Only continuous, “supercharged” market research can overcome today’s risks.
What federal agencies don’t know about contractors and markets can hurt them.
Witness the sudden disappearance last month of Imperatis Corp., the contractor renovating the Office of Personnel Management’s (OPM) computer network in the wake of last summer’s breach of the personnel and background investigation records of 21.5 million people. Imperatis announced it was ceasing operations due to financial distress on May 7.
OPM was caught unaware and, though it isn’t expecting termination of the company’s contract to affect operations, the situation has deepened already intense congressional and inspector general scrutiny at a time when the agency is seeking additional funds for technology upgrades.
Deeper understanding of the interactions, trends, constraints, behaviors and financials of vendors, their supply networks and buyers in the IT services market will significantly reduce the risk that OPM or other agencies will face incidents like this one.
But reaching that level of insight will require much more comprehensive supplier and market analysis than the acquisition market research that agencies currently perform to meet the requirements of Federal Acquisition Regulation Part 10.
It will take systematic, continuous gathering, evaluation and application of information on the current and potential new suppliers and markets from which government buys.
Fortunately, the category-based approach to procurement now being adopted governmentwide enables and requires collecting, analyzing and using supplier and market intelligence. It’s a good thing, because market and supplier risks to federal acquisition are multiplying. For example:
- Federal agencies are increasingly dependent on computers, data centers and infrastructure, such as the electricity grid and cooling systems. Consequently, climate risks that could disrupt the supply networks of these products and services pose a threat to agency missions.
- The 2011 monsoons in Thailand caused the worst flooding in 50 years, destroying nearly one-third of the world’s hard disk drive manufacturing capacity. HP, the U.S. government’s No. 6 information technology supplier and Dell, No. 21 in 2015, both suffered as a result, as did global computer production, causing shortages and price fluctuations affecting the federal market.
- NASA told the Government Accountability Office that if U.S. power companies suffer failures, it could lose navigational control of some or all of the 240 spacecraft it is tracking at any time.
- Veterans Affairs Department doctors and patients and Air Force pilots among others, rely on Apple iPads and iPhones to perform vital functions. Both devices are built by Foxconn Technology, which assembles 40 percent of all consumer electronic products sold. Past reports of harsh conditions and labor unrest at Foxconn plants assembling iPhones and iPads in China have damaged Apple’s reputation and could cause difficulties for government buyers.
- In October 2012, Hurricane Sandy caused flooding and power outages at refineries, pipelines, and petroleum terminals in the New York Harbor area resulting in fuel shortages for federal agencies as they tried to provide essential disaster relief.
- The F-35 Joint Strike Fighter program includes an extended chain of more than 1,300 suppliers from nine countries and 48 states. Six hundred are considered small businesses. The extent of the supplier network introduces a broad range of points of possible failure.
- The National Institute of Standards and Technology has identified information technology supply network risks—including insertion of malicious hardware and software, theft, tampering and poor manufacturing and development processes—due to buying organizations’ “decreased visibility into, and understanding of, how the technology that they acquire is developed, integrated and deployed.”
- The General Services Administration recently asked industry for ideas about ensuring that the components of IT products bought by government are not vulnerable to hacking.
- A proposed rule published May 25 would require all companies selling goods and services worth more that $7.5 million to the federal government to report on their greenhouse gas emissions and reduction targets. The rule is intended to help the government work with contractors to develop strategies to reduce supply chain emissions.
Market and supplier analysis encompasses more than standard market research, with its requests for information (RFIs), one-on-one discussions with vendors, industry days, Google searches, inquiries of other contracting offices or consulting a company’s Contractor Performance Assessment Reporting System scores.
