The procurement process has been simplified through the implementation and use of a "commercial solicitation." The reduction in solicitation clauses from 192 to 76 has created a solicitation that is physically smaller and requires less time to pull together. The revamped clauses, which now resemble those found in industry, also reduce the chances of confusion on the part of the offerer. Overall, reengineering the procurement process has moved DFSC-A to a more efficient commercial solicitation with reduced lead time, negotiation time, and administrative time. It has cut red tape for contractors and customers.

The use of electronic commerce is emphasized in day-to-day operations to provide easy access for the business community with which DFSC-A works. Local utility and interstate pipeline electronic bulletin boards (EBBs) are used to monitor nominations, consumption, curtailments, and imbalanced trading. Doing business in this manner reduces paperwork and provides up-to-the-minute information for decision-making purposes.

The Northwest Pipeline EBB is used to advertise and contract for released pipeline capacity to cover transportation requirements for the Northwest Direct Supply Natural Gas (DSNG) Defense Business Operations Fund (DBOF) Program customers. The published tariff rate for interruptible transportation on Northwest Pipeline is $.2826 per dekatherm, but DFSC-A has been able to purchase this transportation for as low as $.03 a dekatherm. Use of this contracting method has produced significant cost avoidance for DBOF DSNG customers in the Northwest, i.e., $390,000 for the first quarter of FY 1996 alone. Electronic Funds Transfer is used to pay for natural gas procured under DBOF funded contracts.

The Internet was used to negotiate terms and conditions for contracting action for natural gas requirements in Alaska. Due to the time difference between Alaska and Virginia, this method facilitated discussions and allowed for quick response time between the parties.

The DCST has been tested in CINC exercises such as ULCHI FOCUS LENS 95 and BRIGHT STAR 95. DCST procedures have been refined, practiced and applied in real world contingencies. The DCST Haiti deployed over 150 individuals to Haiti in support of Operation UPHOLD DEMOCRACY. The DCST Bosnia has deployed over 100 individuals, to date, in response to Commander-in-Chief, Europe tasking for Operation JOINT ENDEAVOR. The DCST has been approved by the CINCs, is working well in contingencies, and has received very positive feedback from our customers. The DCST provides accessibility of our experts to the customers and enhances DLA support.

The Council's mission is to function as a joint body to review policies and initiatives which impact DLA's mission capability. The Council also serves to provide advice and to recommend proposals and/or solutions to better DLA's goals and objectives.

Council members are briefed on a wide variety of agency initiatives from every business area. As an example, all DLA reinvention laboratories that have DLA-wide implications or impact on personnel policies are forwarded to the Partnership Council for review. With reinvention labs as well as other initiatives, the group then recommends steps to be taken in order that the interests of the DLA family are best served.

In addition to dealing with agency initiatives, the Partnership Council also is committed to spreading partnership practices throughout the agency. As a result of the Council's efforts, DLA has nearly twice the percentage of employees working in organizations with labor-management partnership agreements as do the Military Services.

DDSP established a team to reduce the amount of wood and cardboard waste. They were to evaluate the process and make changes to meet the guidelines and requirements set forth by

DoD. Their recommendations led to the complete shut down of two wood waste landfills (transfer stations) located on the installation. All waste wood is examined for reuse within the depot. Reuse includes the repair and remanufacturing of used pallets and wood cartons. Pallets that do not meet specifications are sold through open markets to help fund the program, and what little remains is processed through a local business where the wood is mulched and sold back to DDSP at a reduced rate for use on the installation grounds.

In the fiberboard box area, DDSP has benchmarked with private industry and initiated a closed loop system where scrap fiberboard generated from DDSP is recycled and processed into a 100% recycled content fiberboard box for use in the shipping operation. Both wood and fiberboard are being recycled in a true closed loop system.

DDSP's 100% Closed Loop Wood/Fiberboard Recycling Initiative has been chosen as a winner of the White House Closing the Circle Award honoring their innovative environmental closed loop program. The winners of this prestigious award exemplify the best, most innovative programs implementing the objectives of Executive Order 12873.

Significant progress towards meeting the challenge of standardizing DCMC's processes by providing a solid, well-defined, and documented tool for communicating operational policy to our field personnel was made when the DLAD 5000.4 was published in March 1995. However, due to changing customer requirements, both internal and external, additional challenges associated with the One Book Initiative have arisen. Acquisition reform and the appearance of new and emerging technologies require that DCMC improve the methods by which they develop and disseminate policy on processes, procedures, best practices and lessons learned. These newly defined requirements have been rolled together and identified as the Internal Process Standardization Challenge (DLAD 5000.4 Improvement).

The Agency's Defense Personnel Support Center recently developed an innovative contracting program called Prime Vendor that uses private-sector distribution capabilities. Under Prime Vendor, a contract is awarded to a supplier to ship directly to military activities, on an as-needed and when-requested basis, within a specific geographical area. This process reduces delivery leadtime to the customer and, by utilizing the private sector's storage and distribution system, reduces the Agency's associated warehousing and redistribution costs. It also facilitates reductions in local inventories held by food preparation activities. This, in turn, reduces the costs borne by the U.S. taxpayer. Due to the unique requirements of Navy vessels, some food requirements may be more effectively met through government-owned but contractor-operated warehouse facilities.

The Subsistence Prime Vendor Program was tested during FY 1995 in the southeastern United States, and was determined to be a feasible and viable method of providing high quality food for DoD stateside garrison feeding. With lessons learned during the demonstration, the potential for optimizing the use of commercial food systems will continue to be realized. While projected savings by the Department are being calculated, DLA estimates a $20 million reduction in wholesale inventory alone during FY 1996. In conjunction with the Services, DLA is aggressively expanding the Subsistence Prime Vendor Program throughout the continental United States, with a targeted completion date of March 1997.

