Marine Fuels: A Better Procurement Process

Web-based Procurement Management Systems Standardize Purchasing Procedures, Increase Transaction Oversight and Streamline Accounting Processes for the U.S. Military

The Defense Energy Support Center (DESC), a field activity of the Defense Logistics Agency and an agency within the U.S. Government Department of Defense, is responsible for the procurement of all energy-related resources in support of the warfighters of the U.S. DESC program management began implementing card programs for the purchase of ground and aviation fuel in the mid-1990s. The success of these programs led to the formal creation of the Government Fuel Card Program Office in 2006. The department’s focus was to implement, manage, and improve fuel procurement services offered by the DESC. At that point in time, the development of a program to secure marine fuel was a developing concept in its initial pilot stage.

The Problem:

Marine fuel and the bunkering process are very costly, the cost of the fuel frequently in the millions of dollars per lift. The time involved in locating and qualifying fuel suppliers, ordering specifications, confirming or disputing transaction details, and processing payments represents additional administrative expense.  Marine fuel is frequently ordered in large quantities, typically hundreds or thousands of metric tons, with specific and detailed fuel specifications and delivery method requirements. For this reason, a transaction cannot typically be initiated at the point-of-sale and frequently must be requested a week or more in advance of a vessel actually coming into port. Additionally, due to oil price fluctuations, the cost of a single transaction can be extremely volatile. To help mitigate this issue in key ports, the DESC has pre-negotiated long-term contracts linked to industry pricing indexes. However, as frequently happens, when there is no contracted merchant available at a port of entry, vessel operators require a method to locate and evaluate the fuel options available to them. Because the DESC is responsible for the procurement of marine fuel across all branches of military service, a way to standardize fuel procurement processes as well as to ensure that appropriate procedures are followed and that the required transaction information is gathered prior to payment was required.

Requirements:

After reviewing existing fuel procurement processes, the DESC identified a number of methods through which it could improve the efficiency of transactions. The DESC’s primary objectives included:

• Improved access to fuel and the fuel ordering process,
• Accurate capture of transaction data,
• Simplified matching of orders to authorizations and invoices, and
• Reduced paper flows.

In theory, the SEA Card Program was initiated to make fuel procurement and the resulting payment process more efficient for both vessels and merchants, while decreasing administrative costs for the government.

The Solution:

The SEA Card Order Management System (SCOMS) was designed in conjunction with Multi Service, a global transaction management company, as a custom-built web operation, accessible 24/7/365 from any computer with a working Internet connection. This strategy ensured that any registered and authorized (warranted) Ordering Officer would have access to the system when needed. The web-based operation also required no hardware or software investment. DoD-SCOMS standardizes the ordering process, electronically capturing all transaction details throughout the procurement process including authorization and confirmation that the transaction has taken place. This electronic capture of information expedited the entire transaction and payment process, eliminating the wait time associated with paper transaction processing and speeding up payment to the supplier. DoD-SCOMS also creates and maintains a completely auditable trail for each transaction.

The first test of DoD-SCOMS was to ensure that accurate transaction details could be captured efficiently for existing long-term contracts. The pilot program launched in October 2005 with 13 vessels and all the contract merchants utilizing DoD-SCOMS. Post successful completion, participation was later expanded to over 500 vessels.

Concurrently, a non-contract network of marine fuel merchants was being developed in order to expand U.S. Government access to marine fuel around the world. DoD-SCOMS would provide the U.S. Government with access to multiple merchants within a single port, worldwide. One fuel request could then be submitted to multiple merchants for proposal so that the DESC could accurately determine the lowest priced, technically acceptable offer. Access to multiple merchants in ports where an existing fuel contract does not exist would provide the U.S. military with the opportunity for competitive and transparent tendering on all “spot” or “Open Market” transactions.

SEA Card went live with its first-ever Open Market transaction in August 2008. The first three quote requests submitted through the system, which resulted in orders and fuel deliveries, took place in Japan and South Korea for Military Sealift Command. This Open Market pilot program ran through March 2009, resulting in the successful completion of 52 orders with a combined worth of $13 million.

Measured Success:

“Internal review of SEA Card illustrates its value,” says Rodolfo Cruz-Olmo, Account Manager at the DESC. “DoD-SCOMS improves analyses over transactions occurred and provides the means with which the United States can make smarter marine fuel purchases.” In fact 77 percent of the non-contract fuel transactions made through DoD-SCOMS to date have been purchased at below the U.S. Government fiscal year standard price points.

The SEA Card Program has also had a measured impact on procurement administration. The procurement process has been designed such that there have been zero incidences of fraudulent purchases made within the system, and that invoice accuracy is confirmed prior to any accounting processes. This has significantly reduced transaction processing time, which used to average more than 75 days from fulfillment to payment and now averages 28 days – a 47 day improvement.

The measurable success of the SEA Card Program contributed to DESC’s 2007 David Packard Excellence in Acquisition Award. The David Packard Award honors superior Department of Defense acquisition teams that demonstrate exemplary innovation and best acquisition, technology or logistics practices. In 2007, the Deputy Undersecretary of Defense for Acquisition and Technology James Finely honored the winning acquisition groups for finding “new and innovative ways to expand the talents of their people, to extend the talents of their people, to extend the life of our material, and to stretch the purchasing power of scarce dollars.”

Enhancements to the SEA CardProgram have been ongoing to further streamline communications within DoD-SCOMS between all parties in the transaction process. The number of vessels and branches of service utilizing SEA Cardcontinues to grow. The number of fuel merchants signed to the program also continues to increase. SEA Card has processed over $700m in transactions to date.

Michele Urness is senior vice president of Multi Service, a global transaction management company partnering with the DESC on the development and enhancement of the SEA Card program. Email: [email protected]

Published in the August 2010 edition of Maritime Reporter & Engineeing News - www.marinelink.com