THE INFORMATION REVOLUTION

If the reasons cited above were not enough to encourage reforming the government acquisition process, the fact that we are also entering the Information Age adds gravity to the situation. In his book Megatrends: Ten New Directions Transforming Our Lives, Peter Naisbitt claims globalization of the information society occurred in 1957, when white-collar workers in technical, managerial, and clerical positions first outnumbered blue-collar workers. For the first time in our history, more people worked with information than labored to produce goods or services.

The federal government has had a major role to play in developing the computer and what we refer to as electronic data interchange. The first working computer, the ENIAC, was developed for military needs during World War II. Early in the Cold War, the military requirement for an “early warning system” in the Canadian Arctic enabled IBM to design and manufacture working computers in substantial numbers. The Internet, which is a group of academic, commercial, and government computer networks, was developed in 1965 under the auspices of the Advanced Research Project Agency (ARPA) and the National Science Foundation to link scientific computers for technical research purposes.

The capability to move data electronically means that people can exchange information without paper. Computer-to-computer exchange has had a phenomenal influence on how business information is processed, transmitted, and stored. It can be accomplished through a wide range of information technologies that include electronic data interchange (EDI), electronic funds transfer (EFT), electronic mail (e-mail), document imaging, and facsimile (fax) transmissions.

E-mail includes any technology that permits the interchange of electronic data between e-mail users. EDI is a computer-to-computer exchange of routine business documents using transaction standards agreed on by both contracting parties. Document imaging technology scans the characters from paper and then stores the electronic image on an optical or laser disk. This technology permits storage and retrieval of thousands of documents within seconds without the operator leaving the workstation. Document imaging, when combined with e-mail and EDI, is not only making a paperless office a reality but also is revolutionizing the flow of work within the organization and between the buyer and seller.

EDI is a powerful communication tool that carries a variety of message formats, including technical drawings, and that can interconnect with a variety of e-mail networks. E-mail fosters communication among buyers, sellers, and members of an integrated development team because it is not constrained by organizational or even national boundaries.

One of the primary benefits of EDI is a faster and concurrent flow of information to members of the integrated acquisition team. The Internet and sharing of common databases has greatly reduced the information float (that is, the amount of information that cannot be accessed because it is in the mail between sender and receiver). Another advantage of EDI is greater efficiency due to the elimination of data entry errors and a reduction of personnel costs by reducing handling and storing of documents. Other revolutionary methods by which data is exchanged include:

1. Electronic funds transfer (EFT), which is the electronic transmission of payments and remittance information. The Department of the Treasury’s Financial Management Service (FMS) and the Department of Defense Finance and Accounting Service (DFAS) are the agencies that manage invoices and vouchers for the civil and defense acquisition, respectively. Both prefer paying via EFT because it reduces paper-handling cost substantially. The benefit to the contractor is that it receives payment three to five days sooner than payment via a mailed check.

2. Facsimile (fax) transmissions, which occur when typed characters on a page are converted into electronic impulses that are transmitted over telephone lines to a fax machine for conversion into readable text. Documents can be faxed over an already existing telephone system integrated into a computer or stored in a document imaging system.

Within the organization, EDI, E-mail, and document imaging are electronically integrating information used by such traditional business functions as product design, manufacturing, acquisition, inventory management, physical distribution, accounting, and finance. Rather than waiting for information on the design of a new product to be sent to manufacturing, that information can now be pulled from the design database, thereby compressing product development time. This same technology permits the buyer and seller to do business electronically.

The use of EDI for business purposes was advanced with the passage of the Electronic Signatures Act in June of 2000. Under this legislation electronic signatures and documents have the same legal validity as manual signatures and hard-copy documents. Key provisions of the act are that: (1) a signature, contract, or other record relating to a transaction in interstate or foreign commerce may not be denied legal effect, validity, or enforcement solely because it is in electronic form; (2) a contract relating to such a transaction may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its information; and (3) rules for retention of electronic records are set.

Peter Drucker has stated that “with the advent of the computer, information became the organizing principle for work.” Beginning in the 1950s, in most commercial firms such tasks as physical distribution, manufacturing support, and purchasing were organized functionally, and management followed a vertical protocol. Since that time, as new methods to move and share information have been introduced, organizations have begun to refocus their orientation away from function operations and have learned to operate interdependently, rather than independently. This requires rethinking how work is actually going to be done as well as the internal management structure. The information-based organization is a group of specialists with separate bodies of knowledge that are linked in a network but that function as independent agents. These specialists are viewed as interacting with the suppliers as well as the ultimate customer. This interaction occurs across internal functions on a network basis rather than by formally reporting to a specific manager. Success comes from a commitment to managing the overall process rather than remaining loyal to the organizational structure.

In an article appearing in the Acquisition Review Quarterly, the authors state that information technology “is changing the role of the government’s purchasing department from a transaction-oriented function to a more managerial function focused on establishing and maintaining relationships with suppliers, third parties, and internal customers, and leveraging corporate buying power. In its new role, procurement will also manage the technological infrastructure necessary either to automate transactions fully or to empower end users to perform many transactions without direct involvement of purchasing personnel.”

It is important to point out that the term procurement as used above has a broader meaning than the word purchasing. Procurement takes place in many departments. It is the systematic process of deciding what, when, and how much to purchase; the act of purchasing it; and the process of ensuring that what is required is received on time in the quantity specified. In other words, purchasing is a subset of procurement.

To purchase goods and services effectively, the government acquisition process must be able to interface effectively and efficiently with processes used in the private sector. Management in the commercial sector, because of its significant contribution to the bottom line, is looking to reduce the organization’s total material cost. They are therefore reviewing their purchasing history and systems. The results will then be used to develop procurement plans and to form strategic alliances with key suppliers, creating a synergistic relationship between purchasing, materials management, and the product’s supply chain.