Logistics Agency Eliminates Transportation Costs for Some Goods
The Defense Logistics Agency has begun implementing a new initiative that will save vendors time and drive down costs associated with transporting products to the agency.
For the past three years, the agency has been searching for a way to save money on first-destination transportation — the shipment of goods from the vendor to a DLA depot.
Vendors are required to provide their own transportation, including payment, and are later reimbursed by the DLA. Depending on location, this can potentially make their products seem more costly to the agency, said Milton Lewis, executive director of contracting and acquisition management.
“Most of the transportation costs are combined with the cost of material. Because of this, our decisions of what to buy are often based on those added transportation costs,” Lewis said in an interview.
The results of a two-year business analysis led the agency to develop the vendor shipment module (VSM). This web-based transportation system will use current addressing and routing logic to identify the most cost-effective carriers, arrange for load pick-up and will move the supplies to the selected location, the DLA website said.
Under the new program, the agency will pick up the tab for shipping costs by using their internal VSM system. This will level the playing field between competitors selling the same products, because the cost of transporting goods will no longer factor into how the agency decides which company to buy from, Lewis said.
“Now, we would only be looking at the ability and price of the individual part and comparing apples to apples instead of worrying about transportation costs,” he said.
While the change will be beneficial to companies of all sizes, smaller businesses will get more of an advantage because they have fewer resources to provide transportation, Lewis said.
“This is something else that they don’t have to do, something they don’t have to worry about anymore,” he said. “It helps them to control cost and focus their resources more on developing parts.”
At the start of the program, only the suppliers of parts for trucks, tanks, airplanes, ships and other military devices can participate.
“Right now, that is where we believe the savings opportunities are. We buy our other goods in different ways, but maybe down the road it will work for those supplies as well,” Lewis said.
The module is currently open for registration but will not officially launch until October. About 2,600 companies already have signed on to the program.
“All a vendor needs is to register on the VSM webpage and have a DLA contract,” he added. “If you have those things, then you can participate, and we encourage all vendors to register before October.”
Topics: Business Trends, Service Contracts, Defense Contracting, Logistics