Table of Contents

National Performance Review

Report on
Reinventing the Department of Defense
September 1996

Defense Logistics Agency

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• Business Unit Nominated for Award. The Defense Fuel Supply Center has nominated the Alternative Fuels Commodity Business Unit (DFSC-A) for the 1996 Department of Defense Acquisition Reform Award. DFSC-A is making its business processes more efficient and cost effective through the use of innovative contracting methods to cut the red tape of Government contracting.

  The procurement process has been simplified through the implementation and use of a "commercial solicitation." The reduction in solicitation clauses from 192 to 76 has created a solicitation that is physically smaller and requires less time to pull together. The revamped clauses, which now resemble those found in industry, also reduce the chances of confusion on the part of the offerer. Overall, reengineering the procurement process has moved DFSC-A to a more efficient commercial solicitation with reduced lead time, negotiation time, and administrative time. It has cut red tape for contractors and customers.

  The use of electronic commerce is emphasized in day-to-day operations to provide easy access for the business community with which DFSC-A works. Local utility and interstate pipeline electronic bulletin boards (EBBs) are used to monitor nominations, consumption, curtailments, and imbalanced trading. Doing business in this manner reduces paperwork and provides up-to-the-minute information for decision-making purposes.

  The Northwest Pipeline EBB is used to advertise and contract for released pipeline capacity to cover transportation requirements for the Northwest Direct Supply Natural Gas (DSNG) Defense Business Operations Fund (DBOF) Program customers. The published tariff rate for interruptible transportation on Northwest Pipeline is $.2826 per dekatherm, but DFSC-A has been able to purchase this transportation for as low as $.03 a dekatherm. Use of this contracting method has produced significant cost avoidance for DBOF DSNG customers in the Northwest, i.e., $390,000 for the first quarter of FY 1996 alone. Electronic Funds Transfer is used to pay for natural gas procured under DBOF funded contracts.

  The Internet was used to negotiate terms and conditions for contracting action for natural gas requirements in Alaska. Due to the time difference between Alaska and Virginia, this method facilitated discussions and allowed for quick response time between the parties.

• DLA Contingency Support Team. The Joint Logistics and Contingency Operations Team has reinvented the process of providing support to the warfighter/peacekeeper in a theater of operations. The DLA Contingency Support Team (DCST) was developed to project DLA support forward into a theater of operations. The DCST establishes in-theater assistance and provides essential Agency support requested by the Commander in Chiefs (CINCs). For example, the DCST will provide liaison officers to forward staffs, Contract Administration Services, material management (including supply management of common commodities such as subsistence), distribution operations, disposal, and fuels management. This results in improved administration of LOGCAP contracts, improved distribution capabilities for food, fuel and repair parts, and enhanced asset visibility in the theater through the use of Automated Manifest System technology. The DCST provides a flexible, tailored, modular, multi-function team to support the CINCs in military operations and humanitarian efforts. Prior to the development of the DCST, support was Continental United States based and not as responsive to the requirements of the customer.

  The DCST has been tested in CINC exercises such as ULCHI FOCUS LENS 95 and BRIGHT STAR 95. DCST procedures have been refined, practiced and applied in real world contingencies. The DCST Haiti deployed over 150 individuals to Haiti in support of Operation UPHOLD DEMOCRACY. The DCST Bosnia has deployed over 100 individuals, to date, in response to Commander-in-Chief, Europe tasking for Operation JOINT ENDEAVOR. The DCST has been approved by the CINCs, is working well in contingencies, and has received very positive feedback from our customers. The DCST provides accessibility of our experts to the customers and enhances DLA support.

• DLA-American Federation of Government Employees (AFGE) Partnership Council. Chartered in June 1994, the Partnership Council was the result of the first labor-management partnership agreement under Executive Order 12871 (Labor-Management Partnership) signed at the Military Service or Component level in the Department of Defense. There are 10 AFGE members and 10 representatives of DLA management. Council meetings are held quarterly for three consecutive days.

  The Council's mission is to function as a joint body to review policies and initiatives which impact DLA's mission capability. The Council also serves to provide advice and to recommend proposals and/or solutions to better DLA's goals and objectives.

  Council members are briefed on a wide variety of agency initiatives from every business area. As an example, all DLA reinvention laboratories that have DLA-wide implications or impact on personnel policies are forwarded to the Partnership Council for review. With reinvention labs as well as other initiatives, the group then recommends steps to be taken in order that the interests of the DLA family are best served.

  In addition to dealing with agency initiatives, the Partnership Council also is committed to spreading partnership practices throughout the agency. As a result of the CouncilÕs efforts, DLA has nearly twice the percentage of employees working in organizations with labor-management partnership agreements as do the Military Services.

• 100% Closed Loop Wood/Fiberboard Recycling Wins White House Award. Defense Distribution Depot Susquehanna Pennsylvania (DDSP) has closed the loop for the massive wood and paper waste streams from its industrial operations. DDSP is the Department of DefenseÕs largest distribution center and the requirement for wood and paper (primarily boxes and packaging materials) is very heavy. The depot faced a Department of Defense (DoD) pollution prevention requirement to reduce land filled solid waste; and a Presidential Executive Order calling for a 50% waste reduction. DDSPÕs task of reducing such a large waste stream was challenging.

  DDSP established a team to reduce the amount of wood and cardboard waste. They were to evaluate the process and make changes to meet the guidelines and requirements set forth by DoD. Their recommendations led to the complete shut down of two wood waste landfills (transfer stations) located on the installation. All waste wood is examined for reuse within the depot. Reuse includes the repair and remanufacturing of used pallets and wood cartons. Pallets that do not meet specifications are sold through open markets to help fund the program, and what little remains is processed through a local business where the wood is mulched and sold back to DDSP at a reduced rate for use on the installation grounds.

  In the fiberboard box area, DDSP has benchmarked with private industry and initiated a closed loop system where scrap fiberboard generated from DDSP is recycled and processed into a 100% recycled content fiberboard box for use in the shipping operation. Both wood and fiberboard are being recycled in a true closed loop system.

  DDSP's 100% Closed Loop Wood/Fiberboard Recycling Initiative has been chosen as a winner of the White House Closing the Circle Award honoring their innovative environmental closed loop program. The winners of this prestigious award exemplify the best, most innovative programs implementing the objectives of Executive Order 12873.

• Internal Process Standardization (DCMC DLA Directive 5000.4 Improvement). Creation of DLA Directive 5000.4 represents an historical transformation within the Defense Contract Management Command (DCMC). Developed as a single, cohesive integrated process oriented directive under DCMC's best practices vision, DLAD 5000.4 promotes teamwork, efficiency and cost-effectiveness in meeting customer requirements. This directive has, to date, eliminated 25 manuals, handbooks, and other policy documents. Previously, these regulatory documents bound DCMC personnel to specific step-by-step instructions and procedures in performing contract management processes. DLAD 5000.4 covers all significant processes performed by DCMC; it includes the contract administration services functions listed in the Federal Acquisition Regulation and the Defense Federal Acquisition Regulation Supplement and those functions performed as customer support to procuring contracting officers and program managers. The spirit and intent of this directive recognize DCMC personnel as valuable associates and shareholders with a vested interest in the future of acquisition reform. It entrusts them with the flexibility and freedom to perform tasks and improve management processes in order to best serve the customer.

  Significant progress towards meeting the challenge of standardizing DCMC's processes by providing a solid, well-defined, and documented tool for communicating operational policy to our field personnel was made when the DLAD 5000.4 was published in March 1995. However, due to changing customer requirements, both internal and external, additional challenges associated with the One Book Initiative have arisen. Acquisition reform and the appearance of new and emerging technologies require that DCMC improve the methods by which they develop and disseminate policy on processes, procedures, best practices and lessons learned. These newly defined requirements have been rolled together and identified as the Internal Process Standardization Challenge (DLAD 5000.4 Improvement).