The "multi-fuel squad stove" procurement is an example of the application of CVC resulting in better, faster, and cheaper support to the customer. Before Defense Supply Center Richmond used CVC to acquire the multi-fuel squad stove, they had tried to acquire this item using a military specification and set of drawings. Customer demand was not being satisfied because the contractor had trouble producing this $120 military specification stove with a delivery time of 300 days. Eventually the contract was terminated, and a serious problem developed, with 78,000 units back ordered. To solve this problem, Richmond utilized the CVC approach, focusing the acquisition strategy around the utilization of commercial specifications as the means to describe the item. Richmond conducted customer conferences that validated that the commercial description met the military customer's requirements. In August 1995, Richmond awarded three contracts (Optimus, Interdyne for Coleman stoves and Interdyne for Franz Heinze stoves) that provided the customers nine different National Stock Numbered stoves from which they could select to meet their individual needs. The unit cost for a stove was reduced to $50 and it can be delivered to customers within 30 days of order. It is projected that over the life of this contract Richmond will save the taxpayers $3 million. The field customer is very pleased with the results of this approach and back orders have been reduced to 1,085 units.

The Defense Personnel Support Center (DPSC)-Subsistence division created a win-win situation when it commercialized item descriptions and item codes, and streamlined the ordering process for fresh fruit and vegetables. No longer are federal specifications or even commercial item descriptions used to purchase these products...a fact which attracted new business for DPSC from the U.S. Department of Agriculture's National School Lunch Program. DPSC's new marketing approach incorporates simplified item descriptions and the U.S. Standards for Grade markings. The overwhelming positive results of this "Spec Busting" approach are reduced costs, greater product varieties, and more timely delivery.

Specification busting achieved $14 million in cost avoidances to customers for FY 1995 as a result of lower product prices. It is estimated that the program will save customers an additional $70 million over the next five years.

Examples of price savings include development of a commercial item description for canned ham, which saved nearly $400,000 for two fiscal quarters alone, and changes in the requirements for Flameless Ration Heater (furnished as part of the Meal Ready to Eat), pouched meals that troops eat while deployed. The revised specification, allowing for commercial shipping containers, in lieu of government requirements, saved over $216,000.

Quick Response achieved $1.7 million in cost savings for FY 1995. The savings are the result of lower distribution depot transactions costs (primarily handling items out of the depot) experienced for Quick Response sales vice depot sales. These savings are passed on to our customers as reduced surcharges (or the cost required for the depot to fill a customer order). It is estimated that the program will save customers an additional $79 million over the next five years.

Quick Response implementation began with "bag items." These items are the issued uniforms required by recruits for basic training. The recruit centers are DPSC's largest customers and therefore represent the greatest potential for system-wide savings. Approximately 20% of the total dollars spent in FY 1996 on clothing and equipment items will employ quick response. The goal of DPSC's Directorate of Clothing & Textiles is to incorporate Quick Response into contracts for all major dress uniform items, footwear, gloves, and other non-bag items for rapid deployment.

Increased use of this program allowed customers to reduce their inventories by up to 80% which saved considerable storage space and avoided additional construction or modernization of warehouses. The program likewise reduced the need for warehousing and transportation at DLA facilities. Additionally, the program helped to eliminate supply backorders, stockpiles, depot disposal, and miscellaneous handling charges. Initiatives under this program are estimated to have allowed inventories to be reduced by over 29.1% ($l43.5 million) and to have achieved $95.7 million in cost avoidance for FY 1995. It is estimated that the program will permit further inventory reductions and will save customers an additional $353 million over the next five years.

Walter Reed Medical Center reduced its Medical on-hand inventory by 83%, and closed six warehouses in the process. They also reported over $7 million in recurring annual savings by converting to Prime Vendor. DPSC so "delighted" Walter Reed that they awarded DPSC the Commander's Award for Civilian Service.

Defense Personnel Support Center (DPSC) Wins Awards. DPSC in Philadelphia, Pennsylvania has won the Innovations in American Government Award, sponsored by the Ford Foundation and Harvard University, the Public Service Excellence Award, and two Vice Presidential Hammer Awards, sponsored by the National Performance Review for their Electronic Commerce/Electronic Data Interchange programs.

DPSC revolutionized how the military orders, distributes, and contracts for food, medical, and clothing products. Contracting has moved from repetitive buying according to detailed specifications to building business systems where the customer purchases and receives commercial items directly from the vendor. DPSC has adopted the best commercial practices and commercial systems to provide the customer with the choice of commercial products, good prices, one-stop shopping, and just-in-time delivery. It has changed its role from processing transactions to brokering business information. It is using a buying and distribution system that significantly reduces such traditional in-house functions as purchasing, billing, inventory, and transportation. This system is built on electronic commerce and electronic data interchange. The payoff is speed, choice, and competitive cost to the customer.

Benefits include decreased delivery time, decreased inventories (both in the DLA wholesale system and at the customers' sites), efficiencies gained through the use of electronic ordering, invoicing and payment, decreased manpower levels, and increased customer satisfaction.

One of the inspired procurement practices was "bundling" together installations on the same interstate pipeline for the purpose of solicitation, evaluation, and award of contracts. The "bundling" approach is appealing to vendors because it involves a larger quantity and increases the flexibility the offeror has in making delivery to each installation. As a result of this corporate contracting initiative, the number of offers from more reliable suppliers has increased and prices are very competitive. This initiative also improves customer service through increased contractor reliability, and reduces the administrative time and costs associated with awarding numerous contracts.

A second change in procurement practices was to implement successfully the use of source selection procedures for the evaluation of technical proposals and past performance. This process allows DFSC-A to look at how the offeror intends to meet the requirements of the contracts, while taking into consideration how the offeror has met requirements on previous contracts. The technical and past performance evaluations help DFSC ensure that natural gas customers are truly receiving the best value. This initiative also increases the reliability of contractors which, in turn, leads to decreased contract administration time for both DFSC-A and its customers.

Similarly, unbundling of services by some local utility companies has enabled DFSC to compete customers' gas requirements on a monthly basis, with the utility competing as just another supplier. DFSC uses basic ordering agreements which have terms and conditions prenegotiated with approximately 20 suppliers. On a monthly basis, DFSC issues a one-page fax or wire solicitation to obtain competitive bids.

