Riding the Wave of IT Procurement Consolidation in DOD
January 14, 2016 Leave a comment
by Mark Wisinger, Analyst
For the past few years, the term “consolidation” has become synonymous with data center consolidation — a major initiative across public sector. The federal government’s objective in data center consolidation is clear: minimize spending and do more with less.
While data center consolidation has taken limelight for some time now, procurement consolidation is becoming a widespread initiative as it focuses on efficient spending. Let’s take a look at how DOD’s procurement consolidation impacts the bottom line of technology companies that do business with the government, and how you can ride “the wave of IT procurement consolidation.”
The Department of Defense’s overall policy dictating procurement consolidation is the Better Buying Power (BBP) initiative. Currently on its third iteration, Better Buying Power applies to more than just IT and aims to reduce costs from initial procurement to the end of the product lifecycle. Noting past successes and savings, the Defense Logistic Agency’s current strategic plan emphasizes adherence to BBP.
What Does DOD’s Alliance to BBP Mean for IT Procurement?
Across DOD, there are noticeable decreases in funding from FY15 appropriations to FY16 requests that we see at agencies like the Missile Defense Agency. At first glance, it might appear that the decline in programmatic requirements and procurement activity are tied to funding decreases — this is not the case. The decline in programmatic requirements and procurement activity can be attributed to IT-based consolidation (data centers, storage, or virtualization), procurement consolidation, or a combination.
With procurement, specific agencies have negotiated (or are in the process of negotiating) enterprise-wide licensing agreements with major software OEMs in order to lower prices with consolidated purchasing power. Eventually, we can expect to see DOD-wide enterprise licensing agreements — though at the moment it’s fragmented.
More bulk-licensing or enterprise-level purchasing is becoming common across the DOD as the department aims to buy in large quantities and scale efficiently. DOD CIO, Terry Halvorsen, has expressed his frustration when meeting with new IT vendors. Mr. Halvorsen wants products that can scale large, quickly — aligning with procurement consolidation efforts.
How Can You Ride the “IT Procurement Consolidation Wave”?
Keep the Better Buying Power initiative in mind when pitching a new product and closing the deal. During the pitch, emphasize scaling capabilities because in all likelihood, the customer will ask about it. When closing the deal, know that the government will possibly leverage an enterprise licensing agreement down the line, so be amenable to such pricing arrangements. Monopolization or a decrease in competition are unlikely outcomes of this initiative. One of the stated goals of Better Buying Power is increased competition. DOD does not want to eliminate product diversity, but instead minimize the cost of existing products and scale new products rapidly across the enterprise. While there will be a small margin hit, IT vendors can more rapidly ramp up the total volume of licenses, increasing overall revenue.
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