• Prime Vendor Cuts Storage and Distribution Costs for Food. For decades, the Defense Logistics Agency has relied primarily on its own depot distribution system to store and distribute food to the armed forces. The Agency intends to cut its costs further and improve service by reducing the need for storage of food items.

  The Agency's Defense Personnel Support Center recently developed an innovative contracting program called Prime Vendor that uses private-sector distribution capabilities. Under Prime Vendor, a contract is awarded to a supplier to ship directly to military activities, on an as-needed and when-requested basis, within a specific geographical area. This process reduces delivery leadtime to the customer and, by utilizing the private sector's storage and distribution system, reduces the Agency's associated warehousing and redistribution costs. It also facilitates reductions in local inventories held by food preparation activities. This, in turn, reduces the costs borne by the U.S. taxpayer. Due to the unique requirements of Navy vessels, some food requirements may be more effectively met through government-owned but contractor-operated warehouse facilities.

  The Subsistence Prime Vendor Program was tested during FY 1995 in the southeastern United States, and was determined to be a feasible and viable method of providing high quality food for DoD stateside garrison feeding. With lessons learned during the demonstration, the potential for optimizing the use of commercial food systems will continue to be realized. While projected savings by the Department are being calculated, DLA estimates a $20 million reduction in wholesale inventory alone during FY 1996. In conjunction with the Services, DLA is aggressively expanding the Subsistence Prime Vendor Program throughout the continental United States, with a targeted completion date of March 1997.

• Customer Value Contracting (CVC) Lab. CVC provides customers with freedom of choice, accommodates commercial practices, eliminates the need for specifications for commercially available products, removes requirements for burdensome quality inspections for commercial products, and captures state of the art commercial technology, without forcing business to change their commercial approaches. This approach has resulted in reduced inventory requirements, reduced lead times with more responsive delivery items, and saved the taxpayers money through contract prices based on quantity buys. The decision of which commercial product best meets the needs of the user is made by the user - not dictated by the procurement approach.

  The "multi-fuel squad stove" procurement is an example of the application of CVC resulting in better, faster, and cheaper support to the customer. Before Defense Supply Center Richmond used CVC to acquire the multi-fuel squad stove, they had tried to acquire this item using a military specification and set of drawings. Customer demand was not being satisfied because the contractor had trouble producing this $120 military specification stove with a delivery time of 300 days. Eventually the contract was terminated, and a serious problem developed, with 78,000 units back ordered. To solve this problem, Richmond utilized the CVC approach, focusing the acquisition strategy around the utilization of commercial specifications as the means to describe the item. Richmond conducted customer conferences that validated that the commercial description met the military customerÕs requirements. In August 1995, Richmond awarded three contracts (Optimus, Interdyne for Coleman stoves and Interdyne for Franz Heinze stoves) that provided the customers nine different National Stock Numbered stoves from which they could select to meet their individual needs. The unit cost for a stove was reduced to $50 and it can be delivered to customers within 30 days of order. It is projected that over the life of this contract Richmond will save the taxpayers $3 million. The field customer is very pleased with the results of this approach and back orders have been reduced to 1,085 units.

• Specification Busting. Specification busting aims to eliminate unnecessary requirements and only maintain military specifications that demand military unique characteristics. Instead of specifying what features an item should have, the program emphasizes how the item should perform. The goal is to replace the specification with non-Governmental standards or commercial item descriptions.

  The Defense Personnel Support Center (DPSC)-Subsistence division created a win-win situation when it commercialized item descriptions and item codes, and streamlined the ordering process for fresh fruit and vegetables. No longer are federal specifications or even commercial item descriptions used to purchase these products...a fact which attracted new business for DPSC from the U.S. Department of AgricultureÕs National School Lunch Program. DPSCÕs new marketing approach incorporates simplified item descriptions and the U.S. Standards for Grade markings. The overwhelming positive results of this "Spec Busting" approach are reduced costs, greater product varieties, and more timely delivery.

  Specification busting achieved $14 million in cost avoidances to customers for FY 1995 as a result of lower product prices. It is estimated that the program will save customers an additional $70 million over the next five years.

  Examples of price savings include development of a commercial item description for canned ham, which saved nearly $400,000 for two fiscal quarters alone, and changes in the requirements for Flameless Ration Heater (furnished as part of the Meal Ready to Eat), pouched meals that troops eat while deployed. The revised specification, allowing for commercial shipping containers, in lieu of government requirements, saved over $216,000.

• Better Customer Support, Lower Inventory. Quick Response, along with Electronic Data Interchange, allows the Defense Personnel Support Center (DPSC) to support its customers better and reduces Department of Defense wholesale and retail inventories. Under Quick Response, the point-of-sale information is provided to the vendor via bar code scanning on a real-time basis so that production planning reflects actual consumption, rather than what is forecast. These data are then fed into flexible production lines and rapidly converted into the product. The item is then shipped to the customer, inventoried by bar coding, and readied instantly for customer sales. The old centralized warehouse system took weeks or months to deliver a product to the customer. This system features long-term, flexible contracts, direct vendor deliveries, and electronic funds transfers. Delivery times are now measured in days as opposed to weeks.

  Quick Response achieved $1.7 million in cost savings for FY 1995. The savings are the result of lower distribution depot transactions costs (primarily handling items out of the depot) experienced for Quick Response sales vice depot sales. These savings are passed on to our customers as reduced surcharges (or the cost required for the depot to fill a customer order). It is estimated that the program will save customers an additional $79 million over the next five years.

  Quick Response implementation began with "bag items." These items are the issued uniforms required by recruits for basic training. The recruit centers are DPSC's largest customers and therefore represent the greatest potential for system-wide savings. Approximately 20% of the total dollars spent in FY 1996 on clothing and equipment items will employ quick response. The goal of DPSCÕs Directorate of Clothing & Textiles is to incorporate Quick Response into contracts for all major dress uniform items, footwear, gloves, and other non-bag items for rapid deployment.

• Response Time Dramatically Improved. The Medical Prime Vendor Program provides that private firms will supply a wide range of pharmaceutical and medical/surgical items directly to geographically clustered groups of customers. Prime Vendors deliver 98% of their orders within 24 hours as opposed to the 30 days it used to take from government stocks. The response time and fill rate of this program enabled DLA and the military hospitals to drastically reduce their inventories, resulting in significant savings in their cost of operations, because they order only what they need. Prime Vendors invoice electronically with summary billings that reduce the administrative cost of handling a mass amount of paper invoices. Payment to the vendors is also made electronically. Prime Vendor must satisfy customer orders by obtaining the required items from manufacturers/dealers that have Distribution and Pricing Agreements (DAPAs) that DPSC negotiated using DoDÕs leveraged buying power. Prime Vendor prices to customers must not exceed the DAPA price, plus the Prime Vendor distribution fee and a DPSC surcharge. In general, those prices are 25% to 35% less than customers used to pay for products.

  Increased use of this program allowed customers to reduce their inventories by up to 80% which saved considerable storage space and avoided additional construction or modernization of warehouses. The program likewise reduced the need for warehousing and transportation at DLA facilities. Additionally, the program helped to eliminate supply backorders, stockpiles, depot disposal, and miscellaneous handling charges. Initiatives under this program are estimated to have allowed inventories to be reduced by over 29.1% ($l43.5 million) and to have achieved $95.7 million in cost avoidance for FY 1995. It is estimated that the program will permit further inventory reductions and will save customers an additional $353 million over the next five years.

  Walter Reed Medical Center reduced its Medical on-hand inventory by 83%, and closed six warehouses in the process. They also reported over $7 million in recurring annual savings by converting to Prime Vendor. DPSC so "delighted" Walter Reed that they awarded DPSC the Commander's Award for Civilian Service.

