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Chapter 12

DEFENSE REFORM INITIATIVE

The November 1997 Defense Reform Initiative Report provided a strategic blueprint for the Department to adapt better business processes, pursue commercial alternatives, consolidate redundant functions, and streamline organizations. Since the 1997 report, significant effort and progress were made to bring competition and best commercial practices into the business of defense. The scope of the Defense Reform Initiative broadened over time while the priority and need for reform remained unchanged. Since launching the reform initiative, a Defense Management Council (DMC) of DoD leaders acting as the Secretary’s Board of Directors and a panel of Chief Executive Officers from leading private sector corporations were established to provide advice about reform opportunities and implementation. DoD continues to meet reform challenges and make meaningful change that focuses on adopting 21st century business practices to meet the future needs of U.S. warfighters.

BEST BUSINESS PRACTICES

DoD is adapting the management techniques and processes of world–class private sector leaders to change the way it does business. Examples include purchase cards, financial management reform, and electronic commerce.

Purchase Cards

The National Performance Review and the Federal Acquisition Streamlining Act identified the purchase card as a major acquisition reform and expanded use of the card for federal procurements. In the six years since these actions occurred, DoD achieved internal savings, increased efficiency, and decreased workload.

DoD’s purchase card program grew 1,113 percent in five years, from 800,000 card purchases during FY 1994 to 8.9 million during FY 1999. The card is the Department’s preferred method of obtaining goods and services $2,500 and under.

Today, defense organizations obtain low–cost commercial goods and services within days rather than months. The contractual workload for these items decreased 76 percent during 1994 to 1998. Additionally, the manpower costs associated with this workload decrease as the card becomes the primary means for acquiring goods and services.

Banks that issue purchase cards to DoD offer financial rebates. From December 1998 through June 1999, the Department of Defense received over $12 million in rebates.

Financial Management Reform

The Department is streamlining and overhauling its financial management business area to save money and ensure prudent decision making and superb customer service. Old, outdated finance and accounting systems are being consolidated and modernized. Processes are becoming increasingly electronic and paperless, while concurrently strengthening internal controls. New federal accounting standards are being implemented to enable DoD to earn unqualified (clean) audit opinions of its financial statements. See Chapter 13, Financial Management Reform, for details.

Electronic Commerce

The Secretary and the Deputy Secretary of Defense have outlined a series of initiatives that will revolutionize DoD’s business affairs by making DoD’s current organization and business practices more agile, responsive, and efficient.

DoD is committed to integrating electronic commerce into every facet of DoD business using electronic commerce to cut across the entire spectrum of warfighting and functional business areas. The Department will eventually position DoD to function as a virtual enterprise that utilizes electronic commerce to support its global missions.

The Defense Reform Initiative is aggressively applying key business principles that industry has successfully used to become leaner and more flexible. Most of the Department’s business affairs are paper intensive and, therefore, people intensive, expensive, and slow. The crushing weight of paper is felt in virtually every corner of DoD’s business operations—from contract administration, to acquisition, to official travel services, and to accounting and finance. As a result, it is crucial that the Department rapidly transition to electronic commerce, reducing Departmental overhead and presenting a customer–friendly interface to private enterprises, including small businesses, that have found it difficult and expensive to do business with the Department.

Defense Reform Initiative Directive 43 established the Joint Electronic Commerce Program Office (JECPO) to develop the roadmap and facilitate transition to electronic commerce. Its creation marked the Department’s commitment to integrating electronic commerce technology into every facet of DoD business and employing modern and widely accessible technology in various functional areas. Serving as the Department’s electronic commerce facilitator, JECPO excelled in establishing a robust electronic commerce infrastructure for promotion of Internet–based business tools. JECPO’s successes to date have been encouraging and are a testimony to the cooperation the organization has received from within the Department and from industry. Momentum has clearly been established and as technology evolves, all DoD organizations will integrate electronic commerce tools into their business and management practices.

Under JECPO’s direction, the DoD Electronic–Mall (E–Mall) began with the expansion of the Defense Logistics Agency’s E–Mall and now provides one–stop shopping from all DoD electronic and commercial catalogs. The commodity and service corridors contained therein allow DoD users virtually unlimited access to the goods and services needed to conduct operations. This DoD E–Mall provides a single point of entry and search capability across all Internet–based DoD electronic catalogs, as well as a growing number of commercial catalogs, for customers to buy both products and services. There are 2.3 million items in the E–Mall and FY 1999 sales reached $51.5 million.

A premier accomplishment of JECPO is its support of the DoD paperless contracting goal for all aspects of the contracting process for major weapons systems to be paperless in 2000. To facilitate the elimination of all paper–based contracting activities, the paperless contracting community is placing requirements, contracts, modifications, invoices, vouchers, and receiving reports on the World Wide Web. DoD accepted and is exceeding Vice–President Gore’s National Performance Review goal of 50 percent paperless contracting transactions by 2000; 67 percent of the Department’s transactions are currently paperless.

