Defense agency seeks 10 percent price reduction from suppliers

Under the Defense Department's widespread effort to streamline operations and redirect $100 billion during the next five budget cycles to needed personnel and weapons programs, the Defense Logistics Agency is looking to its suppliers to help cut costs.

"First, we will pursue price reductions by as much as 10 percent in selected areas by providing greater focus on price reasonableness, incorporating price reduction factors in strategic sourcing opportunities and establishing more long-term contracts," said Vice Adm. Alan Thompson, director of DLA.

Additionally, the logistics agency will upgrade its enterprise business system to consolidate procurement of depot-level parts and supplies for all the military services into a single contracting instrument. "This will allow us to make larger buys, which will be targeted at reducing costs," Thompson said.

After that, DLA will consolidate a number of legacy information technology systems for managing energy purchases. About half of the agency's business is in buying fuel.

Thompson and Defense Comptroller Robert Hale spoke to reporters by telephone Wednesday from Columbus, Ohio, where they were participating in a conference with military contractors.

"We have a lot of rules the private sector doesn't need to observe to satisfy the Congress, and those factors don't always lead to efficiency," Hale said. Nevertheless, many Defense agencies are performing fairly efficiently, especially those like DLA that operate within the department's working capital fund, which requires them to cover their own operating costs.

The agency's enterprise business system, which it implemented a few years ago, has allowed DLA to improve its ability to forecast demand, leading to better efficiency, according to Thompson. "We don't want to under-buy and we don't want to over-buy as this adds extra costs to our supply chain," he said

DLA executes more than 10,000 transactions a day, so changes in its business practices will be felt relatively soon, Thompson said. Typically, consumable items, such as food and fuel, are purchased and delivered within months. "The payoff from our pressure on pricing should be realized near term," he said.

While overall dollar savings targets have not been established yet, the agency is "focused on a 10 percent price reduction across the board," Thompson said.

As DLA leverages its buying power by consolidating purchases across the agency, some of its small business contractors might have to build relationships with larger firms, where they can function as subcontractors, Thompson said.

He added DLA also would step up efforts to keep counterfeit parts out of the defense supply chain, an issue of growing concern to lawmakers.

"We must weed out those suppliers and individuals who knowingly supply parts that don't meet specifications or are counterfeit," he said.