Company changes way government shops CyberSystem runs IntraMall, leads new procurement effort


March 01, 1998|By Mark Ribbing | Mark Ribbing,SUN STAFF

CyberSystem Technologies Inc. is trying to change the way the federal government does business -- literally.

This Hunt Valley firm, which was founded in 1996 and has about 20 employees, is on the leading edge of an important trend, the automation of federal procurement.

CyberSystem operates the IntraMall, a private electronic commerce network. The National Institutes of Health has begun using the IntraMall to put researchers directly in touch with vendors of beakers, chemicals and other equipment. A procurement process that once absorbed weeks of time and reams of paper is now handled instantly with the tap of a key and the swipe of a credit card.

The project is still in its infancy. After a five-month pilot program, the NIH's biggest division, the National Cancer Institute, made the IntraMall available to all credit card-holding employees in January.

No one is claiming that the IntraMall will by itself bring instant

order to the sprawling, unwieldy, $200 billion federal procurement process. However, officials at the Bethesda-based NIH are already convinced that the network will save their agency time and money.

MaryAnn Guerra, the NCI's associate director for intramural management and a leader in the NIH's IntraMall effort, said the network will be an important procurement tool. "We probably don't have enough users to say this has solved all of our problems, but we think that it will. Everyone who sees it wants it," she said.

Ruth Arnold, a senior purchasing agent at NCI, concurred.

"I'm not placing phone calls to vendors. It's all automated. I want to see this expand. I think it's the wave of the future," she said.

Chris Gwynn, a senior analyst at The Yankee Group in Boston, said electronic procurement has important advantages over traditional methods.

"It makes the whole process a lot more efficient," he said. "Sometimes processing costs can exceed the cost of the item they're actually buying. It's a huge area of savings."

Estimating the savings that IntraMall will bring is a dicey business, since observers disagree on procurement costs. The Yankee Group's Gwynn said the paperwork and personnel costs of traditional procurement amount to $125 per purchase, while electronic commerce cuts those expenses to $10 per buy.

That estimate, said Jeffrey Weiner, who is managing the IntraMall for NCI, seems exaggerated. But, he added, "We think it's going to save a lot of money."

Not all of the benefits are financial. Buying over a network spares purchasers from having to keep lots of chunky, quickly outdated catalogs. Vendors can get paid within days instead of months. Paper purchase orders are eliminated, and the buyer gets one monthly invoice -- the credit-card bill -- rather than thousands.

The IntraMall's proponents say the network avoids the security problems that have plagued some Internet transactions. For starters, the IntraMall is not part of the Internet. Rather, it is an intranet -- a private computer network with tightly controlled access.

This enhanced security is perhaps the most important factor in the growth of the IntraMall -- and of CyberSystem.

The IntraMall has its roots in recent political history. For over a decade, the movement to simplify the procurement labyrinth has gained momentum in Congress and the White House. Lawmakers have called on federal agencies to behave more like private businesses in their buying practices, and the streamlining of procurement has been a key plank of Vice President Al Gore's "re-inventing government" crusade.

Reformers have sought to increase the government's use of credit cards, claiming that plastic will reduce paperwork and shorten payment cycles.

Company credit cards, long a mainstay of the private sector, have only begun to proliferate at the NIH. Monthly credit-card purchases at the agency doubled from $2 million in 1996 to $4 million in 1997. In 1995, the entire NIH had only 29 agency-issued credit cards. In 1997, there were 841.

However, the NIH lacked a way to ensure that credit-card purchases were simple and secure. "You want some checks and balances to know that people aren't buying a car or whatever," said Guerra.

Enter the upstart from Hunt Valley. "We needed an easier way to use [credit cards], and along comes the IntraMall," said Weiner.

CyberSystem produces the IntraMall through a special operating agreement with the NIH. Under the terms of the agreement, the NIH will help CyberSystem market the IntraMall, but does not pay anything to use it.

This raises a question: How does CyberSystem make money?

Brian Stauffer, CyberSystem's founder and president, said the firm earns revenue from the IntraMall in three different ways.

First, the company leases "space" on the mall to vendors. Second, it charges vendors a $1.95 flat fee for each transaction. Finally, the company will try to mine the mountain of raw data it gets on IntraMall commerce.

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