MFG.com Lands Huge Department of Defense Engagement: in the Cloud!

Headquartered in Atlanta, MFG.com has been active since 2000, building an online marketplace for the sourcing of components ranging from custom to standard parts, assemblies and textiles. In the process, they've built a global supplier network upward of 150,000 suppliers worldwide. The company has broadened its initial scope and now offers LiveSource, a sourcing suite, along with professional services. Clients range from large firms like Kimberly Clark (and after today's press release, the DoD) to mid-market organizations.

Technically speaking, the entity inking the deal on the gov't side is the U.S. Department of Defense Manufacturing Technology Program and the Office of the Secretary of Defense - but let's use the "DoD" moniker, it's so much shorter.

Nearly $800,000 is the year one price tag for the deal - public information, this disclosure is one of the downsides with selling to the gov't. This buys the DoD a customized version of MFG's LiveSource solution to address their MRO parts needs - delivered over the cloud! The DoD has a staggering annual $150B spend for their MRO needs, so this account brings a huge pot of gold to the domestic portion of the MFG supplier network.

It is clear that the Defense Logistics Agency that owns this initiative is faced with the same challenges as many corporations with centralized procurement functions -- i.e., once you have done the 80/20 spend segmentation and removed already contracted spend, you still have a large tail that is awkward to manage effectively. And in the current environment where the DoD has to extend the life of their "warfighters" --weapons delivery platforms -- since their CapEx budget for new machinery is under severe pressure, they will inevitably have to spend a good deal more on extending the life of their existing gear. Gear in the realm of aircraft carriers all the way down to much smaller equipment.

The DoD has identified or is working with 36,000 vendors for this spend right now, and they view their potential vendor pool as 300,000 vendors. So the incentives for MFG to substantially expand their vendor network as well as bring solid value to their existing members is significant.

The main driving force behind the DoD initiative is a realization that their bureaucracy is simply too difficult for smaller businesses to get through. MFG recently surveyed some of their suppliers and found that 62% are highly interested in working with the DoD, but only around 15% have recent (within three years) experience of actually working on DoD contracts.

As one measure to address this, MFG will add to or beef up their vendor registration and onboarding solution to better address the DoD's needs around engaging with qualified small and diverse businesses. Part of this process will also be typical sourcing cleanup efforts around breaking out common denominators (standard CoC, T&C content, etc.) from the RFQs to be able to effectively engage with pre-approved vendors without subjecting them to repeat paperwork.

By broadening the qualified supplier base and streamlining the onboarding/qualification process, MFG expects to deliver significantly increased bid response numbers to the DoD. MFG's current average is 7.9 responses per RFQ, whereas speculatively speaking the DoD would probably be pleased to see two per RFQ. I can recall from working with the US Navy (NAVSUP) in the past that many RFQs for MRO work had only a single respondent.

It is exciting to see that even the stalwart DoD is willing to try out cloud solutions, and Spend Matters offers a big congratulations to MFG for landing this deal. We look forward to revisiting this. Assuming this works well at the DoD, the number of other federal agencies ready to adopt this approach will keep MFG busy for quite some time!

- Thomas Kase

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