To support worldwide industry access to new DoD business needs, the new Business Opportunities Home Page (http://www.dodbusopps.com) was created for industry partners’ use to identify all DoD solicitations, bid on those desired, and view awards that were made through the use of a single search engine.

Before conducting business with DoD, industry partners must be registered, which facilitates electronic payment from DoD. To do this, JECPO created the Central Contractor Registration (CCR)—a central database containing DoD industry partners’ procurement and financial information. The registration process is performed once for every business entity with annual renewals. The CCR is accessible on the Internet for registration and for inquiry to verify registration before making awards. Perhaps the most important feature of CCR is the ease of a small business to register and obtain or furnish information required to be a DoD business partner. Currently there are over 150,000 vendors registered.

On May 4, 1999, the Deputy Secretary of Defense hosted the Defense Reform Electronic Commerce Conference, attended by over 120 industry chief executive officers and presidents. A number of recommendations were made concerning issues of common concern to both government and industry. The key issues were information security for electronic business, performance measures for electronic business, incentives for adoption of electronic business, and software quality and interoperability management. A group of government and industry subject area experts have been formed to tackle the issues. This group is called the Electronic Commerce Conference Working Group. This group will pursue resolving these issues over the next eight months and providing recommendations and an implementation plan to the Deputy Secretary of Defense in May 2000.

QUALITY OF LIFE INITIATIVES

Reengineering Travel

Defense Reform Initiative Directive Number 50 called for reengineering permanent duty relocation and reserve component travel. This directive presents DoD with the opportunity to improve the quality of life of Service members, civilian employees, and their families. One of the first tasks to be completed by the Defense Integrated Travel and Relocation Solutions Office is a comprehensive review and simplification of the entitlement policies that govern permanent duty travel.

Temporary duty travel administration is undergoing significant changes. The process of obtaining orders, initiating advances, and settling travel will soon be replaced by the Defense Travel System. This new, paperless travel system allows travelers to coordinate, arrange, and settle temporary duty business quicker and easier from the convenience of their computers. The pilot program for this system began in 1999.

Household goods transportation improved by modifying the Joint Travel Regulations to authorize military members up to 95 percent reimbursement for do–it–yourself moves. The Full Service Moving Project (FSMP) will apply best commercial business practices to the military move process by integrating numerous transportation and move management services previously accomplished by the military service member. The FSMP is being developed in partnership with industry in order to include all segments of industry in the acquisition process. Contracts will be awarded in early 2000 on a best value basis with full and open competition.

Because National Guard and Reserve members move in and out of a duty status frequently, the travel system must be able to respond to those changes. This presents additional requirements and challenges to incorporate reserve component members into the new Total Force travel system. A new DoD–level office has been created to facilitate reserve component integration into the Defense Travel and Transportation Reengineering initiative. This is crucial as the reserve components are integrated into active, multi–component and joint units.

LOGISTICS TRANSFORMATION

To meet the challenges of Joint Vision 2010, DoD is transforming logistics from the mass model of the 20th century to a highly flexible, lean model for the 21st century. Building on the commercial sector’s logistic successes of world–class performance, DoD envisions integrated supply chains that focus on meeting warfighters’ requirements at the point of need. To meet these requirements, DoD is moving to replace a large infrastructure with information and rapid transportation, reduce cycle times based upon commercial practices, and limit echelons within the process that clearly demonstrate value.

The Services and the Defense Logistics Agency are making significant progress reducing supply inventory by improving equipment reliability, reducing logistics cycle times, selectively outsourcing weapon system support and functions, reducing supply retention levels, and shipping items directly to the end user by the vendor. DoD will continue to review and optimize logistics processes at all levels, adopt commercial solutions reflecting best industry practices where appropriate, and develop a cohesive, web–based, integrated logistics information environment. While these efforts are proving to be cost effective and efficient, the time has come to take the next step and provide the warfighter with real–time logistical situational awareness.

To this end, the Department, in conjunction with the Joint Chiefs of Staff, Services and defense agencies, has identified four intermediate objectives. These objectives are to:

· Accelerate the implementation of Customer Wait Time as a key logistics measurement using variance based metrics in FY 2001.

· Adopt a simplified priority system by FY 2002 that provides time–definite delivery driven by the warfighter’s required delivery date.

· Achieve accurate total asset visibility through the use of automatic identification technology, automated information systems, and transformed business practices by FY 2004.

· Field a web–based, shared data environment providing seamless, interoperable, real–time logistics information by FY 2004 to early deploying forces and by FY 2006 to the remainder of the force.