  Defense Personnel Support Center (DPSC) Wins Awards. DPSC in Philadelphia, Pennsylvania has won the Innovations in American Government Award, sponsored by the Ford Foundation and Harvard University, the Public Service Excellence Award, and two Vice Presidential Hammer Awards, sponsored by the National Performance Review for their Electronic Commerce/Electronic Data Interchange programs.

  DPSC revolutionized how the military orders, distributes, and contracts for food, medical, and clothing products. Contracting has moved from repetitive buying according to detailed specifications to building business systems where the customer purchases and receives commercial items directly from the vendor. DPSC has adopted the best commercial practices and commercial systems to provide the customer with the choice of commercial products, good prices, one-stop shopping, and just-in-time delivery. It has changed its role from processing transactions to brokering business information. It is using a buying and distribution system that significantly reduces such traditional in-house functions as purchasing, billing, inventory, and transportation. This system is built on electronic commerce and electronic data interchange. The payoff is speed, choice, and competitive cost to the customer.

  Benefits include decreased delivery time, decreased inventories (both in the DLA wholesale system and at the customers' sites), efficiencies gained through the use of electronic ordering, invoicing and payment, decreased manpower levels, and increased customer satisfaction.

• Innovative Contracting Methods Contribute to Customer Satisfaction. The Defense Fuel Supply CenterÕs Alternative Fuels Commodity Business Unit (DFSC-A) is utilizing innovative contracting methods that mirror industry to serve their customers better. DFSC-A has been proactive in implementing new business practices to meet the challenges of the rapidly evolving natural gas industry and in taking full advantage of the opportunities offered by deregulation. These changes have contributed to more reliable supply, reduced administrative work, and increased cost avoidance for customers. The unit improved upon or streamlined a number of fuel procurement practices which contributed to more than $46.8 million in cost avoidance in FY 1995 for its customers.

  One of the inspired procurement practices was "bundling" together installations on the same interstate pipeline for the purpose of solicitation, evaluation, and award of contracts. The "bundling" approach is appealing to vendors because it involves a larger quantity and increases the flexibility the offeror has in making delivery to each installation. As a result of this corporate contracting initiative, the number of offers from more reliable suppliers has increased and prices are very competitive. This initiative also improves customer service through increased contractor reliability, and reduces the administrative time and costs associated with awarding numerous contracts.

  A second change in procurement practices was to implement successfully the use of source selection procedures for the evaluation of technical proposals and past performance. This process allows DFSC-A to look at how the offeror intends to meet the requirements of the contracts, while taking into consideration how the offeror has met requirements on previous contracts. The technical and past performance evaluations help DFSC ensure that natural gas customers are truly receiving the best value. This initiative also increases the reliability of contractors which, in turn, leads to decreased contract administration time for both DFSC-A and its customers.

  Similarly, unbundling of services by some local utility companies has enabled DFSC to compete customers' gas requirements on a monthly basis, with the utility competing as just another supplier. DFSC uses basic ordering agreements which have terms and conditions prenegotiated with approximately 20 suppliers. On a monthly basis, DFSC issues a one-page fax or wire solicitation to obtain competitive bids.

• Model Holds Great Promise for Predicting DLA Warfighting Support Capability. The Defense Logistics Agency is a combat support agency responsible for providing worldwide logistics support and services to the Military Departments in times of both peace and war. Given the current world situation, the Agency recognizes that it must have the capability to assess quickly and accurately its military customers' distinct logistics requirements under varying contingency "what if" operational scenarios. By obtaining this more sophisticated capability, the Agency will be better able to support its customers regardless of geographic wartime scenarios and to develop totally defensible budget requirement estimates and validate shortfalls for future requirements.

  The Agency has made a major breakthrough by having developed a model that will assess its capability to support the warfighter forces with current assets. It will also determine war reserve requirements for future force structures. The model will assess Agency capability by weapon system, day-by-day, and based on various operating scenarios.

  The model is currently being tested against actual scenario type weapon system data for all of the Military Services. Results appear to be very favorable. To date, the model has concentrated on doing assessments against critical weapon systems and associated critical components. The model will be part of an Integrated Feasibility Demonstration to Service and Commanders-in-Chief of Pacific and Central Commands. Based on a request from the Joint Staff, the model will be used in the Global War Games. The model is currently being expanded to include medical, bulk fuels, and repair parts. - Future efforts will address other troop support items.

  Expected benefits from this leading-edge effort are a reduction of risk to the warfighter, improved visibility of war-plan support capability, and procurement of requirements directly tied to war plans.

• Better Unit Cost Accuracy Improves Pricing Rates. Before 1992, the Defense Logistics Agency (DLA) managed six wholesale distribution depots. The Department of Defense decision to consolidate distribution transferred 24 Service depots to DLA in March 1992. With the transfer came significant challenges, e.g., merging widely diverse inventories; positioning materiel for optimum efficiency and timeliness of shipment; and pricing accurately for diverse storage and shipping functions. To make sound business decisions it was critical to have accurate and uniform cost data to compare cost of operations from one depot to another. With the declining Defense budget, it was equally important to price our different services so that our military customers could choose the level of support they required based upon their operational needs and their budgets.

  Based on valid customer concerns, the DLA Depot Operations Team developed a Discrete Pricing strategy. They established 10 processing rates and 30 storage rates were developed based on materiel handling characteristics, storage requirements (covered vs. open), and actual cost. Instead of a standard service charge for every transaction as had previously been the pricing policy, the new discrete pricing system charged more accurately for services performed and will allow the customers to make intelligent tradeoff decisions.

  Improved unit cost accuracy, as implemented under Discrete Pricing on October 1, 1996, will produce better and more consistent cost controls, more effective decision making, and less fluctuation in the overall cost of the program. DLA offers best value to its customer with a rate structure that charges the customer for services rendered.

  For their efforts, the DLA Depot Operation Team received the 1995 Distinguished Team Award from the American Society of Military Comptrollers.

• Aircraft Acceptance Kaizen Improves Process, Reduces Cost. In the spirit of reinvention, Defense Contract Management Command (DCMC) Sikorsky and Sikorsky Aircraft united in order to perform a Kaizen, or continuous improvement, investigation of the aircraft acceptance process at Sikorsky. The entire process, including training and preparation, was completed in two months.

  In 1995 DCMC test pilots and quality assurance personnel expressed concern that aircraft production hangar operations had become overly cumbersome and in need of improvement. They requested a review of the entire acceptance process, from the time an aircraft enters the production hangar until it is delivered to our customers.

  Sikorsky Aircraft embraced the idea of a thorough and demanding review of the acceptance process and joined with DCMC Sikorsky to effect the continuous improvement, or Kaizen, investigation of the production hangar. The results were dramatic. Reductions in acceptance test flights, a decrease in labor hours, and a drop in the total number of days in the entire process were accomplished without affecting the quality of the product. After a comprehensive evaluation of the Kaizen results, DCMC Sikorsky and Sikorsky Aircraft incorporated the changes into their operating procedures which guide the acceptance process. Training was also provided to all employees in order to ensure a standard, long-lasting impact on the acceptance process.

  To date, the efforts of DCMC Sikorsky and Sikorsky Aircraft Acceptance Kaizen have realized savings of over $2.5 million a year. Never satisfied, the Acceptance Kaizen team continues to meet regularly to track and improve not only the aircraft acceptance process, but other indirect processes at Sikorsky that impact the quality and cost of our product.

