Page 18: of Maritime Reporter Magazine (August 2010)

18 Maritime Reporter & Engineering News

The Defense Energy Support Center (DESC), a field activity of the Defense

Logistics Agency and an agency within the U.S. Government Department of De- fense, is responsible for the procurement of all energy-related resources in support of the warfighters of the U.S. DESC pro- gram 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 for- mal creation of the Government Fuel

Card Program Office in 2006. The de- partment’s focus was to implement, man- age, and improve fuel procurement services offered by the DESC. At that point in time, the development of a pro- gram to secure marine fuel was a devel- oping concept in its initial pilot stage.

The Problem

Marine fuel and the bunkering process are very costly, the cost of the fuel fre- quently in the millions of dollars per lift.

The time involved in locating and quali- fying fuel suppliers, ordering specifica- tions, confirming or disputing transaction details, and processing payments repre- sents additional administrative expense.

Marine fuel is frequently ordered in large quantities, typically hundreds or thou- sands 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. Ad- ditionally, due to oil price fluctuations, the cost of a single transaction can be ex- tremely volatile. To help mitigate this issue in key ports, the DESC has pre-ne- gotiated long-term contracts linked to in- dustry pricing indexes. However, as frequently happens, when there is no con- tracted 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 ma- rine fuel across all branches of military service, a way to standardize fuel pro- curement processes as well as to ensure that appropriate procedures are followed and that the required transaction infor- mation is gathered prior to payment was required.

Requirements

After reviewing existing fuel procure- ment processes, the DESC identified a number of methods through which it could improve the efficiency of transac- tions. The DESC’s primary objectives in- cluded: • Improved access to fuel and the fuel ordering process, • Accurate capture of transaction data, • Simplified matching of orders to au- thorizations and invoices, and • Reduced paper flows.

In theory, the SEA Card Program was ini- tiated to make fuel procurement and the resulting payment process more efficient for both vessels and merchants, while de- creasing administrative costs for the gov- ernment.

The Solution

The SEA Card Order Management

System (SCOMS) was designed in con- junction 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 strat- egy ensured that any registered and au- thorized (warranted) Ordering Officer would have access to the system when needed. The web-based operation also re- quired no hardware or software invest- ment. DoD-SCOMS standardizes the ordering process, electronically capturing all transaction details throughout the pro- curement process including authorization and confirmation that the transaction has taken place. This electronic capture of in- formation expedited the entire transaction and payment process, eliminating the wait time associated with paper transac- tion processing and speeding up payment to the supplier. DoD-SCOMS also cre- ates 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 effi- ciently 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. Con- currently, a non-contract network of ma- rine fuel merchants was being developed in order to expand U.S. Government ac- cess to marine fuel around the world.

DoD-SCOMS would provide the U.S.

Government with access to multiple mer- chants 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 Com- mand. 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 illus- trates 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 procure- ment 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 sig- nificantly reduced transaction processing time, which used to average more than 75 days from fulfillment to payment and now averages 28 days – a 47+ day im- provement. 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 demon- strate exemplary innovation and best ac- quisition, technology or logistics practices. In 2007, the Deputy Undersec- retary 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 tal- ents of their people, to extend the life of our material, and to stretch the purchas- ing power of scarce dollars.” Enhance- ments to the SEA Card Program have been ongoing to further streamline com- munications within DoD-SCOMS be- tween all parties in the transaction process. The number of vessels and branches of service utilizing SEA Card continues 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.

COLUMN SOFTWARE SOLUTIONS

Marine Fuels

Better Procurement

About the Authors

Michele Urness is senior vice president of Multi Service, a global transaction management company partnering with the DESC on the development and en- hancement of the SEA Card program.

Email: [email protected]

Web-based Procurement Management Systems Standardize Purchasing Procedures, Increase Transaction

Oversight and Streamline Accounting Processes for the U.S. Military