The “supercharged” market research necessary to mitigate today’s risks and manage spending by categories requires gathering and interpreting information about:
- The competitive landscape
- Market size, growth, structure and procurement practices
- Supply and demand
- Inflation and deflation
- Product and service innovations
- Market disruption (for example, the introduction of substitute products and services)
- Market risks and challenges
- Regional or country-related risks
- Sustainability, productivity and financial performance
- Legal and regulatory issues
- Number of buyers
- Number of suppliers
- Type and nature of suppliers (for example, manufacturers, assemblers, full-service providers), whether fulfilling a requirement takes multiple suppliers, service delivery capabilities, etc.
- The supply network for providing goods or services
- Alternative products or services
For this analysis to translate into reduced risks and increased value, it must inform procurement and category strategies, as well as entire acquisitions, relationships with suppliers and contract performance measurement. Deployed well, it will improve requirements development, choice of contract type and crafting of solicitations. And it will result in better terms, conditions and prices and more effective contract performance and outcomes.
The Office Federal Procurement Policy has segmented spending on commonly purchased goods and services into 10 governmentwide categories and named a manager and formed a team to oversee each one. The teams must learn as much as possible about the markets and suppliers in their categories.
Studying the market will reveal whether current suppliers are sufficient to meet federal demand or whether new companies or even new approaches, are needed. Category and subcategory teams’ market analyses will reveal the extent of competition; government’s bargaining power vs. that of other customers; economic, financial, regulatory and sociopolitical factors affecting suppliers; distribution channels; risks; sustainability and other issues specific to the category.
So, for example, an analysis of the market for laptop computers might include:
- The size, characteristics and prospects for growth of the laptop market, its geography and the size of segments
- The market share held by each original equipment manufacturer
- Assurance of supply, component assurance and systemic quality management throughout the supply network
- Assessment of risk within the supply network
- Market constraints, such as relatively low performance levels, economic improvements enabling high-priced purchases, new models, low profit margins, low mobile broadband penetration impeding market growth, demand and price reduction
- Market characteristics, such as which manufacturers dominate various component markets, alliances among component makers, leading assembly companies, emerging joint ventures
- Macroeconomic and technology trends, such as reductions in consumer spending, increasing reliance on computers, expansion of broadband, increased computer use in schools, introduction of faster processors, new competing products, new operating systems, bundling of computers with telecommunications providers’ data plans
- Total cost of ownership; cost structure and trends, including price variation due to supply and demand changes and cost increases or decreases for key raw materials and logistics
Category teams will analyze suppliers to understand:
- Their businesses and relevant business models
- Management structures
- Supply networks
- Products and services
- Key clients
- Pertinent news about them
- Analysts’ views
The teams also will research the requirements, behavior, contracts, buying history and end users of purchasing agencies.
Performing market research at this level will take expertise in locating and then structuring and filtering information into accurate, actionable insights. Category and procurement teams will rely on these insights to manage demand, standardize on fewer configurations of products and services, develop appropriate sourcing strategies, strategically identify suppliers, manage contract performance and outcomes, and collaborate effectively with providers to streamline procurement processes and share innovations. It is important to understand that this is a continuous activity and should be used throughout the full lifecycle of category management.
In addition to seeking information from companies, market analysts can plumb a host of commercial and government sources, such as industry, analyst, regulator, labor and economic reports; news, company websites and earnings calls; proprietary databases; federal contracts; the Acquisition Gateway; advocacy group data; interviews with federal buyers; company and industry representatives and observers; company financial statements; and the like.
As government begins to “buy as one” by managing its spending in categories, supercharged market research will provide many new opportunities to reap value from vendor relationships for agencies as well as the governmentwide teams. The results of their supercharged market research no doubt will begin to appear on the Acquisition Gateway and will support governmentwide strategic sourcing, auctions, procurement process changes, contract consolidation and the use of other levers to rationalize acquisition.
High-level market and supplier scrutiny and transparency also will motivate contractors to better manage their data, supply chains, logistics and finances, creating a new source of competitive advantage and new factors federal buyers can evaluate when choosing among bidders.
David Shields, the managing director for procurement transformation and category management at ASI Government, is the former managing director of the U.K. Government Procurement Service.
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