The Agency has made a major breakthrough by having developed a model that will assess its capability to support the warfighter forces with current assets. It will also determine war reserve requirements for future force structures. The model will assess Agency capability by weapon system, day-by-day, and based on various operating scenarios.

The model is currently being tested against actual scenario type weapon system data for all of the Military Services. Results appear to be very favorable. To date, the model has concentrated on doing assessments against critical weapon systems and associated critical components. The model will be part of an Integrated Feasibility Demonstration to Service and Commanders-in-Chief of Pacific and Central Commands. Based on a request from the Joint Staff, the model will be used in the Global War Games. The model is currently being expanded to include medical, bulk fuels, and repair parts. Future efforts will address other troop support items.

Expected benefits from this leading-edge effort are a reduction of risk to the warfighter, improved visibility of war-plan support capability, and procurement of requirements directly tied to war plans.

Based on valid customer concerns, the DLA Depot Operations Team developed a Discrete Pricing strategy. They established 10 processing rates and 30 storage rates were developed based on materiel handling characteristics, storage requirements (covered vs. open), and actual cost. Instead of a standard service charge for every transaction as had previously been the pricing policy, the new discrete pricing system charged more accurately for services performed and will allow the customers to make intelligent tradeoff decisions.

Improved unit cost accuracy, as implemented under Discrete Pricing on October 1, 1996, will produce better and more consistent cost controls, more effective decision making, and less fluctuation in the overall cost of the program. DLA offers best value to its customer with a rate structure that charges the customer for services rendered.

For their efforts, the DLA Depot Operation Team received the 1995 Distinguished Team Award from the American Society of Military Comptrollers.

In 1995 DCMC test pilots and quality assurance personnel expressed concern that aircraft production hangar operations had become overly cumbersome and in need of improvement. They requested a review of the entire acceptance process, from the time an aircraft enters the production hangar until it is delivered to our customers.

Sikorsky Aircraft embraced the idea of a thorough and demanding review of the acceptance process and joined with DCMC Sikorsky to effect the continuous improvement, or Kaizen, investigation of the production hangar. The results were dramatic. Reductions in acceptance test flights, a decrease in labor hours, and a drop in the total number of days in the entire process were accomplished without affecting the quality of the product. After a comprehensive evaluation of the Kaizen results, DCMC Sikorsky and Sikorsky Aircraft incorporated the changes into their operating procedures which guide the acceptance process. Training was also provided to all employees in order to ensure a standard, long-lasting impact on the acceptance process.

To date, the efforts of DCMC Sikorsky and Sikorsky Aircraft Acceptance Kaizen have realized savings of over $2.5 million a year. Never satisfied, the Acceptance Kaizen team continues to meet regularly to track and improve not only the aircraft acceptance process, but other indirect processes at Sikorsky that impact the quality and cost of our product.

Through the efforts of the DSCR Business Development Office, an Environmental Products Catalog was produced in 1994 to offer customers alternatives to products known to be detrimental to the environment. This publication included 300 national stock numbered items in ten categories.

The catalog includes all necessary data and points of contact and allows the customer to research one publication instead of separate information sources. Most items are delivered by the vendor, thereby reducing shelf-life problems and liability from warehouse accidents. The catalog is distributed to DSCR's military and federal civilian customers worldwide. Sales of environmentally-oriented products almost doubled from $6.8 million in FY 1994 to approximately $12 million by the end of FY 1995.

The expanded catalog, published in December 1995, includes 500 national stock numbered items in 15 categories. The Environmental Products Catalog can be electronically examined through the World Wide Web on the DSCR home page, It can also be downloaded from the EPA Enviro$ense electronic bulletin board system. This allows customers to electronically browse the catalog and place requisitions on line.

Two of this unit's most notable efforts were: using Electronic Data Interchange to streamline the acquisition and payment processes for fresh fruits and vegetables and, consequently, to eliminate manual processing of requisitions and invoices; and joint development of the Controlled Atmosphere Reliable Transportation System (CARTS).

The business newspaper of the Produce Industry, "The Packer," praised the Department of Defense's use of CARTS in the transit process of fresh fruits and vegetables. The joint effort of DLA and Trans Fresh, American President Lines, and the University of California at Davis, has been recognized as reducing transportation costs to military bases in the Far East by using ship transportation instead of the old method of air freight. Experiments showed that "hitchhiking" insects in fresh produce shipments could be destroyed by radically reducing the oxygen in containers by using the controlled atmosphere technology. In addition, with the impending international ban on ozone-depleting gases by the year 2000, this new procedure provides a safe means of complying with insect quarantine requirements demanded by many countries.

During 1995, Military Services added requirements for solvents to the Reserve. DLA reacted quickly and was able to make purchases and began preparations for required specialized storage.

The Environmental Protection Agency (EPA) endorsed DLA's proposal to provide Reserve "type" support to other federal agencies. DLA worked with EPA to develop and distribute a pamphlet that describes the Reserve and "banking" services available. Two agencies, the United States Postal Service and the Central Intelligence Agency have entered into agreements with DLA for banking support. DLA is in discussions with several other agencies who have indicated interest in this type support.

The success of the Reserve has been hailed not only by various government agencies and the Services, but by industry as well. In fact, in recognition of the establishment and management of the Reserve, Mr. Ron Sibley received the Stratospheric Ozone Protection Award for exceptional contributions to global environmental protection. This is truly a valuable active recycling program which protects the environment, saves the government money, and promotes the national defense.

One success story is the Department of Justice Immigration and Naturalization Service's (INS) request for DCMC to close out 413 inactive contracts, as a result of an Inspector General finding. In the three months allotted for this effort, DCMC closed 400 of the contracts (97%), and recovered $20,000 dollars in overpayments.

Another success story involved the Civilian Contract Management Office, Washington, which was processing a Maritime Administration dispute involving a wage determination that had been pending for over three years. Experienced DCMC personnel researched, and resolved the claim for the Maritime Administration, resulting in a cost savings of $379,800. The contractor concurred and signed the modification on January 31, 1996. This amount of savings had not been anticipated by the Maritime Administration.