• Catalog Wins White House Closing the Circle Award. The 1995 DLA Environmental Products Catalog has won a White House Closing the Circle award to be presented on Earth Day. The nominated employees worked together in 1994 to design and publish an environmentally oriented products catalog for items managed by Defense Supply Center Richmond (DSCR). The success of this catalog led to a request by the Deputy Under Secretary of Defense for Environmental Security to produce a similar publication including products for all of DLA's inventory control points. The new 1995 DLA Environmental Products Catalog provides customers with an efficient ordering and delivery system. Products are offered at competitive prices; technical experts are available to answer customer questions; and customers are assisted in meeting environmental procurement goals and requirements.

  Through the efforts of the DSCR Business Development Office, an Environmental Products Catalog was produced in 1994 to offer customers alternatives to products known to be detrimental to the environment. This publication included 300 national stock numbered items in ten categories.

  The catalog includes all necessary data and points of contact and allows the customer to research one publication instead of separate information sources. Most items are delivered by the vendor, thereby reducing shelf-life problems and liability from warehouse accidents. The catalog is distributed to DSCR's military and federal civilian customers worldwide. Sales of environmentally-oriented products almost doubled from $6.8 million in FY 1994 to approximately $12 million by the end of FY 1995.

  The expanded catalog, published in December 1995, includes 500 national stock numbered items in 15 categories. The Environmental Products Catalog can be electronically examined through the World Wide Web on the DSCR home page, http://www.dscr.dla.mil. It can also be downloaded from the EPA Enviro$ense electronic bulletin board system. This allows customers to electronically browse the catalog and place requisitions on line.

• Streamlined Processes Improve Customer Support. The Produce Business Unit, within the Defense Personnel Support Center, provides worldwide fresh fruit and vegetable support and customer service to the Military Services, Defense Commissary Agency, Military Exchanges, Civilian Agencies, as well as the U.S. Department of Agriculture, including states and school districts in the National School Lunch Program. This unit is responsible for advising all continental Defense Subsistence Offices and produce field buying operations on acquisition strategies, while also providing logistical planning support and services to domestic and overseas installations for produce, refrigerated, and frozen items. The unit also directs the acquisition and management of commercial cold storage operations, and performs all other responsibilities related to the integrated management of perishable subsistence.

  Two of this unitÕs most notable efforts were: using Electronic Data Interchange to streamline the acquisition and payment processes for fresh fruits and vegetables and, consequently, to eliminate manual processing of requisitions and invoices; and joint development of the Controlled Atmosphere Reliable Transportation System (CARTS).

  The business newspaper of the Produce Industry, "The Packer," praised the Department of Defense's use of CARTS in the transit process of fresh fruits and vegetables. The joint effort of DLA and Trans Fresh, American President Lines, and the University of California at Davis, has been recognized as reducing transportation costs to military bases in the Far East by using ship transportation instead of the old method of air freight. Experiments showed that "hitchhiking" insects in fresh produce shipments could be destroyed by radically reducing the oxygen in containers by using the controlled atmosphere technology. In addition, with the impending international ban on ozone-depleting gases by the year 2000, this new procedure provides a safe means of complying with insect quarantine requirements demanded by many countries.

• Defense Reserve Once Again Hailed for its Management of Ozone-Depleting Substances. The Defense Logistics Agency continues to support long-term ozone depleting substances (ODS) requirements to DoD weapons systems through its management of ODS Reserve. During 1995, DLA received approximately 2 million pounds of material turned in from the Services. This is the largest quantity received in the Reserve's three-year history and represents about 50% of the total turn-ins. Also in 1995, DLA purchased approximately 3 million pounds of ODS for the Reserve. Through a transfer agreement with the U.S. Customs Service, the Reserve was able to offset the purchase of refrigerants that resulted in savings of over $2 million. With these purchases and transfer, the Reserve reached its planned level of purchases. The Reserve expects to obtain the remaining requirements through donations and cooperative agreements with other federal agencies.

  During 1995, Military Services added requirements for solvents to the Reserve. DLA reacted quickly and was able to make purchases and began preparations for required specialized storage.

  The Environmental Protection Agency (EPA) endorsed DLA's proposal to provide Reserve "type" support to other federal agencies. DLA worked with EPA to develop and distribute a pamphlet that describes the Reserve and "banking" services available. Two agencies, the United States Postal Service and the Central Intelligence Agency have entered into agreements with DLA for banking support. DLA is in discussions with several other agencies who have indicated interest in this type support.

  The success of the Reserve has been hailed not only by various government agencies and the Services, but by industry as well. In fact, in recognition of the establishment and management of the Reserve, Mr. Ron Sibley received the Stratospheric Ozone Protection Award for exceptional contributions to global environmental protection. This is truly a valuable active recycling program which protects the environment, saves the government money, and promotes the national defense.

• Federal Contract Administration Services (FEDCAS). The FEDCAS strategy is to give civilian agency customers an opportunity or the choice to use DCMC contract administration services. A small DCMC team was devoted to active marketing actions. Although difficult to quantify, a measure of the success is the fact that the customers who chose to use DCMC were satisfied. The feedback from FEDCAS customers has been overwhelmingly positive.

  One success story is the Department of Justice Immigration and Naturalization ServiceÕs (INS) request for DCMC to close out 413 inactive contracts, as a result of an Inspector General finding. In the three months allotted for this effort, DCMC closed 400 of the contracts (97%), and recovered $20,000 dollars in overpayments.

  Another success story involved the Civilian Contract Management Office, Washington, which was processing a Maritime Administration dispute involving a wage determin-ation that had been pending for over three years. Experienced DCMC personnel researched, and resolved the claim for the Maritime Administration, resulting in a cost savings of $379,800. The contractor concurred and signed the modification on January 31, 1996. This amount of savings had not been anticipated by the Maritime Administration.

  Although DCMC is closing its pilot test for marketing its contract administration services and is preparing a final report for the Office of Federal Procurement Policy, DCMC continues to offer services to non-DoD agencies on a reimbursable basis. The current goal is to increase reimbursable work by $9.8 million between fiscal years 1996 and 1997, which is a sizable increase from $3.4 million in fiscal year 1993 and $5.3 million in fiscal year 1995.

• Facilitating Our CustomerÕs Ultimate Satisfaction (FOCUS). The FOCUS initiative was created to institute a system within Defense Contract Management Command (DCMC) that continuously evaluates customer feedback and satisfaction, aligns the organizationÕs resources to satisfy customer needs, and provides flexibility to adjust the organizationÕs priorities to meet changes in customer requirements and the acquisition environment.

  One of the major success stories for this reinvention laboratory is the implementation of the DCMC Customer Liaison Program, which was established by DCMC to provide on-site support to DCMCÕs major customers, including the military services, NASA, DLA inventory control points, and the DoD buying commands. The liaisons have made significant contributions towards the improvement of communications and support, have been proactive in resolving customer problems, issues and concerns, and have been catalysts for change and conduits for the flow of information. The program is an innovative approach for DCMC to reach out to its customers, educate its customers, and offer an opportunity for the customers and DCMC to communicate openly to ensure customer satisfaction. The liaisons have an effective teaming arrangement and network that enable them to go full circle in assuring customer satisfaction and preclude areas of weakness that would otherwise go unnoticed.

  FOCUS has institutionalized the Postcard Trailer Survey instrument. The Postcard Trailers are product/service-based surveys that provide feedback from DCMC customers on levels of satisfaction with DCMCÕs Contract Administration Service products and services. DCMC has developed a database that is used to collect, analyze, and respond to specific customer concerns. The results of this feedback are being used as a measure of customer satisfaction in the DLA Executive Information System and, in turn, to change policy going into the current DCMC Business Plan.

  One of the most important benefits from the DCMC Customer Liaison Program and Postcard Trailers is that districts are now able to be responsive to immediate customer concerns.

• Electronic Catalog With On-Line Ordering Capabilities. The Defense Personnel Support CenterÕs (DPSC) Clothing & Textiles Directorate accepted the challenge of establishing the textile commodity on the "information super highway." Using home grown talent and commercial off-the-shelf software DPSC created a Home Page on the World Wide Web and developed what may be the most sophisticated electronic catalog with on-line ordering capabilities in the Department of Defense - ASCOT (Automated System for Cataloging & Ordering Textiles).

