Relying on Vendors For Quick Buys
obert Molino sounds more like a rebel leader than a bureaucrat. The executive director for procurement at the Defense Logistics Agency talks of revolution, radical change and cultural shifts. And he is serious.
The institution that for more than 50 years has been the primary procurement source for the Defense Department has undergone a momentous change. Where it used to maintain acres of warehouses holding vast inventories of supplies and equipment manufactured to military specifications, it now manages business contracts. Where its customers used to wait months for orders to be delivered, they now get it in days. Where requisitions used to take weeks to wind their way through dozens of offices in the course of processing a single order, now an electronic signal delivers the information instantaneously.
Under the banner of acquisition reform, DLA has transformed its buying practices and saved billions. "This is a fundamental shift in how we view ourselves and what we do," says Molino. "We're not in the business of buying things one at a time anymore, we're in the business of exercising smart national leveraged buying so the customer can order things one at a time."
The most radical changes have occurred at DLA's Defense Personnel Support Center in Philadelphia. The center's three directorates handle the purchase of about $3.5 billion worth of drugs and medical supplies, $1 billion worth of clothing and textiles and $1.6 billion worth of subsistence items, such as fresh fruit and vegetables and field rations. By adopting commercial business practices and implementing two programs called "prime vendor" and "quick response," the center has cut costs and improved services.
Under the prime vendor program, DLA signs regional contracts with full-service distributors of commercial products to provide items DLA previously purchased separately from hundreds of vendors.
"In the past, we would maintain vast inventories, because the measure of success was what we called 'supply availability.' To have high supply availability you had to have high inventories. When you shift to commercial business practices, as in the case of the prime vendor arrangements, you are relying on the vendor to provide the item when the customer orders it," Molino says.
Before the prime vendor program was introduced, it took DLA 40 to 60 days to get medical supplies to military medical centers and hospitals if those items were already in stock. Now hospitals and pharmacies order brand-specific medical supplies electronically, receive confirmation within minutes, and take delivery within 24 hours. Emergency deliveries are made within six hours.
Officials at Walter Reed Army Medical Center say they were able to cut 32 staff positions and close six warehouses when the center began using a prime vendor contract to purchase pharmaceutical supplies. It previously had to maintain a large inventory of supplies to ensure doctors had the things they needed when they needed them. By cutting the inventory, the center saved about $400,000 in annual leasing and utility costs. All told, with the cuts in supply, staffing and property costs, coupled with savings generated from using commercial business practices, Walter Reed is saving about $7 million annually.
With national buying leverage, DLA can ensure access to a broad range of items at lower prices. Because the agency has shifted its focus from buying inventory to buying response time, it has tremendously reduced storage and overhead costs and nearly eliminated losses from the expiration of overstocked pharmaceuticals.
DLA has also applied the prime vendor concept to purchasing food. The advantages for Defense customers are less paperwork, quicker delivery of food orders and savings in warehouse and personnel costs. For troops, the new approach program means they will be eating the same quality food found in local restaurants and hotels.
The quick response program enables DLA to provide certain items much more quickly. For example, it can now provide fill military uniform requests in 72 hours, compared to 270 days under previous supply procedures. The key to the improved turnaround time was reducing military specifications. In 1988, the directorate of clothing and textiles purchased only eight items using commercial specifications. Now it purchases more than 250.
To ensure contractors can meet high-volume production requirements when needed, DLA has championed dual-use technology-machines that can make both military and commercial products, and has entered into shared production agreements with manufacturers and commercial clients.
The Defense Personnel Support Center's accomplishments were recognized last year when it received the prestigious Innovations in American Government award sponsored by the Ford Foundation and Harvard University. Deputy Secretary of Defense John White singled out and praised DLA, saying at a recent Pentagon news conference on acquisition reform that the agency "has been a leader in terms of the efficiencies that can be gained from outsourcing."
Not only has DLA's entire approach to purchasing and supply changed, but its workforce has attained a far greater level of business acumen as well. DLA has conducted extensive training to develop well-rounded employees who can perform multiple tasks-from developing purchasing requirements and executing them to ensuring customer satisfaction. "Our procurement people are emerging as true business entrepreneurs," Molino says. "We've given them the tools to make a best-value buy-which then gives them the discretion to make a business decision."
Some jobs are changing more radically than others, however. "What do you do with the inventory manager who used to spend his entire career recalculating the annual reorder quantity, when now the customer is ordering directly from the prime vendor?" Molino asks. "What do you do with the person who used to be in the warehouse dusting all that stuff?" He's finding that new kinds of jobs, once foreign to the agency, are emerging, however, as DLA's innovative reforms have evolved. "Customer representatives, marketing research specialists-[these are] the kinds of things that you would expect a smart business to have," says Molino.
Molino anticipates more business as a result of DLA's success. The agency is now conducting demonstrations at military installations around the country on how to manage everything from engine parts to troop facilities.
"Think about the entire country and how many people there are in local purchasing shops buying these things one at a time-very expensively," he says. "Think how many people there are in supply shops and facilities maintenance shops doing all these things, who can be redeployed into other operational, mission-essential jobs and be replaced by the virtual prime vendor. You don't set out to change the whole culture. The cultural change is the result of successfully reengineering."