Smart Shopping

lapped around by Vice President Gore's reinventors and rattled by acquisition reform laws, the Federal Supply Service is becoming customer- and contractor-friendly. For years the government's main procurement arm poured time and energy into money-losing product lines while neglecting hot growth areas such as computer technology. Not that it really mattered, since the FSS had a captive audience. Agencies were locked into purchasing certain products and services from the GSA.

Buyers faced a maze of rigid rules involving tedious review and justification procedures. Even the smallest orders required extensive documentation and hours of research and training. Purchase volumes were limited and no discounts were possible. Deliveries took weeks or months, and payments to suppliers took even longer.

"We were not always customer-friendly," says FSS Commissioner Frank Pugliese Jr., a career civil servant who has worked at GSA for 26 years in various posts. "Since we were mandatory, there was nothing to strive for. People had no incentive to change."

Then came the National Performance Review and Vice President Gore's scathing criticism of excruciatingly detailed design specifications for government ashtrays and other common items. NPR called for abolishing unique specifications and relying more on commercial, off-the-shelf products, which are cheaper and easier to obtain. This move was followed by several procurement reform initiatives to streamline federal acquisitions and create a more efficient procurement system. Finally, in response to growing pressure, GSA began eliminating mandatory-use provisions as individual contracts expired, allowing agencies to buy from whomever they wished.

That's when Pugliese and his crew shifted into high gear. FSS processes were benchmarked against the Fortune 100 companies. A disciplined business plan, based on activity-based costing, was put into action. Unique design specifications and unprofitable product lines were dropped while simplified ordering procedures were added.

The results have been dramatic: Schedule prices now average 30 percent below retail prices and most products are delivered within 48 hours. Although they are no longer mandatory, GSA schedules have been doing blockbuster business. In fiscal 1995, for instance, the FSS sold $1.4 billion worth of computers. This year the agency expects computer sales to tally $2.4 billion. Total business volume for fiscal 1996 is expected to top $13 billion, with the FSS capturing the lion's share of the federal market for automobiles, office equipment, furniture, tools, paints and chemicals.

The National Performance Review team has been so impressed with the results that it presented the FSS with six Hammer Awards for contributions made to the reinvention of government. Now Pugliese wants to reward the employees that made the turnaround possible. He is working on the early stages of a proposal he hopes will eventually establish the FSS as a performance-based organization (PBO)-meaning it would be exempt from government regulations that Pugliese believes inhibit growth.

"We could run this place like a private-sector corporation and give each worker shares of the organization's stock," he says. "That would provide everyone with a financial incentive to meet performance-based goals."

Challenged to Reinvent

In late 1994, then-GSA Administrator Roger Johnson had performance-based goals of his own when he launched an agencywide review. Johnson and others had warned that GSA would be shut down if it didn't begin providing more value. The 0review showed an inflexible and burdensome procurement system that took power away from customers and delivered overpriced goods and services. In the midst of a hiring freeze that had depleted a quarter of the agency's staff, Johnson challenged GSA to reinvent itself.

"We had to change because we had chaos," says William Gormley, assistant commissioner of the Federal Supply Service's Office of Acquisition. "When the schedules became non-mandatory, it put us in a competitive situation. We had to do serious business planning in order to be able to downsize and grow at the same time."

By last summer, the Federal Supply Service had enlisted the services of Arthur Andersen, a consulting firm, which performed a comparative cost analysis to examine how best to carry out the agency's mission. Last year the FSS began phasing in an industrial funding scheme-meaning all operating expenses eventually will have to be reimbursed from sales revenues. (A 1 percent surcharge is added to all purchases.) Congressional appropriations to the agency are scheduled to end next year.

Roundtable discussions with industry leaders produced broad insight about where the FSS could cut operating costs. Arthur Andersen developed a Federal Operations Review Model, which was used to benchmark the agency against 100 top corporations. Dozens of measurements were taken including the time required to prepare purchase orders and deliver goods, approaches to reducing inventory, and the cost of labor, delivery and dispute resolution.

When benchmark results showed room for improvement, the FSS started searching for areas ripe for streamlining. The agency drew up a business plan and examined which processes within its four basic areas-contracting, inventory management, order processing and order fulfillment-were inherently governmental and which could be done by private-sector companies.

Unprofitable product lines, such as industrial gases, were dropped while automated data processing programs were doubled. The agency set an aggressive sales growth target of 20 percent over the next five years.

"When we became non-mandatory, the folks on the Hill said we'd soon be out of business but we set out to prove them wrong," says Pugliese. "Now we're closely aligned with the real world. We've got people thinking outside the box and making a concerted effort to grab back and keep business. Our goal is to give customers what they want."

Changing Management Paradigm

The key to customer satisfaction, the FSS has discovered, is adopting best commercial practices. The agency has transformed its management focus from contracting and compliance-with an emphasis on preventing the misspending of taxpayer money-to providing customers with better quality items faster and cheaper.

Nowhere has change been more evident than in the multiple-award schedule (MAS) program, in which the FSS negotiates and awards contracts to multiple vendors of comparable products and services at varying prices. Ordering has been simplified to reduce paperwork and speed purchases. Notices no longer have to be posted in Commerce Business Daily for orders of more than $50,000. Review and justification procedures have been eliminated for orders of less than $2,500. Agencies making more expensive purchases are only required to review three price lists. Purchases may then be based on best value.