  ASCOT can be accessed through the Clothing & Textiles Home Page on the World Wide Web using any industry-standard web browser that supports forms. Customers without direct access to the Web will eventually be able to dial into the DPSC Clothing & Textile commodity via modem and gain access through a dedicated server. ASCOT allows customers to search DPSCÕs complete catalog by various methods, including key word descriptions (shirt, trousers, boots, etc.), national stock number or specification. When a customer scans by description, a list of all matching items is displayed. The catalog includes full screen digitized photos for all items, various item-specific information (including price and sizes), and a point of contact for any additional information or questions the customer may have. Hypertext allows the customer to send E-mail to the point of contact without exiting from the catalog. After identifying the item or items desired, customers then have the option to place an order via the Internet by filling in a few fields on a user-friendly screen. Although anyone can browse the catalog, a security check restricts ordering to registered customers.

  Requisitioning on-line through ASCOT saves customers from hours to days, depending on the previous method utilized. The search capability greatly facilitates the requisitioning process for our customers. The system allows the user to get to the right item and provides all the information necessary to submit an order. This eliminates manual research on the part of the users and reduces the possibility of submitting a requisition for the wrong item. The system also provides necessary controls by allowing requisitions only from authorized customers.

  The system went "live" in December 1995 and has been well received by all who have visited the Web site. A growing number of customers submit their clothing and textiles orders by ASCOT.

• Faster, Cheaper, and Secure Movement of Classified Material. The United States Air Force (USAF) and the Defense Logistics Agency (DLA) reinvented the process of moving classified materiel (Secret and Confidential), weighing 150 pounds or less, within the continental United States. This initiative, known as Mail-like Matter Movement (M3), was accomplished under the auspices of the Express Delivery reinvention lab jointly sponsored by USAF and DLA.

  M3 provides customers with cheaper service. For example, to ship a package weighing 10 pounds from Defense Distribution Depot Warner Robins, Georgia, to a customer at McClellan Air Force Base, California, would cost $27.60 using USPS Express Mail, but would cost only $9.66 using Federal Express overnight delivery service. This is a $17.94 savings/cost avoidance. During a six month test period, M3 accumulated a savings/cost avoidance of approximately $129,000 with the use of a GSA contract carrier (Federal Express).

  M3 also provides customers with faster service. Use of commercial carriers resulted in reliable delivery service compared to highly variable delivery times associated with the old way of doing business. The typical transit time from supplier to customer is one day. If shorter and more reliable delivery of classified materiel allows the Military Services to reduce inventories, then the savings/cost avoidance achieved through M3 will be even greater.

  M3 provides customers with better service. Carriers' modern electronic tracking and control systems provide intransit asset visibility and shipment control which was previously unavailable. Burdensome red tape procedures created over many years were eliminated. The new way of doing business avoids actions such as obtaining clearance to ship, preparing a Government Bill of Lading, preparing a Report of Shipment message, using dual vehicle drivers, having exclusive use of a vehicle and performing constant surveillance.

  As a result of M3's success, it was expanded to include unclassified and unkeyed controlled cryptographic items and controlled substances. Work is in progress to expand M3 to include other commodities such as small arms.

• 24 Hours from Order to Delivery. Premium Service is a Defense Logistics Agency (DLA) program designed to reduce dramatically order and ship time by emulating the best of commercial practices. It offers the Military Services the ability to reduce retail and wholesale stocks in addition to increasing unit readiness.

  The objective is to provide expedited ordering and time-definite delivery service for critical items that have an impact on customersÕ missions. The primary focus is on items weighing less than 150 pounds, but the facility can accommodate shipments up to 750 pounds. Premium Service, operated by a contractor, Federal Express (FEDEX), is located in a Government-owned facility at the Defense Distribution Depot Memphis, Tennessee. As a result of the partnership with FEDEX and the facilityÕs proximity to the FEDEX hub at Memphis International Airport, requisitions can be received as late as midnight with customers receiving delivery the next day. This additional eight hours gives the requisitioner a significantly increased opportunity for next-day delivery, as over 50% if the Premium Service requisitions are received in the evening hours.

  Key elements include on-site inventory management, warehousing, streamlined entry of customer orders, Military Standard Requisitioning and Issue Procedures interface, and total in-transit asset visibility. Premium Service guarantees direct delivery to continental United States customers within 24 hours after receipt of the order, with delivery to all other customers within 48 hours after receipt of the order. Customers receive orders within the continental United States on an average of 21 hours from receipt of an order. International shipments average 43 hours with same day or next-day customs clearance.

  Premium Service is a relatively new program. All DLA Inventory Control Points (ICPs), four Army ICPs, Marine Corps, and Coast Guard activities have items in the facility. The Navy ICP and Navy Cruise Missile program will become customers in April 1996. The items that are to be located in the facility have a potential of generating in excess of 15,000 shipments per month.

  Premium Service will satisfy customersÕ needs to maintain a high degree of flexible contingency response capability. It is anticipated that costs to customers will be offset by reductions in the cost of maintaining retail and wholesale inventories, and by improved workload scheduling arising from more dependable delivery times and more responsive logistics support.

• Reengineering A Key Portion of the Distribution Process. The employees at Defense Distribution Depot Columbus, Ohio (DDCO), took on the challenge of reengineering its key business process of satisfying customer orders. The team fundamentally rethought and radically redesigned the process to achieve dramatic improvements in critical measures of performance--speed, cost and quality.

  The depot ships items to federal agencies, schools and other non-military customers, plus some foreign governments. DDCO ships and stores over 410,000 different items, valued at more than $500 million, and ships about 1,700,000 orders to customers each year. The depot reduced the average time to fill a customer order from 11.8 days in November 1993, to 2.0 days in July 1994 --down 83%.

  DDCO measured the time from receipt of order until delivery to the customer in the U.S. or, for shipments to overseas customers, the time from receipt of order until delivery to a cargo containerization point. The 83% improvement in processing time was accomplished in the face of a 24% personnel cut and a 26% budget cut, with a reduction of only 1% in customer orders from the previous year. An analysis concluded that properly organizing the work processes would allow every customer order received from Monday through Saturday to be packed and shipped within 24 to 48 hours, despite the resource cuts. More specifically, all small parcel orders could be shipped each day, while bulky freight items could be shipped by the next day. In addition, all of the high priority customer orders could also be completed on Sunday.

  DDCO employees formed Quality Improvement Committees, Quality Improvement Teams, and a Depot Steering Committee where they discuss the business processes at DDCO. The processes are under continuous review through the use of statistical process control techniques. New processes are developed through the "plan, do, check and act" process. Teammates are encouraged to present their views on any process, even if it is not within their primary work area, and they have developed a philosophy to "not just meet a standard," but to "process todayÕs customer orders today." The two unions representing DDCO employees were also a part of the Team. By including the unions in every development within the distribution depot, the DDCO Teammates have forged a relationship built upon mutual trust.

• Improving the Process, Serving the Customer. The International Codification Division at Defense Logistics Services Center (DLSC) has reinvented the way they process requests for National Stock Number (NSN) assignment (also known by the transaction code as LSA) received from NATO and other foreign governments. LSA transactions are cataloging services requests submitted by one country to another country that result in either the assignment of a new NSN or maintenance on an existing NSN. The NATO Direct Data Entry (DDE) system is an automated cataloging system that was designed by a team of catalogers and developed with the help of one DLSC programmer. It has replaced a slow, less efficient and outmoded operation with this fully automated PC application that delivers speed, accuracy, flexibility and dependability for several cataloging processes. Since the implementation of the DDE system, the division has increased productivity through faster LSA turnaround times to customers, paper reduction, elimination of floppy disk handling, fewer keystrokes required for transaction development, stringent transaction and file validations that result in an increase in productivity and a reduction in errors, and a streamlined workflow with tighter control and security.