Although DCMC is closing its pilot test for marketing its contract administration services and is preparing a final report for the Office of Federal Procurement Policy, DCMC continues to offer services to non-DoD agencies on a reimbursable basis. The current goal is to increase reimbursable work by $9.8 million between fiscal years 1996 and 1997, which is a sizable increase from $3.4 million in fiscal year 1993 and $5.3 million in fiscal year 1995.

One of the major success stories for this reinvention laboratory is the implementation of the DCMC Customer Liaison Program, which was established by DCMC to provide on-site support to DCMC's major customers, including the military services, NASA, DLA inventory control points, and the DoD buying commands. The liaisons have made significant contributions towards the improvement of communications and support, have been proactive in resolving customer problems, issues and concerns, and have been catalysts for change and conduits for the flow of information. The program is an innovative approach for DCMC to reach out to its customers, educate its customers, and offer an opportunity for the customers and DCMC to communicate openly to ensure customer satisfaction. The liaisons have an effective teaming arrangement and network that enable them to go full circle in assuring customer satisfaction and preclude areas of weakness that would otherwise go unnoticed.

FOCUS has institutionalized the Postcard Trailer Survey instrument. The Postcard Trailers are product/service-based surveys that provide feedback from DCMC customers on levels of satisfaction with DCMC's Contract Administration Service products and services. DCMC has developed a database that is used to collect, analyze, and respond to specific customer concerns. The results of this feedback are being used as a measure of customer satisfaction in the DLA Executive Information System and, in turn, to change policy going into the current DCMC Business Plan.

One of the most important benefits from the DCMC Customer Liaison Program and Postcard Trailers is that districts are now able to be responsive to immediate customer concerns.

ASCOT can be accessed through the Clothing & Textiles Home Page on the World Wide Web using any industry-standard web browser that supports forms. Customers without direct access to the Web will eventually be able to dial into the DPSC Clothing & Textile commodity via modem and gain access through a dedicated server. ASCOT allows customers to search DPSC's complete catalog by various methods, including key word descriptions (shirt, trousers, boots, etc.), national stock number or specification. When a customer scans by description, a list of all matching items is displayed. The catalog includes full screen digitized photos for all items, various item-specific information (including price and sizes), and a point of contact for any additional information or questions the customer may have. Hypertext allows the customer to send E-mail to the point of contact without exiting from the catalog. After identifying the item or items desired, customers then have the option to place an order via the Internet by filling in a few fields on a user-friendly screen. Although anyone can browse the catalog, a security check restricts ordering to registered customers.

Requisitioning on-line through ASCOT saves customers from hours to days, depending on the previous method utilized. The search capability greatly facilitates the requisitioning process for our customers. The system allows the user to get to the right item and provides all the information necessary to submit an order. This eliminates manual research on the part of the users and reduces the possibility of submitting a requisition for the wrong item. The system also provides necessary controls by allowing requisitions only from authorized customers.

The system went "live" in December 1995 and has been well received by all who have visited the Web site. A growing number of customers submit their clothing and textiles orders by ASCOT.

M3 provides customers with cheaper service. For example, to ship a package weighing 10 pounds from Defense Distribution Depot Warner Robins, Georgia, to a customer at McClellan Air Force Base, California, would cost $27.60 using USPS Express Mail, but would cost only $9.66 using Federal Express overnight delivery service. This is a $17.94 savings/cost avoidance. During a six month test period, M3 accumulated a savings/cost avoidance of approximately $129,000 with the use of a GSA contract carrier (Federal Express).

M3 also provides customers with faster service. Use of commercial carriers resulted in reliable delivery service compared to highly variable delivery times associated with the old way of doing business. The typical transit time from supplier to customer is one day. If shorter and more reliable delivery of classified materiel allows the Military Services to reduce inventories, then the savings/cost avoidance achieved through M3 will be even greater.

M3 provides customers with better service. Carriers' modern electronic tracking and control systems provide intransit asset visibility and shipment control which was previously unavailable. Burdensome red tape procedures created over many years were eliminated. The new way of doing business avoids actions such as obtaining clearance to ship, preparing a Government Bill of Lading, preparing a Report of Shipment message, using dual vehicle drivers, having exclusive use of a vehicle and performing constant surveillance.

As a result of M3's success, it was expanded to include unclassified and unkeyed controlled cryptographic items and controlled substances. Work is in progress to expand M3 to include other commodities such as small arms.

The objective is to provide expedited ordering and time-definite delivery service for critical items that have an impact on customers' missions. The primary focus is on items weighing less than 150 pounds, but the facility can accommodate shipments up to 750 pounds. Premium Service, operated by a contractor, Federal Express (FEDEX), is located in a Government-owned facility at the Defense Distribution Depot Memphis, Tennessee. As a result of the partnership with FEDEX and the facility's proximity to the FEDEX hub at Memphis International Airport, requisitions can be received as late as midnight with customers receiving delivery the next day. This additional eight hours gives the requisitioner a significantly increased opportunity for next-day delivery, as over 50% if the Premium Service requisitions are received in the evening hours.

Key elements include on-site inventory management, warehousing, streamlined entry of customer orders, Military Standard Requisitioning and Issue Procedures interface, and total in-transit asset visibility. Premium Service guarantees direct delivery to continental United States customers within 24 hours after receipt of the order, with delivery to all other customers within 48 hours after receipt of the order. Customers receive orders within the continental United States on an average of 21 hours from receipt of an order. International shipments average 43 hours with same day or next-day customs clearance.

Premium Service is a relatively new program. All DLA Inventory Control Points (ICPs), four Army ICPs, Marine Corps, and Coast Guard activities have items in the facility. The Navy ICP and Navy Cruise Missile program will become customers in April 1996. The items that are to be located in the facility have a potential of generating in excess of 15,000 shipments per month.

Premium Service will satisfy customers' needs to maintain a high degree of flexible contingency response capability. It is anticipated that costs to customers will be offset by reductions in the cost of maintaining retail and wholesale inventories, and by improved workload scheduling arising from more dependable delivery times and more responsive logistics support.