These logistics transformation objectives will significantly improve logistics response and assist the warfighter in making timely and confident decisions.

STREAMLINING INFRASTRUCTURE

DoD’s efforts to streamline the costs of operating required infrastructure and eliminating unnecessary facilities continue to progress. Enhanced leasing of excess facilities, improved utilities and energy management, demolition and disposal of excess buildings, and housing and utilities privatization have shown progress but require additional focus. Base Realignment and Closure (BRAC) is the single most important reform initiative; it shrinks DoD’s infrastructure to meet 21st century needs and promises the greatest savings. Dollar savings from BRAC are critical to higher priority programs such as modernization and military readiness.

DoD is conveying utility systems to the private sector and will create a single, coordinated DoD–wide program to optimize the complex relationship between utilities privatization, energy conservation, and purchasing. DoD plans to privatize all utility systems, except those with unique security requirements and those in which privatization is not economical. Currently 194 systems are privately owned and operated, with 2,419 systems being considered for privatization. DoD is also reducing consumption by upgrading existing buildings with energy efficient systems and using new sustainable design techniques to increase energy efficiency of new construction.

COMPETITIVE SOURCING

Competitive sourcing is a critical enabler for defense reform that examines functional processes and procedures and provides market mechanisms to improve quality, reduce costs, and respond to customer needs. Savings that result from competition are necessary to reallocate funding to meet the needs of the warfighter. The Office of Management and Budget’s Circular A–76 and its Supplemental Handbook provide procedures for determining whether commercial activities should be performed within DoD, by another federal agency, or by the private sector.

In 1999, the Department refined its competitive sourcing program to include Office of Management and Budget’s Circular A–76 procedures to conduct full competition of commercial activities and non–A–76 processes such as consolidation, restructuring or reengineering of activities, or termination of obsolete services and programs. The FY 2001 budget provides for studying over 245,000 positions between FY 1997 and FY 2005. Through FY 2000, over 181,000 positions have been competed or are under study. DoD expects this process to save approximately $11.7 billion from FY 1997 through FY 2005 with annual recurring savings reaching $3.5 billion.

The Department has also conducted three non–A–76 competitions for the disposition of major depot maintenance workloads at San Antonio and Sacramento Air Logistics Centers. These workloads included the C–5, A–10, and KC–135 aircraft and TF39 instruments/electronics commodities. About $2.6 billion is expected to be saved during the life of these contracts.

Public–Private Partnerships

To carry out responsive and efficient depot–level maintenance, the Department entered into partnerships between public depot maintenance activities and private sector contractors. These partnerships improve capacity utilization, reduce the cost of depot–level maintenance, and increase readiness. Of the 21 major DoD depots, 17 are actively participating in partnerships. There are 54 partnerships which are now operating or have been recently completed, and another 28 are planned. The value of these partnering relationships is worth about $500 million annually.

INSTITUTIONALIZING REFORM

Through proactive and unrelenting reform, DoD is changing the way it does business. Reforming DoD’s business practices is essential to improving stewardship of its fiscal resources and must not become passe. Just as industry changed its business operations to be competitive, so too must DoD continually upgrade its business operations to effectively support future national security strategies. The needs of warfighters, the technologies that support them, the nation they defend, and the world they operate in constantly change. The Department’s business practices must be flexible enough to meet those changing needs and maintain the superiority of its world–class warfighters. The commitment to continuously upgrade DoD business operations, stay abreast of practices in the corporate world, develop state–of–the art systems, and explore new ideas is imperative. Defense reform must continue to be a priority of every defense leader. To institutionalize reform as a fundamental approach to conducting business, the Department is defining the next steps in defense reform. DoD is acting on General Accounting Office (GAO) recommendations to establish metrics and performance scorecards that monitor achievement of reform. In 2000, the Department will identify goals and begin measuring success that the DMC will review. DoD will identify, test, and advocate new cutting–edge business practices. The DMC will champion needed reform, change policy when needed, establish goals, and monitor success. The Department is committed to working with Congress, GAO, and industry to institutionalize reform and continuously improve the business of defense. The current continental United States Strategic Lift Committee is an excellent example of DoD, the Joint Chiefs of Staff, and industry teaming to solve the mobilization and transportation requirements shortfall.

CONCLUSION

Taking advantage of lessons learned in private industry facilitated the Department’s ability to lay out a sensible road map for improving efficiency and reducing costs. Although applying these lessons from private industry is not always easy, the urgency to do so is highlighted by DoD’s aging equipment and the availability of new technology. Competition, elimination, and reengineering are not the only answers, but are essential ingredients to defense reform. The Defense Reform Initiative continues efforts to build a new and more flexible Department to address the challenges of the future.

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