"We're no longer dictating how agencies do business but facilitating how they do it," says Carolyn Alston, deputy assistant commissioner of the FSS Office of Acquisition.

The FSS has lifted the maximum order rules, which limited purchases to certain volumes. Now vendors can process any size orders and treat government buyers in the same manner as private customers. Changes made in price-reduction clauses allow agencies to negotiate lower prices on large orders. Vendors previously had to obey 30-day price freezes and were not allowed to offer spot discounts to one agency unless they offered them to all. Now each MAS schedule carries a maximum order level to help buyers determine when they should seek a price reduction.

"When an order exceeds this level, the customer is encouraged to contact the contractor for a lower price," says Gormley. "This puts more responsibility on the agencies-since they have to negotiate their own best deals-but it also gives them more freedom."

Agencies can use the MAS program to conduct indefinite-delivery, indefinite-quantity procurements by negotiating blanket purchase agreements (BPAs) with multiple-award schedule vendors-thus eliminating costs associated with open market buys. BPA provisions permit schedule users to set up accounts with contractors for items they regularly buy. These accounts have designated durations and generally involve large-volume discounts, enabling agencies to avoid searching for sources, developing technical documents, issuing solicitations, evaluating bids and dealing with protests.

Deliveries also have been expedited. Instead of waiting weeks and months for products, agencies generally get them within 48 hours. Contractors have started identifying in their price lists which products can be delivered overnight or within two days.

Another big change is the supply service's relationship with contractors. In the past, companies seemed constantly at loggerheads with GSA over one issue or another. In one prominent battle, a federal appeals court ruled that FSS' demands for discount data on software sales were "unrealistically broad and burdensome." In addition, vendors were not always paid on time.

In moving to more commercial practices, the FSS sought to make amends with the 10,000 members of its contractor community. The agency is converting all MAS contracts from one-year agreements to five-year deals with five additional one-year options. The FSS hopes the longer-term relationships will help agencies reduce administrative costs and provide continuity with the vendor community. If the conversion is successful, the FSS eventually may commit to contracts lasting 20 years or more.

"Long-term contracts enable us to improve relationships with vendors because companies know they can depend on the business," says Gormley.

Titan of Electronic Commerce

The Federal Supply Service has become an expert user of electronic data interchange-the computer-to-computer exchange of business data between organizations over telephone lines in a standard electronic format. The technology is being used to run a computerized ordering system called GSA Advantage (http://www.gsa.gov), which acts as a virtual shopping mall on the Internet. The system offers 4 million products from 7,000 vendors on 130 government schedules. Buyers can use the point-and-click ordering system to purchase everything from copiers to cars from their desks.

Shoppers can quickly search for products, compare prices, obtain billing history data and document all transactions. Many products ordered electronically can be shipped within 24 hours, thus enabling agencies to keep low inventories and eliminate warehouses. Customers can pay for purchases with GSA Activity Address Codes, IMPAC credit cards or EDI purchase orders.

"GSA Advantage empowers end-users because they don't have to go through supply or logistics people to place orders," says the FSS' Carolyn Alston. "It used to be difficult to get access to schedules or to make price comparisons. Now everything is in user-friendly pull-down menus that require no special training to access."

The electronic ordering system also makes life easier for the supply service's 3,300 employees, who no longer have to deal with problems such as orders submitted with illegible handwriting, transposed product numbers and out-of-date catalog data. EDI technology enables computers to "talk" to each other-so there is considerably less human intervention. Orders once faxed or mailed are now sent via computer, thus eliminating processing delays and re-keying or data-entry errors.

Expanding the Marketplace

The road to reinvention has not been without its share of potholes for the FSS. Overcoming cultural problems has been one of the biggest roadblocks. Some agencies still prefer open market procurements to the new, improved GSA schedules.

"Some contracting officers feel threatened by our outsourcing capabilities," says Gormley. "There's ego involved that makes people think they can do a better job buying what they need. But we have structured our schedules so that agencies can still haggle over price."

Pugliese urges federal buyers and his employees to tell the agency if services are lacking. The "Ask Frank" program enables people to e-mail him (fpugliese@gsa.gov) questions, grievances or suggestions.

"There's no corporate dress code for good ideas," says Pugliese. "We're letting people know that it's OK to criticize us because that's the only way we can continue to improve."

Long-range plans for improvement go far beyond e-mail suggestions, however. Pugliese hopes that someday his agency will become a performance-based organization, free from many bureaucratic restraints. As a PBO, the Federal Supply Service could hire more contracting experts and would not be affected by hiring freezes or limits on full-time employees. In addition, the FSS would not be obligated to use support personnel and services from other GSA agencies.

"We'd be exempt from rules that hinder our ability to buy products and services at the lowest cost," says Pugliese, who doesn't expect legislative action on PBO status until next year. "It would make for more efficient operations and lower operating costs."

Pugliese's proposal for spinning off the supply service into a PBO includes setting up a board of directors comprised of FSS management. The board would elect a chief executive officer who would operate in the same manner as a private-sector counterpart. Employees would hold a percentage of the organization's stock, which they would be able to cash in when they retire.

"Successful work would lead to a share of the organization's profits," says Pugliese. "We could take those profits and expand into the marketplace. Federal Supply Service could be a major player someday."