When Procurement is Rocket Science

Can putting the Space Shuttle together provide the experience to revamp California's procurement process?

by / June 30, 1998 0
In the 1970s, Charles F. Grady was in charge of procuring all the millions of parts that went into building the Space Shuttle. Now, he faces another daunting challenge: overhauling California government purchasing.

Charles F. Grady
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"The challenge I saw when I got here really stimulated me. California really needed to bring its whole procurement process into the 20th century, so that we can get into the 21st century."

Grady, who spent more than 20 years in procurement-related positions in the aerospace industry, oversees the Procurement Division of California's Department of General Services (DGS) -- an organization moving away from handling the state's day-to-day commodity transactions to a more strategic role.

Under Grady, who was named to his current post by Gov. Pete Wilson in 1995, the Procurement Division emphasizes instruments -- like purchase cards and multiple award schedules -- that shift commodity transactions closer to end users. In more complex acquisitions, Grady strives to instill the notion that state agencies must forecast their technology requirements years in advance to ensure that private industry can provide what they need.

"The challenge I saw when I got here really stimulated me," said Grady. "California really needed to bring its whole procurement process into the 20th century, so that we can get into the 21st century."

A Rocket Scientist

Grady, a native of Fort Valley, Ga., brings to his position vast experience in complex procurements. He entered state government service after a private-sector career that included six years as the director of material for Rockwell International's space division.

Managing an organization of some 750 people, Grady rode herd over 10,000 subcontractors involved in the Space Shuttle program. "We ran those competitions and awarded those contracts," he said. "Of course, the more difficult activity was to manage those contracts until the parts of the shuttle were tested and delivered and integrated."

Like most large aerospace projects, subcontractors built large portions of the shuttle, including the wings, avionics and electromechanical systems, explained Grady. "The prime contractor does very little of the actual building. Typically, the value of the subcontracts is 60 to 70 percent of the value of the project," he said. "There were probably about 150 [subcontractors] that had major, major elements of the shuttle program. So program management is really a very significant element."

In addition to his work at Rockwell, Grady also served as controller and director of administration for Honeywell, operations manager for materials at Hughes Aircraft, and senior management consultant for Arthur D. Little. Grady was appointed to his current position after taking an early retirement from McDonnell Douglas, where he was director of supplier management.

These days, Grady seeks to inject some of the supplier-base management and program management techniques developed for the space program into the way California acquires complex computer projects.

"The work of procurement isn't to issue purchase orders. It's to interface with the public sector and put the problem together with the solution," said Grady. "My experience in the aerospace industry translates pretty directly to what's needed here in the state environment."

Critical Communication

Grady contends the state must become better at predicting its future technology requirements and more adept at preparing private industry to meet them. He said government tends to spring technology demands on IT suppliers with very little warning, simply assuming that vendors will be ready with the appropriate products.

Unfortunately, that isn't always the case. "The private sector tries to anticipate these things, but they don't have the information," he said. "That's why, in my mind, some programs run into trouble. We don't prepare [vendors] very well, and then we try to hurry them up."

Grady believes a key task for purchasing organizations is to prod agency leaders into thinking about their technology needs well in advance, then communicate that information to the supplier community. California's Procurement Division took a step in that direction last October by organizing a strategic planning meeting for senior-level state personnel.

While being extremely pleased with the meeting's outcome, Grady admits that the notion of preparing for what lies three years to five years down the road remains far from being institutionalized. "We've got a lot of work to do just to get people comfortable with that kind of planning. State governments -- and governments in general -- have never been noted for being able to forecast where they're going," he said. "Purchasing has always been kind of a reactive process -- a requirement pops up, and the procurement organization reacts to it. You've got to get out in front of that requirement and get the private sector ready for it."

In essence, the state must do more talking with its supplier community, said Grady, and the Procurement Division is ideally positioned to facilitate the exchange between state decision-makers and IT vendors.

While Grady acknowledged that increasing communication between government and suppliers involves changing the state's cautious approach to vendor contact, he said opening the dialogue can be accomplished ethically.

"We don't promise anything to anybody. What we're trying to do is stimulate research," Grady said.