The depot ships items to federal agencies, schools and other non-military customers, plus some foreign governments. DDCO ships and stores over 410,000 different items, valued at more than $500 million, and ships about 1,700,000 orders to customers each year. The depot reduced the average time to fill a customer order from 11.8 days in November 1993, to 2.0 days in July 1994 --down 83%.

DDCO measured the time from receipt of order until delivery to the customer in the U.S. or, for shipments to overseas customers, the time from receipt of order until delivery to a cargo containerization point. The 83% improvement in processing time was accomplished in the face of a 24% personnel cut and a 26% budget cut, with a reduction of only 1% in customer orders from the previous year. An analysis concluded that properly organizing the work processes would allow every customer order received from Monday through Saturday to be packed and shipped within 24 to 48 hours, despite the resource cuts. More specifically, all small parcel orders could be shipped each day, while bulky freight items could be shipped by the next day. In addition, all of the high priority customer orders could also be completed on Sunday.

DDCO employees formed Quality Improvement Committees, Quality Improvement Teams, and a Depot Steering Committee where they discuss the business processes at DDCO. The processes are under continuous review through the use of statistical process control techniques. New processes are developed through the "plan, do, check and act" process. Teammates are encouraged to present their views on any process, even if it is not within their primary work area, and they have developed a philosophy to "not just meet a standard," but to "process today's customer orders today." The two unions representing DDCO employees were also a part of the Team. By including the unions in every development within the distribution depot, the DDCO Teammates have forged a relationship built upon mutual trust.

A team of highly motivated cataloging technicians recognized the need for process improvement and seized the opportunity to improve significantly the existing LSA process by volunteering to design a new system. The DDE team was allowed a high level of autonomy by management. They assumed responsibility for the design of the DDE system and recognized their accountability for the end product being developed.

Implementation of the DDE system resulted in a significant reduction in the number of days required to process LSAs. The international goal for processing LSA requests is 120 days. The percentage of LSAs processed within the 120 day goal at DLSC has improved from an average of 70% in 1993 and 1994, to 98.9% in 1995. It now takes an average of only 37 days to process an LSA request using the DDE system, a dramatic improvement in responsiveness. While continually maintaining a high level of productivity (approximately 40,000 LSAs are processed per year), the overall error rate has continued to decline since the implementation of DDE, from 28% in 1994 to 10% in 1995.

To retain current business and to regain lost lumber sales, the Defense Logistics Agency tested its wood products initiative at two Marine Corps bases in the southeastern United States. In the test the Agency compared local purchases at Camp Lejeune, North Carolina, against use of a centrally negotiated long-term contract at the Marine Corps Logistics Base at Albany, Georgia, to gauge which method provides the better customer support. Customers using the DLA-centrally negotiated long term contract placed their orders electronically and the wood products were delivered in some cases by the next day. The test indicated that the average prices customers paid under the centrally negotiated long-term contract were almost 10% less than the local purchase prices, and that response time was on average nine days better (a 33% improvement).

The Defense Logistics Agency believes that consolidating orders within a geographic region

will result in greater buying power which, in turn, will significantly lower the costs to the customer while providing better service. The projected estimated savings could exceed $1.4 million a year if customers used the centrally negotiated long term contract instead of buying through local purchase.

Based on the successful outcome of the test, DLA has started to implement the new procedure incrementally on a regional basis to its major customers. Long term contracts have been negotiated to provide support to activities in Norfolk, Virginia; North Carolina; Odgen, Utah; and Georgia.

DLSC averages over 1,500 transactions a year, worth a net value of $95,000. By incorporating the Plastic Credit Card Network, DLSC provides increased customer satisfaction, convenience, and the ability to obtain new customers through direct access pricing and processing.

DLSC averages 300-plus requisitions for goods and services monthly. Of these, 75% fall into the $2,500 or less category. Through training, research, and advanced capability DLSC can now perform more efficiently while providing the directorates fast and convenient service and product reliability. The retailer is paid within 24 hours of the transaction, opening new doors and methods for us to procure goods. Because of past experience with government payment procedures, some retailers would not do business with the government agencies, but through direct line payment, opportunities are available to enhance competitiveness, cost comparison, and buying potential.

DLSC uses the credit card to support its internal customers, with attendant reductions in cost and in time. Previously, when directorates wanted to procure goods and services, they were required to fill out a form and process it through the financial office, supply requisition office, procurement office, and receiving dock. The average cost for processing each form was $422, and processing time was at least 510 days. By using the credit card, DLSC was able to cut the cost per transaction by $60 and processing time to an average of three days.

This initiative brings together supply and transportation information from various files

in depot mainframe systems into a single data base in a personal computer. With the aid of a laser card reader/writer, information is written onto the card and accompanies the shipment to its destination. AMS is operational at continental and other than continental U.S. sites and has also been used successfully for contingency situations overseas in Somalia, Haiti, Korea, Guantanamo Bay, and Bosnia-Herzegovina. Tangible benefits included a net savings from reduction of receipt processing times amounting to $80,000 per year per site implemented. For 600 sites planned for implementation, projected benefits are $48 million per year. Distribution system-wide benefits reduce the cost of shipping resulting from avoidance of excess supply requirements, reduction of container detention fees and time spent in causative research, and lateral distribution and container consolidation point operations.

The optical memory card has proven to be extremely resilient during the harshest military environmental conditions, where it was subjected to heat, cold, moisture, flexing, shock abrasion, dust, dirt, fingerprints, and magnetic interference. AMS has been selected as the receipt system of choice because it enhances intransit and total asset visibility.

Since December 1994, overall Agency customer wait time has been reduced three days. By first focusing on those portions of the delivery process controlled by DLA, center processing time was further reduced by 33% from an average total of six days to four days. Urgent requirements are averaging one day response. For large categories of items such as food and medicine, DLA has brokered contracts with major manufacturers and distributors to accept direct orders from military customers with delivery directly to the users. The customer's wait time is significantly reduced by avoiding interim storage in a DoD depot, and the taxpayer saves money from reduced inventory holding and storage cost. Cost avoidance for FY 1995 in medical alone are estimated to be $95.7 million, with projection of an additional $353 million over the next five years.

