Defense Logistics Agency Seeking to Slash Billions from Procurement Budgets
“We are very sensitive to the budget impacts or concerns that the services are facing,” Matthew Beebe, DLA’s director of acquisition, policy procedures and oversight of acquisition, said in an interview.
The DLA spent some $39 billion in fiscal year 2013, while managing nine supply chains containing 6 million items, according to its website. It supports about 2,400 weapon systems.
Beebe said the agency is “working aggressively” toward the goal of saving billions of dollars through the future year defense plan and is looking for creative solutions that satisfy both the services and suppliers.
Its guiding principle as it seeks new ways to do business with thousands of vendors is Undersecretary for Defense Acquisition, Technology and Logistics Frank Kendall’s Better Buying Power initiative, which will soon release its third iteration, BBP 3.0.
Better Buying Power calls for smoother and more open communication with industry. DLA has taken that to heart and meets regularly with the leaders of key vendors to gain their feedback on how the procurement process can be carried out more efficiently.
They are asked: “What can we do to better the process to take time and cost out of the process?”
Since time is money, that emerged as a chief criticism.
“They were concerned with the amount of time it took us to turn around our procurement,” Beebe said, referring to the timeline between when a need is first identified and the day when the contract is issued.
The bureaucracy that had built up over the years in DLA created a lot of unnecessary procedures. Since it did not require legislation to fix some of these problems, reform has come relatively easily, he said. “We leaned out the system a bit.”
The agency eliminated unnecessary reviews, condensed market research and told the nine supply chain offices within the agency that they had to turn products around in a certain amount of time, he said.
In some categories, the agency has seen about a 50 percent reduction in the time that it spends in the procurement process, Beebe said. Depending on the type of procurement, some may be above or below that 50 percent line, he added.
Along with saving time, DLA wanted to know what would save costs for its vendors.
“Are we asking you, industry to do unnecessary things, which adds cost to our procurement?” the agency asked contractors.
For example, “Why do we have to have chicken 30 different ways? Really, aren’t there just four or five ways that you need chicken?” A supplier has to have access to all these different cuts and varieties. Similarly, in the medical supply realm, do hospitals and doctors really need all the colors for surgical gloves or just in different sizes?
More common sense savings came from packaging. Military specifications for putting products in containers were too complicated, vendors complained. At a local auto parts store, an oil filer for a vehicle comes in a flimsy cardboard box. Yet the military requirement for filters called for extensive wrapping.
“The commercial industry does fine with this standard pack and occasionally one might get damaged, but we can easily replace those. You’re wasting a lot of money by doing the military spec packaging,” Beebe said.
“We have, to a large extent, removed or relied upon the commercial standards for packaging … and we are seeing significant savings there,” he added.
Jet fuel is a bigger ticket item with opportunities for big savings.
DLA is moving away from military spec JP-8 fuel and switching to commercial grades. The military once saw the benefits of having only one fuel on the battlefield and settled on JP-8 so it did not have different supply lines for every air, land and sea vehicle.
At least with the Air Force, the DLA has changed over to standard commercial aviation fuel. It is easier and less expensive to acquire and is available worldwide.
“That is not only having a benefit in regards to cost, but also a benefit with regards to availability, which does equate to readiness,” Beebe said. He declined to say how the other services are reacting to the initiative, only that the agency is still in talks with them as far as switching to commercially available fuels for trucks, helicopters and other platforms.
Another component of the Better Buying Power initiative is competition.
Beebe said about 85 percent of DLA procurement is competed.
“That’s really good. But we have a lot of focus on that other 15 percent.” The no-compete contracts are for sole source providers. DLA still thinks it can wring some savings from them by looking at their second- and third-tier suppliers to see if there are efficiencies to be found there.
DLA “wants to know that whoever is working on their behalf is keeping the collective interest in mind … and ensuring there is price control,” he said.
Along with saving money, the agency must maintain focus on military readiness. It must also keep on hand less common items such as air and motor vehicle parts made to military specifications.
Many of these no-compete items are unique parts. DLA has to keep them available for when they are needed and ensure the industrial base can continue to supply them. The agency has looked at acquiring data rights to legacy systems from companies that may be willing to relinquish them in order to pass them then along to other vendors.
Reverse engineering obsolete parts is another solution being investigated, as is additive manufacturing, better known as 3D printing.
“We’re working with the services on what they might be able to do going forward” on 3D printing, he said.
“Competition is a huge focus for us. We are already pretty high, but that remaining 15 percent does represent a significant amount of money and we’re going to do whatever we can to improve our position,” he said.
Reverse auctions, where bidders see how low they can go rather than how high, have been a successful tool for some items, Beebe said.
Vendors who have been given the software and training to take part in the auctions generally have 30 minutes to bid on supplying an item. They don’t know the identities of those bidding against them. If there is any activity during the final two minutes, the auction is extended another five minutes.
“We have had them go hours when it is aggressive and competitive enough,” he said.
Reverse auctions have so far saved billions of dollars for DLA. Some items have come back with significantly lower prices than what DLA paid in prior contracts. Others auctions ended at about the same prices as what it paid before.
“We are sensitive to the fact that [a reverse auction] is not always applicable,” he said. The agency won’t use them when it thinks there might be adverse affects on the industrial base.
“Sometimes there is little movement on the price,” he said. Other auctions “have saved us billions over the life of a contract,” he said, estimating that reverse auctions have saved a total of $6 billion to date.
As for the new trend for military acquisition agencies to look at “lowest price, technically acceptable” standards when awarding contracts, that is becoming increasingly a part of DLA’s landscape despite the dissatisfaction expressed by some contractors.
“Certainly that is appropriate when you know exactly what you want and it really comes just down to the price and there are no other distinguishing component to evaluate,” Beebe said. In large quantities, often that is the appropriate method.
Industry leaders are more concerned about lowest-price, technically acceptable standards on the services side. They believe evaluators should keep in mind the capabilities and history of the firm, not just the price. That is a valid point, Beebe said.
For service contracts and larger acquisitions, DLA most often uses a best value solution, he added.
“If there is a distinguisher that we can evaluate, then we will do it as a trade-off. If it really just comes down to price that is what we will use. That’s what the regulations tell us to do.”