"In the past, we've had kind of a commodity mindset that says you can't talk to suppliers, because it might compromise your bid process. You don't want to talk to [vendors] much once you've started that process, unless it's in a very controlled environment. But all the way up to that point, you want to talk extensively to that community just to figure out what's available and what can be done."

Get It Now

Besides trying to improve complex purchases, the Procurement Division has revamped the way California conducts routine transactions by allowing its "customers" -- other state agencies -- to do more of their own buying.

"In the past, this division received requisitions and actually carried out the transactions," said Grady. "[Now,] the job is going to be to create contracts that facilitate access by agencies. We're creating contractual instruments of all different kinds that can be accessed very easily to buy the products and services that those individual agencies need."

For instance, the Procurement Division's California Multiple Award Schedule (CMAS) program allows state agencies to shop from nearly 1,500 preapproved contracts, mainly for IT products and services. The 4-year-old program lets buyers easily compare products, services and pricing from a variety of vendors. In all, more than 700 suppliers now do business through CMAS, and sales have topped $600 million, according to DGS.

Since CMAS contracts are already in place, agency buyers avoid the time-consuming and cumbersome bidding process. In fact, the Procurement Division contends products and services may be ordered from CMAS in a matter of minutes.

Another innovative program, known as GS $Mart, gives buyers easy access to below market-rate financing. The 2-year-old program offers prenegotiated financing agreements to state and local governments. Rates from participating financing firms are posted on the Internet, allowing buyers to shop for an arrangement that fits their needs. "The rates that we get are very close to the rates that the treasurer can borrow at for the state of California," noted Grady.

The Procurement Division estimates GS $Mart has produced savings of $3 million on interest rates alone since its inception. In addition, agencies have seen a 60-percent reduction in the time it takes to process financing paperwork, according to the division.

Finally, the division operates what may be the largest state purchase card program in the country: CAL-Card. Modeled after the federal government's IMPAC (International Merchant Purchase Authority Card) program, CAL-Card is designed to replace the slow-moving purchase-order process on low-dollar procurements.

After a slow start, CAL-Card has blossomed into a major component of California's procurement reform efforts. Last year, the program's 13,464 cardholders made some 450,000 purchases worth $79 million. "We not only have a lot of state agencies using [CAL-Card], but a lot of cities and counties are joining in as well," said Grady. "It's the wave of the future. The purchase card is really going to be used to take low-value transactions and make them very simple."

Grady predicts the card may one day handle as much as 80 percent of state purchasing. Besides simplifying the buying process, CAL-Card saves nearly $25 per transaction compared with payment by purchase order, according to the Procurement Division. Suppliers also get paid much quicker.

"What's happening is information technology is coming in and really making these transactions very fast and pretty simple," said Grady. "I think the real critical part is to give [buyers] procurement vehicles that are very easy and very simple."

Focus on Training

With new instruments in place to help state workers quickly acquire supplies and services, Grady now intends to see that buyers make proper use of their new-found empowerment. His division will spend $450,000 on training this year -- a 10-fold increase over previous years -- to educate agency personnel on basic procurement techniques.

In fact, Grady eventually expects to introduce certification for procurement personnel in his division and other state agencies.

In the past, the Procurement Division has delegated a certain amount of buying authority to its customer agencies, which then set up their own internal purchasing units. Under the certification concept, each buyer in the unit would receive scrutiny.

"There's nothing magical about a unit that should build your confidence that it can do the procurement job; it's really an individual thing," said Grady. "If, for example, the Department of Corrections had 15 people in [a buying unit] that were actually doing buying activity under a delegation, each one of those 15 people would be evaluated and certified based on their ability to do that job."

He also encourages participation in professional organizations. "That takes us into the private sector. We learn a lot that way, and they learn some things from us."

More of the Same

Clearly, Grady has been at the helm of an organization experiencing a sea change. For the future, he expects more of the same. As the agency's literature is fond of saying: It's no longer business as usual at the Procurement Division.

"We needed to put a lot of current procurement thinking into the process. It had been a little bit backward and stagnant for a lot of years," he said. "We're transforming this particular division from a transaction-based organization to a knowledge-based organization."

For more information on the California Department of General Services, Procurement Division, visit the Web site.

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