  A team of highly motivated cataloging technicians recognized the need for process improvement and seized the opportunity to improve significantly the existing LSA process by volunteering to design a new system. The DDE team was allowed a high level of autonomy by management. They assumed responsibility for the design of the DDE system and recognized their accountability for the end product being developed.

  Implementation of the DDE system resulted in a significant reduction in the number of days required to process LSAs. The international goal for processing LSA requests is 120 days. The percentage of LSAs processed within the 120 day goal at DLSC has improved from an average of 70% in 1993 and 1994, to 98.9% in 1995. It now takes an average of only 37 days to process an LSA request using the DDE system, a dramatic improvement in responsiveness. While continually maintaining a high level of productivity (approximately 40,000 LSAs are processed per year), the overall error rate has continued to decline since the implementation of DDE, from 28% in 1994 to 10% in 1995.

• Lumber Test Methodology Designed to Save Time and Money for Customers. For many years, the Defense Logistics Agency has lost lumber sales because its military customers were dissatisfied with high costs and long delivery times and were purchasing their wood products locally. The Defense Logistics Agency believed that consolidating wood products orders within a geographic region would result in greater buying power which in turn will significantly lower the costs to the customer, while providing better service.

  To retain current business and to regain lost lumber sales, the Defense Logistics Agency tested its wood products initiative at two Marine Corps bases in the southeastern United States. In the test the Agency compared local purchases at Camp Lejeune, North Carolina, against use of a centrally negotiated long-term contract at the Marine Corps Logistics Base at Albany, Georgia, to gauge which method provides the better customer support. Customers using the DLA-centrally negotiated long term contract placed their orders electronically and the wood products were delivered in some cases by the next day. The test indicated that the average prices customers paid under the centrally negotiated long-term contract were almost 10% less than the local purchase prices, and that response time was on average nine days better (a 33% improvement).

  The Defense Logistics Agency believes that consolidating orders within a geographic region will result in greater buying power which, in turn, will significantly lower the costs to the customer while providing better service. The projected estimated savings could exceed $1.4 million a year if customers used the centrally negotiated long term contract instead of buying through local purchase.

  Based on the successful outcome of the test, DLA has started to implement the new procedure incrementally on a regional basis to its major customers. Long term contracts have been negotiated to provide support to activities in Norfolk, Virginia; North Carolina; Odgen, Utah; and Georgia.

• Credit Card Ordering Saves Time and Money. The Defense Logistics Services Center (DLSC) has developed applications, subscriptions, publications, and products which enhance customersÕ day-to-day operations. By incorporating technological advances in the finance system, steps previously required to obtain products were eliminated. Prior to the change, DLSCÕs internal customers were required to call Customer Service or Freedom of Information personnel and obtain a price quote, prepare necessary paperwork, or cut a check to procure the goods and send it to DLSC for processing. Working with the Department of Treasury, DLSC eliminated transaction and processing time by developing the capability to accept credit card orders over the phone.

  DLSC averages over 1,500 transactions a year, worth a net value of $95,000. By incorporating the Plastic Credit Card Network, DLSC provides increased customer satisfaction, convenience, and the ability to obtain new customers through direct access pricing and processing.

  DLSC averages 300-plus requisitions for goods and services monthly. Of these, 75% fall into the $2,500 or less category. Through training, research, and advanced capability DLSC can now perform more efficiently while providing the directorates fast and convenient service and product reliability. The retailer is paid within 24 hours of the transaction, opening new doors and methods for us to procure goods. Because of past experience with government payment procedures, some retailers would not do business with the government agencies, but through direct line payment, opportunities are available to enhance competitiveness, cost comparison, and buying potential.

  DLSC uses the credit card to support its internal customers, with attendant reductions in cost and in time. Previously, when directorates wanted to procure goods and services, they were required to fill out a form and process it through the financial office, supply requisition office, procurement office, and receiving dock. The average cost for processing each form was $422, and processing time was at least 5-10 days. By using the credit card, DLSC was able to cut the cost per transaction by $60 and processing time to an average of three days.

• Laser Card Reduces Processing Time and Labor Costs. Experience in Operation Desert Shield/Storm presented a challenge to DLA--replace paper shipping manifests and manually intensive labor processes associated with receipt takeup. During the operation, thousands of vans and air pallets were rushed to the Persian Gulf in a relatively short time, completely overwhelming receiving capabilities. After arrival in country, supplies had to be identified, processed, and sent to the ultimate destination quickly. The Automated Manifest System (AMS) uses an optical memory card to give the troops instantaneous visibility of supplies, ability to prioritize offloading, management information reports, discrepancy reports, and expedited receipt processing.

  This initiative brings together supply and transportation information from various files in depot mainframe systems into a single data base in a personal computer. With the aid of a laser card reader/writer, information is written onto the card and accompanies the shipment to its destination. AMS is operational at continental and other than continental U.S. sites and has also been used successfully for contingency situations overseas in Somalia, Haiti, Korea, Guantanamo Bay, and Bosnia-Herzegovina. Tangible benefits included a net savings from reduction of receipt processing times amounting to $80,000 per year per site implemented. For 600 sites planned for implementation, projected benefits are $48 million per year. Distribution system-wide benefits reduce the cost of shipping resulting from avoidance of excess supply requirements, reduction of container detention fees and time spent in causative research, and lateral distribution and container consolidation point operations.

  The optical memory card has proven to be extremely resilient during the harshest military environmental conditions, where it was subjected to heat, cold, moisture, flexing, shock abrasion, dust, dirt, fingerprints, and magnetic interference. AMS has been selected as the receipt system of choice because it enhances intransit and total asset visibility.

• Logistics Response Time (LRT). DLA customers responded to a baseline survey saying that they wanted their materiel faster. From the customer perspective, DLA began to look at the actual customer wait time from the day of order until the date the customer had his order in hand. Previously, DLA measured its performance against the DoD time standard, which was based upon the urgency of the order and was captured by customer order preparation time, center processing time, depot processing time, and transportation time. Though all elements of delivery time are not within DLA's control, the measurement led to process reengineering that has not only reduced overall lead time, but resulted in savings from reducing customer inventories and DLA inventories.

  Since December 1994, overall Agency customer wait time has been reduced three days. By first focusing on those portions of the delivery process controlled by DLA, center processing time was further reduced by 33% from an average total of six days to four days. Urgent requirements are averaging one day response. For large categories of items such as food and medicine, DLA has brokered contracts with major manufacturers and distributors to accept direct orders from military customers with delivery directly to the users. The customer's wait time is significantly reduced by avoiding interim storage in a DoD depot, and the taxpayer saves money from reduced inventory holding and storage cost. Cost avoidance for FY 1995 in medical alone are estimated to be $95.7 million, with projection of an additional $353 million over the next five years.

  In 1996 DLA will concentrate on another element of customer wait time that it can influence. DLA will scrutinize customer backorders with a goal of reducing the total number 10% and reducing aged backorders 25%. DLA expects to recognize and implement other improvements that will materialize as yet another element of product delivery is reengineered.

• Adoption of Commercial Contracting Techniques. For some time, DLA has been effecting a conversion from buying items one at a time and bringing them into depot stocks (an inefficient method of managing logistics) to longer-term contractual arrangements characterized by economic order quantities and direct deliveries to the customer. Business process reengineering enables us to maximize industry support by employing the best commercial, non-DoD-unique approaches, such as long term and corporate contracts. In this environment, DLA is developing contracting instruments and making use of emerging technologies, so that DLA and its customers can seamlessly interact with private-sector sources of supply. Technology and the acquisition reform movement (including statutory underpinnings) have facilitated our efforts.