In 1996 DLA will concentrate on another element of customer wait time that it can influence. DLA will scrutinize customer backorders with a goal of reducing the total number 10% and reducing aged backorders 25%. DLA expects to recognize and implement other improvements that will materialize as yet another element of product delivery is reengineered.

DLA has put into place flexible ordering arrangements, including electronic commercial catalogs and electronic bulletin boards, and is developing an electronic commerce "mall" and Virtual Prime Vendor as additional flexible techniques. These arrangements will provide customers a choice among a wide range of items and sources for obtaining them, including contracts with prime vendors, corporate contracts, contracts for on-demand manufacturing (quick response), and other long-term schemes. The nature of the arrangements, including the electronic link to our suppliers and customers, has reduced the need for inventory, provided for shorter delivery timeframes, and resulted in lower prices to DLA customers, while at the same time providing them with broader choices. The conversion to commercial practices reflected in these various approaches has brought about improvements in annual changes in material prices (which were 88% below anticipated inflation in FY 1995), and a 33% improvement in DLA's logistics response time on issues, and inventory reductions totaling $1.6 billion to date. They are also bringing about a 45% reduction in overall DLA staffing during the FY 1993-2003 timeframe (of which over half will be completed by the end of this fiscal year), and the same percent reduction in distribution storage capacity requirements by FY 2003, of which over half has already been achieved. Examples of commodities in which commercial-type techniques have been applied are the medical and surgical commodities; pharmaceuticals; subsistence; clothing and textiles; bulk steel and non-ferrous metals; and vehicular batteries.

These techniques support the strategic objective of putting customers first and the goals of "faster, cheaper, better" in that they enable those customers and our logistics managers to conduct business in the electronic marketspace environment, while simultaneously adding value in terms of lower prices, faster response, and greater product choice.

Under a logistics research and development partnership, the Defense Logistics Agency, the University of Utah, Sacramento Air Logistics Center (SM-ALC), Newark Electronics, and University of Southern California successfully tested and implemented PartNet, a new Internet-based catalog of components that aims to speed up and simplify the parts research and acquisition process. The system will combine technical data with inventory and pricing information, allowing customers to research, order and purchase parts from a central location via the Internet, thus streamlining the parts research and acquisition process. The fact that the items ordered from PartNet will be direct-vendor delivery will save the depot storage cost associated with stocked items. During the test phase, PartNet will be used to conduct parts research and buy the selected items using the International Merchant Purchase Authorization Card (IMPAC) credit card.

Currently the system comprises a 125,000 item catalog from Newark Electronics. Efforts are currently underway to add additional vendor catalogs. DLA expects the parts availability to double or triple by the year's end.

PartNet was recently tested at SM-ALC and item searches were accomplished via electronic data interchange and other methods for several commodities. These resulted in purchases that took 3-5 days vice 35-40 previously. Based on the successful outcome of the test at SM-ALC, DLA has started to deploy PartNet at other test sites. In March, PartNet was installed at the Air Force Logistics Center Reengineering Lab. We will implement PartNet at Tobyhanna Army Depot in April. Additional customer sites will be identified during the next three months.

The overall savings to the customer and DLA will be substantial. The Functional Economic Analysis conducted by KPMG Peat Marwick indicated that total savings eventually could exceed $500 million over ten years.

Employees and supervisors participate in all stages of this process to simplify and make work processes more cost effective by streamlining and improving work flow, eliminating wasteful processes and increasing quality control. The OCP has been restructured around its core processes to create work groups containing customer service representatives dedicated to specific customers. Program managers have been appointed for each core process/program. Almost all supervisory positions have been eliminated; self-directed work groups have been established that are empowered to work, following established operating procedures, without direct day-to-day supervision. Results of customer surveys are used to improve the level and quality of the service provided to their customers. The service is customized to fit their needs.

This aggressive program of self-improvement has resulted in a supervisory ratio of 1:24, compared to a ratio of 1:16 currently recommended by the National Performance Review. The OCP also attained a personnel servicing ratio of 1 civilian personnel employee for each 125 employees serviced; they are on schedule to achieve a personnel servicing ratio of 1:150 by the year 2001. A ratio of 1:150, when compared to the Department of Defense servicing ratio target for the period from FY 1995 to FY 2001, will realize a savings of $8 million in salaries per year.

Recognizing the potential to derive significant benefits from these highly skilled professionals, the Agency reorganized the reservists into joint teams and freed them to train by participating in front-line, high-return projects. Care was taken to ensure that their training assignments were closely related to their mobilization training requirements. A "reserve consulting service" was established to match reservists' skills to Agency requirements, giving career managers greater access to the wealth of talent resident in the reserve program.

Recently, reservists have produced tangible benefits as expert consultants on a number of projects like new processes for refrigerant reclamation ($15.4 million), price escalation indexing for fuel ($1.6 million), and inventory and relocation of DLA material from depots facing closure ($1.0 million). Other projects included design of data systems, an efficiency review of distribution operations at Agency depots, reduction of contract closeouts, and contractor fraud recoveries.

Through these and other services, this cadre of reservists added $58.8 million in value in 1995.

For example, Defense Supply Center Columbus calculated savings of $131,800 on a metal tube assembly purchased for the Navy in December 1995. At Defense Electronic Supply Center, they realized savings of $23,062 on circuit cards bought for Tobyhanna Army Depot. Total calculated DLA savings for the first half of FY 1996 are $593,825.

Buyers always consider the private sector first, but when there are no responsive sources, the organic sources have been a significant help providing the warfighter with a much needed safety net. In many cases there is no adequate technical data package, or the original private sector manufacturer is no longer in business, or does not want to produce the part, or cannot produce according to the schedule of customer needs. In such cases, the buyers have no other option, but to use public sector sources to meet customer readiness requirements.

As buyers work with the Services to fill requirements through manufacturing sources, acquisition methods are being refined. More orders are being placed electronically, against pre-arranged Blanket Purchase Order Agreements, and the transfer of funds is becoming smoother. These trends must be continued and expanded if DLA is to effectively use manufacturing sources when appropriate for timely customer support.

An annual Inventory Accuracy Conference is convened to assess overall performance and target areas for improvement. Followon workshops and continued analysis of key indicators facilitate joint solutions to systemic problems.

