contractor has only so many days to process it, given the order's "priority" level. The contractor gets two days to process a priority one, five days for priority two and 10 days for priority three.

Under the FASI contract, which is conservatively valued at $500 million over 10 years, winning contractor ProcureNet, a business-to-government solutions and services company in Great River, N.Y., is required to put a representative at each of the major defense installations in the various regions to respond to customer concerns, Dixon said.

Defense officials already have received an initial positive response from one of the facilities in the southwestern region, Fort Irwin in California, where an onsite customer service representative was able to fix or free up orders.

"That is a very positive thing. The DoD customer took the time to write and tell us it was good to have this asset there," Dixon said.

ProcureNet's contract includes three option periods for a total contract life of 10 years; it is a bit exceptional, but this arrangement recognizes the risks the industry partner is taking on something this big, according to Dixon.

Tests were run to make sure unit orders were processing as they were supposed to before the system began official operations Oct. 2, the first business day of the new fiscal year.
By Trish Williams

Litton-TASC Inc.

Litton-TASC Inc. has e-business ties to the Defense Logistics Agency dating to 1996, when it began helping military officials figure out how to do just-in-time distribution and support for the warfighter, company officials said.

The Chantilly, Va., company, which did about $500 million in business in 1999, is one of the leading contractors in developing an advanced, smart supply system for the Defense Logistics Agency. It will help the military be better prepared to conduct operations anywhere in the world.

The Readiness Decision Support System applies advanced e-commerce software, such as modeling, business intelligence tools, data warehousing and collaborative groupware, giving DLA the ability to quickly forecast private industry's ability to support surges in military demand for materiel, said Joe Russell, manager of TASC's Business Intelligence practice.

"Unlike a Sony Corp., Ocean Spray or other private-sector company, they fight. So there is a surge that goes far beyond Halloween or Christmas," Russell said. "There is a surge in not only what you have to stock, but what you supply their customers."

As the military changes its business model, and agencies lower their inventory carrying costs by having suppliers and distributors handle the interface and inventory problems of restocking items, defense planners can leverage when new items come into the market, Russell said.

Litton-TASC has delivered a version of the readiness support system that allows the DLA to source pharmaceuticals from the nation's leading drug suppliers and plans to extend that capability to all medical materiel, company officials said. The company eventually could extend this capability to food items.

"They'll be getting into the information planning business, and we'll help them plan and forecast what items they should be buying," Russell said. "They need to know what's moving in industry and why. Are there better pharmaceuticals that are coming into the market? They not only need to forecast but also analyze what hospitals are buying and what companies are buying."

Oracle Corp.

Oracle Corp. of Redwood Shores, Calif., the leading developer of database management systems software, is very active in electronic business in the federal government and Defense Department, said Steve Perkins, senior vice president and general manager of Oracle's federal business.

Oracle officials see a lot of direct transferability of efficiencies achieved in the commercial world through e-business initiatives to the defense arena. There is a trend across government, but certainly in the Defense Department, to standardize the underlying technology platform to take advantage of emerging e-commerce solutions, Perkins said.

The Air Force did a significant transaction with Oracle in July, announcing plans to use the company's database to help transform its e-business environment. The service will rely on the Oracle database to support its service personnel, including more than 843,000 users.

In announcing the move, the company said it will provide the service a complete e-business foundation, enabling it to achieve cost savings by streamlining its administration of existing Oracle products and services, and facilitating more rapid technology implementations via the Web.

Officials from Oracle and the Air Force are discussing expanding that arrangement and collaborating to roll out a standard platform throughout the Air Force, Perkins said.

Look for most of Oracle's bids for defense e-commerce work to be in a consortium. Perkins said that while Oracle, which has been in the federal market for 20-plus years, understands the underlying technology that agencies need to make the e-business leap, "there are people who understand and have domain expertise around various processes" to do that. Oracle plans to partner significantly with systems integrators and the Big Five consulting firms in this environment, he said.

BMC Software Inc.

BMC Software Inc. of Houston, a aker of software products that ensure the availability, performance and recovery of mission-critical applications, sees a ripe market for its products, especially in the defense e-business realm.

One example of the company's work in this area is an effort for the Defense Logistics Agency, whose network operations center uses BMC tools to monitor its electronic data interchange infrastructure.

"They put our technology on their application servers and Web servers and we're monitoring the performance and availability of their servers," said Dean Mericka, BMC's regional manager for Defense Department and National Defense Programs. But the work actually goes much deeper, he said.

Because there are multiple layers to these servers, BMC must monitor and manage that application stack. That is done by placing intelligent agents on the servers and setting early warning thresholds so a site experiencing problems conducting certain transactions will be detected early, Mericka said.

"We'll notify an operations person that the threshold has been exceeded, and typically we do that before the staff notices there is a problem and, thus, before the situation is critical," he said.

These early warning alerts from DLA's servers and networks allow defense officials to maintain a 24 hours a day, 7 days a week e-business environment that is "so critical to their mission. They have to be able to move and order supplies to U.S. forces anytime of the day, virtually anywhere in the world," Mericka said.

ProcureNet Inc.

ProcureNet's celebrated win of the Defense Supply Center's Fleet Automotive Support Initiative (FASI) contract came down to having the right technology and expertise and a solid relationship with the government, a top company official said.

"We have had 100 percent of our contracts renewed over the past four years," said Reuven Battat, CEO of ProcureNet, a business-to-government Internet solutions and services company in Great River, N.Y.

For the FASI effort, the company had the right content and the requisite relationships with suppliers (ProcureNet has 30,000 suppliers), defense and company officials said.

ProcureNet's OneSource end-to-end suite of products and services are designed to help customers streamline their purchasing processes and facilitate e-commerce. Such solutions include extensive online catalogs, the PurchasePlace global buying portal, spot buy services and MarketBuilder, which creates private marketplace communities.

In August, the company received the Hammer Award, which is presented to teams of federal and private industry employees that have made significant contributions in support of reinventing government principles. It was created by Vice President Al Gore's National Partnership for Reinventing Government.

"We are the only commercial entity to win it. We were able to reduce the inventory they had to maintain by more than 50 percent, making the whole supply chain of the DoD much more efficient and faster," Battat said.

Battat said the trend to shift the risk from the government to the private industry in e-business procurements will continue.

"The demand will be greater, and it will be more than just having a portal. It will include everything up through supply chain management to demand forecasting," he said.

For most defense procurements, ProcureNet bids as a prime contractor but does have some partners, including Battelle Memorial Institute, Columbus, Ohio.

So who is ProcureNet's biggest competitor in the defense e-commerce space? "We believe we are the leader and do not have one main competitor," said Battat, who doesn't expect that to last for long.
? The Joint Electronic Commerce
Program Office home page:

? JECPO's Project Fact Sheet, listing the status of its programs:

? Defense Department E-mall:

? Defense Department Electronic Commerce Navigator, designed to assist government agencies and commercial industry partners in accessing e-commerce information and conducting
e-business transactions:

? Electronic Commerce Resource
Centers program:

? Defense Department's Medium
Assurance Pilot Public Key
Infrastructure effort:

? The Clinton administration's
"Framework for Global E-Commerce":

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