  DLA has put into place flexible ordering arrangements, including electronic commercial catalogs and electronic bulletin boards, and is developing an electronic commerce "mall" and Virtual Prime Vendor as additional flexible techniques. These arrangements will provide customers a choice among a wide range of items and sources for obtaining them, including contracts with prime vendors, corporate contracts, contracts for on-demand manufacturing (quick response), and other long-term schemes. The nature of the arrangements, including the electronic link to our suppliers and customers, has reduced the need for inventory, provided for shorter delivery timeframes, and resulted in lower prices to DLA customers, while at the same time providing them with broader choices. The conversion to commercial practices reflected in these various approaches has brought about improvements in annual changes in material prices (which were 88% below anticipated inflation in FY 1995), and a 33% improvement in DLAÕs logistics response time on issues, and inventory reductions totaling $1.6 billion to date. They are also bringing about a 45% reduction in overall DLA staffing during the FY 1993-2003 timeframe (of which over half will be completed by the end of this fiscal year), and the same percent reduction in distribution storage capacity requirements by FY 2003, of which over half has already been achieved. Examples of commodities in which commercial-type techniques have been applied are the medical and surgical commodities; pharmaceuticals; subsistence; clothing and textiles; bulk steel and non-ferrous metals; and vehicular batteries.

  These techniques support the strategic objective of putting customers first and the goals of "faster, cheaper, better" in that they enable those customers and our logistics managers to conduct business in the electronic marketspace environment, while simultaneously adding value in terms of lower prices, faster response, and greater product choice.

• Commercial Items at Reduced Cost With Faster Delivery. The PartNet search and ordering capability will provide a tool for the DLA customer to identify, select and order commercial items at a reduced cost and a faster delivery time. When commercial items are not available from DLA to satisfy the customer's demand, the customer often resorts to local purchase means to obtain the items. Local purchase actions are generally more expensive for the customer.

  Under a logistics research and development partnership, the Defense Logistics Agency, the University of Utah, Sacramento Air Logistics Center (SM-ALC), Newark Electronics, and University of Southern California successfully tested and implemented PartNet, a new Internet-based catalog of components that aims to speed up and simplify the parts research and acquisition process. The system will combine technical data with inventory and pricing information, allowing customers to research, order and purchase parts from a central location via the Internet, thus streamlining the parts research and acquisition process. The fact that the items ordered from PartNet will be direct-vendor delivery will save the depot storage cost associated with stocked items. During the test phase, PartNet will be used to conduct parts research and buy the selected items using the International Merchant Purchase Authorization Card (IMPAC) credit card.

  Currently the system comprises a 125,000 item catalog from Newark Electronics. Efforts are currently underway to add additional vendor catalogs. DLA expects the parts availability to double or triple by the yearÕs end.

  PartNet was recently tested at SM-ALC and item searches were accomplished via electronic data interchange and other methods for several commodities. These resulted in purchases that took 3-5 days vice 35-40 previously. Based on the successful outcome of the test at SM-ALC, DLA has started to deploy PartNet at other test sites. In March, PartNet was installed at the Air Force Logistics Center Reengineering Lab. We will implement PartNet at Tobyhanna Army Depot in April. Additional customer sites will be identified during the next three months.

  The overall savings to the customer and DLA will be substantial. The Functional Economic Analysis conducted by KPMG Peat Marwick indicated that total savings eventually could exceed $500 million over ten years.

• Streamline, Improve and Redesign Civilian Personnel Processes. On October 12, 1995, the Defense Distribution Region East, Office of Civilian Personnel (OCP) received Vice President GoreÕs National Performance Review Hammer Award for an ongoing program to improve, streamline and redesign the civilian personnel program. The focus was on simplified, cost-effective work processes, employee ownership of programs, and methods to evaluate the effectiveness of OCP programs in order to meet the key goal of putting their customersÕ needs first.

  Employees and supervisors participate in all stages of this process to simplify and make work processes more cost effective by streamlining and improving work flow, eliminating wasteful processes and increasing quality control. The OCP has been restructured around its core processes to create work groups containing customer service representatives dedicated to specific customers. Program managers have been appointed for each core process/program. Almost all supervisory positions have been eliminated; self-directed work groups have been established that are empowered to work, following established operating procedures, without direct day-to-day supervision. Results of customer surveys are used to improve the level and quality of the service provided to their customers. The service is customized to fit their needs.

  This aggressive program of self-improvement has resulted in a supervisory ratio of 1:24, compared to a ratio of 1:16 currently recommended by the National Performance Review. The OCP also attained a personnel servicing ratio of 1 civilian personnel employee for each 125 employees serviced; they are on schedule to achieve a personnel servicing ratio of 1:150 by the year 2001. A ratio of 1:150, when compared to the Department of Defense servicing ratio target for the period from FY 1995 to FY 2001, will realize a savings of $8 million in salaries per year.

• Reservists Add $58.8 Million in Value to Operations in 1995. Prior to fiscal year 1993, military reservists assigned to the Defense Logistics Agency were restricted to training in specific mobilization billets. Although most were private-sector professionals--business executives, real-estate investors, and corporate lawyers, for example--they were given limited assignments without adequate regard to the optimal use of their talents and expertise.

  Recognizing the potential to derive significant benefits from these highly skilled professionals, the Agency reorganized the reservists into joint teams and freed them to train by participating in front-line, high-return projects. Care was taken to ensure that their training assignments were closely related to their mobilization training requirements. A "reserve consulting service" was established to match reservistsÕ skills to Agency requirements, giving career managers greater access to the wealth of talent resident in the reserve program.

  Recently, reservists have produced tangible benefits as expert consultants on a number of projects like new processes for refrigerant reclamation ($15.4 million), price escalation indexing for fuel ($1.6 million), and inventory and relocation of DLA material from depots facing closure ($1.0 million). Other projects included design of data systems, an efficiency review of distribution operations at Agency depots, reduction of contract closeouts, and contractor fraud recoveries.

  Through these and other services, this cadre of reservists added $58.8 million in value in 1995.

• Defense Logistics Agency Use of Public Manufacturing Sources Supports Customers Faster. Faster response to Service requirements is one of the major directives of DLA. We are not gaining in that area by using alternative sources of manufactured parts more extensively. Buyers have continually increased their reliance on organic "on demand" manufacturing from depots, shipyards, air logistics centers, and naval aviation depots to support requirements when the private sector cannot respond. The number of purchase orders placed with public manufacturers has increased from 17 in FY 1992 to 394 in FY 1995. Dollar value has increased from $349,000 to over $13 million in that same period. In many cases, the customer not only received parts sooner than from the private sector but also at significant savings.

  For example, Defense Supply Center Columbus calculated savings of $131,800 on a metal tube assembly purchased for the Navy in December 1995. At Defense Electronic Supply Center, they realized savings of $23,062 on circuit cards bought for Tobyhanna Army Depot. Total calculated DLA savings for the first half of FY 1996 are $593,825.

  Buyers always consider the private sector first, but when there are no responsive sources, the organic sources have been a significant help providing the warfighter with a much needed safety net. In many cases there is no adequate technical data package, or the original private sector manufacturer is no longer in business, or does not want to produce the part, or cannot produce according to the schedule of customer needs. In such cases, the buyers have no other option, but to use public sector sources to meet customer readiness requirements.

  As buyers work with the Services to fill requirements through manufacturing sources, acquisition methods are being refined. More orders are being placed electronically, against pre-arranged Blanket Purchase Order Agreements, and the transfer of funds is becoming smoother. These trends must be continued and expanded if DLA is to effectively use manufacturing sources when appropriate for timely customer support.