Based on customer/supplier inputs, five performance improvement criteria categories were developed. These provide the framework for integrating all inventory accuracy related policies, processes, and system requirements. Program assessments are made to evaluate operational performance against improvement criteria. The DLA team then focuses on those areas most in need of attention.

To bring about continuous improvement over baseline performance, a Distribution Process Management Program was established to place emphasis on maintaining accurate information, document operational requirements, streamline material flows, and to identify breakdowns in depot processes that impact inventory accuracy.

Consistent with this reinvention initiative, DLA established performance goals for inventory accuracy under the provisions of the Government Performance and Results Act of 1993. The baseline performance for sample inventory accuracy was 83% in FY 1994. The DLA target is to improve to 90% by end of FY 1996. Based on in-process actions to correct system deficiencies and aggressive depot cleanup efforts, early indications are that the goal will be achieved.

Through this team's efforts, DLA has improved the accuracy of asset information for DoD-owned material in the custody of DLA distribution depots.

DASC has conducted market surveys and cycle time reduction projects to enhance its competitive position in the administrative support arena. As a result, corporate overhead was reduced by 50% for the third consecutive year. The achievements of this past calendar year have resulted in a price decrease for nearly 85% of the 125 products and services DASC offers.

A comprehensive tracking and billing system was recently designed, developed, and implemented throughout DASC. On a daily basis, staff members input actual customer usage of DASC products and services into the system, which generates an itemized billing report for each customer. Customers have hailed this improvement as a genuine success in their drive to monitor support costs. One customer was able to reduce its support costs by nearly $2 million, or 50%, with the increased visibility offered by the billing reports. Users of the system are also impressed with its capabilities and user-friendliness.

This past calendar year was a landmark year for DASC, which is now just a few months away from becoming 100% reimbursable.

Implementation of the DSS and retirement of related legacy systems continues. At the same time, DSS supported improved Electronic Data Interchange, resulting in improvements in the on-time payment of transportation costs. As a result, related overhead costs will be reduced significantly. Central design and interface demands will be eliminated. Systems maintenance, management information, and associated training will all cost less as well.

The Agency projects an eventual saving of $255.3 million in automated data processing savings and $139.6 million in savings as the result of improvements to distribution operations. The benefit-to-investment cost ratio will be at least a three-to-one pay back.

The EM model is a public sector model for using funding and management approaches that maximize accountability for government services. As applied to DRMS, it has potential to provide better service at less cost to the warfighter, and to increase substantially revenue from

the sale of property. A new twist on privatization, EM permits private sector firms to compete with government activities for selected business. As a first step, DRMS functions have been categorized as leadership services (inherently governmental), utility services (natural monopolies) and/or marketplace services (robust commercial marketplace exists).

Based on the EM model, DRMS is splitting into two separate business units. The first, a Utility, will act as an information broker between turn-in activities and organizations seeking to obtain property, to include reutilization, transfer and donation customers as well as surplus buyers. This "Market Maker" function will, for example, gather data regarding the quantity, type, condition and location of the property from a turn-in activity. This information will then be made available to interested parties via an electronic catalog. Even though DRMS will operate this function as a utility, it is seeking private sector firms to build the electronic catalog using their own capital. Their investment will be recouped through the right to collect subscription fees and potential revenue sharing.

A second business unit, a Service Enterprise, will provide a full range of turn-in services, to include: demilitarization of surplus property; precious metal recovery; and contract management for hazardous waste/materiel disposal. The new aspect is that turn-in activities will now be allowed to choose either DRMS or a private firm to handle the sale of surplus property based on their individual performance in terms of cost-effectiveness and/or return on asset. DLA will develop standards to evaluate DRMS and private firms' performance against such requirements as full and open competition and receipt of fair market value for property sold. The Military Services and DoD components will receive a portion of the sales proceeds, thereby incentivizing more rational decisions about the release and disposal of surplus property.

TAPS provides an automated method of collecting extensive information used in tracking costs of DLSC's products and services. For ABC purposes, data must be captured at the lower activity level. With the development and implementation of TAPS, the labor and non-labor data is now automatically captured at the level needed to determine the costs of DLSC's activities. This assists the ABC Team in determining the unit costs of DLSC's products and services.

The ABC Team and the management of DLSC are utilizing TAPS data for many purposes. Because TAPS allows DLSC to track costs to DLSC's products and services more accurately, it is a very valuable tool in the development of DLSC's product and service pricing strategies and cost recovery efforts. As DLSC enters into a Fee-For-Service environment and budgets are reduced, the pricing of products and services will be a key factor in determining whether DLSC will gain or lose customers. TAPS has benefited both DLSC and its customers by providing a more accurate accounting of DLSC's products and services.

"Reutilization, transfers and donations (R/T/D), increase by 3% to $3.5B despite
a 15% reduction in surplus property turned in ($5B acquisition value). Revenues
up by 13% to $415M. Sales improve by 42% to $320M. Corporation achieves
profit of $26M after previously suffering annual losses greater than $200 million."

Any corporation would tout these great improvements in their annual reports. In fact, DRMS has made such superb gains for two years in a row. These dollars saved and revenue generated have gone directly back to the Department of Defense to fund additional needs.

This spectacular performance improvement is directly related to reinventing business processes and adopting best business practices. The increase in sales resulted from an improved rate of return on assets and property sold (up 52% over FY 1994's rate), since the volume of business decreased by approximately 15%. Practices such as commodity-oriented sales and the use of the worldwide web (with asset photographs) to advertise R/T/D and sales, reflect dramatic changes in the way DRMS does business ... these changes emulate the best business practices of successful private sector firms. Additionally, DRMS teamed with private industry to accomplish sales by awarding contracts to auctioneering firms, and by tapping into highly regarded firms with proven track records to use their successful methods and business base to sell government property. Innovations are still underway, including a very promising effort to negotiate a joint venture arrangement for the sale of certain property.

DRMS reinvention successes saved the Department of Defense over $300M in FY 1994 and FY 1995. The additional revenue generated by DRMS permitted the Department of Defense to reduce the prices charged for new materiel purchases.

The time and effort required to access the various information sources requires up to 30% of item manager, procurement and technical specialists' time. The DLA electronic folder and workflow management initiative is targeted to reduce this time to 5%. Savings of $1.1 billion are planned in the engineering support and parts management areas over a 10 year period. Even greater savings are anticipated for the contracting, item management and technical support areas. What is planned is a client workstation at each work center that serves as a gateway to all databases and digitized files required to do one's job from the "electronic desktop." Besides significant productivity gains, these capabilities will also include production workflow management, correspondence and suspense management, job prioritization, suspense management, and tailored access to logistics information. These capabilities will also reduce logistics response time. For example, cycle time for engineering support from the Military Services is expected to be reduced from 110 days to less than 30 days.

Since the development of PLAS, several high level managers have had numerous success stories involving PLAS. At DCMC Lockheed Martin - Sunnyvale, PLAS data indicated that quality assurance personnel were spending a large amount of time on administrative processes. By decentralizing indirect functions, quality assurance "time on mission" was increased from less than 80% to more than 90% of time available. As a result, these adjustments helped to save considerable dollars for the Navy Trident Missile Program. The annual savings from the early use of PLAS data exceeded $250,000. Furthermore, PLAS data has been used to identify mature, low-risk processes in order to divert attention and resources to new workload generated by the merger of Lockheed and the Martin Marietta Corporation.

DCMC Wichita used PLAS data to reveal a high proportion of effort being expended on nonmandatory product inspections. The data permitted management to refocus effort on improving Process Oriented Contract Administration Services surveillance and driving down the cost of inspections. The ability of DCMC Wichita managers to see where resources were being applied at the process and location level, contributed greatly to a Performance Plan goal that is specific, actionable, and links performance in the field directly to established DCMC policy.

For DCMC Hughes Los Angeles, PLAS has played a crucial role in helping to build its budget. According to the director, the two or three minutes it takes to enter information provides extraordinarily useful data. The data helps management identify crucial processes and directly results in process improvements.

The estimated targeted aggregate annual cost savings to date associated with process improvements being studied or tested is $118.7 million, with the potential for even greater savings. Examples of the process improvements being studied or tested include the following:

- Replace multiple government quality assurance requirements with a single, performance

based quality assurance process.

- Use sampling techniques to perform soldering inspections, rather than 100 percent


- For low risk suppliers, eliminate the mandatory and final inspections.

- Eliminate the plant clearance process for low-value or unserviceable government

property excess to contracts. Dispose of the property using the company's process, rather

than the process described in the acquisition regulation.

- Increase the dollar threshold for government furnished property accountability.

- Streamline the cost/schedule control system by eliminating or consolidating the reporting

requirements which contain similar information, and focusing only on significant areas.

Since the rediscovery of the blue butterfly, the DFSP has developed several unique partnerships to promote species and habitat restoration. Partners include the U.S. Navy, the U.S. Fish and Wildlife Service, and the University of California. Three organizations (the Audubon Society, Rhapsody in Green, and Los Angeles Clean and Green) provide volunteer workers. During 1995, 720 local volunteers contributed 2,200 hours of work toward habitat improvement.

This work will provide critical information needed to prevent the extinction of the Palos Verdes blue butterfly and it will enhance blue butterfly populations at the DFSP without adversely affecting the DFSP mission. This project at DFSP San Pedro could serve as a model for the reestablishment of the blue butterfly at other sites on the Palos Verdes Peninsula.

The project has received very positive coverage from local and national news media and receives strong support from the local community, the Department of Interior, and the Department of Defense. In October 1995, The Honorable Bruce Babbitt, Secretary of the Interior, presented letters of recognition and a special award to DLA personnel. Secretary Babbitt noted in the letters, "I believe that an agency can carry out its mission while at the same time protecting endangered species."

There is a growing public concern about the release of pesticides and toxic chemicals in the environment. Food safety, occupational safety, and increase in pest resistance to pesticides are also concerns. Heat control is an environmentally and economically better alternative than the use of many chemical fumigants. DLA is exploring ways to heat treat other infested products.

The Agency created a foundation for future growth and improvement by replacing the minicomputer and software with new commercial off-the-shelf products. The existing data base was converted in January 1994 and put into operation in March 1994. The new software is widely used in business and industry applications.

In October 1995, the Agency purchased a point-and-click data access tool to work in conjunction with the new minicomputer and software. This tool will replace the data query menu tool that was developed in-house. The analysts will enjoy new capabilities, such as linking different types of information and generating custom reports and charts, while at the same time improving the response time. An initial training class will be provided to all analysts as an introduction to the tool.

This action encourages competition, reduces costs, and decentralizes the financial data, thereby enhancing the manager's ability to improve customer service. The improvements benefit both the financial information systems group and all customers of the financial status information. The use of current commercial products benefits the Government by reducing the time and effort to maintain the system and by making new capabilities available without in-house system development.

The planning and implementation of a VTC capability within DLA occurred over a three-year period. The goal was to accomplish a reduction in TDY costs by utilizing VTC, thereby improving communications internally and between DLA and its major customers and suppliers. The planning team identified equipment requirements and 10 site locations for the DLA Network and conducted the economic analysis which identified expected savings of $1.9 million over a five-year period from reductions in TDY. The team also requested and received funding, allowing it to implement this new technology within DLA during 1994 and 1995. Besides substantial financial benefits, implementation of the VTC capability within DLA improves communication and decision-making, reduces overhead costs in support of acquisition and logistics, improves customer service, improves weapon support and readiness, and allows employees to participate in VTC meetings with over 150 DoD organizations currently with VTC capability, plus major defense contractors using the SPRINT Meeting Channel. This is especially useful in the Defense Contract Management Command in communicating with a myriad of Defense contractors in the management of major weapon systems contracts. The availability of this technology during logistics readiness operations will greatly facilitate DLA's support to the warfighter.

Based on the results of actual cost avoidance of $1.838 million achieved from October 1994 to March 1996, cost avoidance over the next five years is estimated to be $7.412 million.

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