• New Process Controls Will Enhance Depot Accountability. On a corporate level, DLAÕs customer is defined as the warfighter. However, for purposes of achieving improvements in inventory accuracy, the "customer" is defined as the DoD inventory owner - primarily the inventory control points of the military services and DLA. DLAÕs distribution depots are defined as the "supplier" of accurate asset information. To institutionalize distribution depot accountability for inventory accuracy, the Inventory Accuracy Team at DLA Headquarters developed customer/supplier relationships between the DoD inventory owners and DLAÕs distribution depots.

  An annual Inventory Accuracy Conference is convened to assess overall performance and target areas for improvement. Follow-on workshops and continued analysis of key indicators facilitate joint solutions to systemic problems.

  Based on customer/supplier inputs, five performance improvement criteria categories were developed. These provide the framework for integrating all inventory accuracy related policies, processes, and system requirements. Program assessments are made to evaluate operational performance against improvement criteria. The DLA team then focuses on those areas most in need of attention.

  To bring about continuous improvement over baseline performance, a Distribution Process Management Program was established to place emphasis on maintaining accurate information, document operational requirements, streamline material flows, and to identify breakdowns in depot processes that impact inventory accuracy.

  Consistent with this reinvention initiative, DLA established performance goals for inventory accuracy under the provisions of the Government Performance and Results Act of 1993. The baseline performance for sample inventory accuracy was 83% in FY 1994. The DLA target is to improve to 90% by end of FY 1996. Based on in-process actions to correct system deficiencies and aggressive depot cleanup efforts, early indications are that the goal will be achieved. Through this team's efforts, DLA has improved the accuracy of asset information for DoD-owned material in the custody of DLA distribution depots.

• Reimbursements Improve Accountability, Shrink Overhead Costs by Millions. Throughout Calendar Year 1995, the DLA Administrative Support Center (DASC) has totally overhauled its business practices to become a model provider of reimbursable administrative support and will soon operate without any appropriated funding. DASC began planning several years ago for the reality that its operating budget, like that of any private enterprise, would be subject to customer demand.

  DASC has conducted market surveys and cycle time reduction projects to enhance its competitive position in the administrative support arena. As a result, corporate overhead was reduced by 50% for the third consecutive year. The achievements of this past calendar year have resulted in a price decrease for nearly 85% of the 125 products and services DASC offers.

  A comprehensive tracking and billing system was recently designed, developed, and implemented throughout DASC. On a daily basis, staff members input actual customer usage of DASC products and services into the system, which generates an itemized billing report for each customer. Customers have hailed this improvement as a genuine success in their drive to monitor support costs. One customer was able to reduce its support costs by nearly $2 million, or 50%, with the increased visibility offered by the billing reports. Users of the system are also impressed with its capabilities and user-friendliness.

  This past calendar year was a landmark year for DASC, which is now just a few months away from becoming 100% reimbursable.

• Unified ADP System for Distribution Business Will Save $394.9 Million. The Department of Defense has in operation some duplicative Automated Data Processing (ADP) systems for logistics management. The Defense Logistics Agency, under which the DepartmentÕs distribution depots have been consolidated, was challenged to select, develop, and implement a unified ADP system covering its distribution business. Baseline development of the Distribution Standard System (DSS) has been completed and the first phase of implementation to seven depots, retiring one existing "legacy" automated information system and three warehouse control systems, is complete. This has resulted in an annual savings of $6.9 million per year.

  Implementation of the DSS and retirement of related legacy systems continues. At the same time, DSS supported improved Electronic Data Interchange, resulting in improvements in the on-time payment of transportation costs. As a result, related overhead costs will be reduced significantly. Central design and interface demands will be eliminated. Systems maintenance, management information, and associated training will all cost less as well.

  The Agency projects an eventual saving of $255.3 million in automated data processing savings and $139.6 million in savings as the result of improvements to distribution operations. The benefit-to-investment cost ratio will be at least a three-to-one pay back.

• Defense Reutilization and Marketing Service (DRMS) Reinvention and Privatization. In July 1993, DLA nominated DRMS as a potential outsourcing candidate under the aegis of the Defense Performance Review. Designated a reinvention laboratory, DRMS pursued a policy of selective privatization while it streamlined and reengineered many of its processes. Mr. David Osborne of the Reinventing Government Network introduced DRMS to the concept of Enterprise Management (EM). Using this framework, DRMS is restructuring into natural business units and aligning along private industry lines.

  The EM model is a public sector model for using funding and management approaches that maximize accountability for government services. As applied to DRMS, it has potential to provide better service at less cost to the warfighter, and to increase substantially revenue from the sale of property. A new twist on privatization, EM permits private sector firms to compete with government activities for selected business. As a first step, DRMS functions have been categorized as leadership services (inherently governmental), utility services (natural monopolies) and/or marketplace services (robust commercial marketplace exists).

  Based on the EM model, DRMS is splitting into two separate business units. The first, a Utility, will act as an information broker between turn-in activities and organizations seeking to obtain property, to include reutilization, transfer and donation customers as well as surplus buyers. This "Market Maker" function will, for example, gather data regarding the quantity, type, condition and location of the property from a turn-in activity. This information will then be made available to interested parties via an electronic catalog. Even though DRMS will operate this function as a utility, it is seeking private sector firms to build the electronic catalog using their own capital. Their investment will be recouped through the right to collect subscription fees and potential revenue sharing.

  A second business unit, a Service Enterprise, will provide a full -range of turn-in services, to include: demilitarization of surplus property; precious metal recovery; and contract management for hazardous waste/materiel disposal. The new aspect is that turn-in activities will now be allowed to choose either DRMS or a private firm to handle the sale of surplus property based on their individual performance in terms of cost-effectiveness and/or return on asset. DLA will develop standards to evaluate DRMS and private firms' performance against such requirements as full and open competition and receipt of fair market value for property sold. The Military Services and DoD components will receive a portion of the sales proceeds, thereby incentivizing more rational decisions about the release and disposal of surplus property.

• Automated System Captures Costs of Doing Business. The Defense Logistics Services CenterÕs (DLSC) Activity Based Costing (ABC) Team has reinvented the process that DLSC uses to determine the costs of its products and services. The ABC Team manually gathered information by interviewing employees to obtain activity performance percentages and trace activities to the appropriate products and services. The ABC Team developed and implemented an automated ABC accounting system known as the Time and Attendance Productivity System (TAPS). This system allows DLSC to track costs to all ABC processes and activities, and to DLSCÕs specific products and services. The system works in a Windows environment and is linked to all 452 employees through a Local Area Network. Prior to this system, employees manually recorded time and attendance on a form. If the employees needed to record any exception reporting, they had to conduct research using hardcopy listings. Implementing TAPS has eliminated two extensive efforts: the manual effort of gathering activity data; and the manual effort by employees of locating and reporting time and attendance data on a form.

  TAPS provides an automated method of collecting extensive information used in tracking costs of DLSC's products and services. For ABC purposes, data must be captured at the lower activity level. With the development and implementation of TAPS, the labor and non-labor data is now automatically captured at the level needed to determine the costs of DLSCÕs activities. This assists the ABC Team in determining the unit costs of DLSCÕs products and services.

  The ABC Team and the management of DLSC are utilizing TAPS data for many purposes. Because TAPS allows DLSC to track costs to DLSCÕs products and services more accurately, it is a very valuable tool in the development of DLSCÕs product and service pricing strategies and cost recovery efforts. As DLSC enters into a Fee-For-Service environment and budgets are reduced, the pricing of products and services will be a key factor in determining whether DLSC will gain or lose customers. TAPS has benefited both DLSC and its customers by providing a more accurate accounting of DLSCÕs products and services.

• Defense Reutilization and Marketing Service (DRMS) Achieves Great Business Success. "Reutilization, transfers and donations (R/T/D), increase by 3% to $3.5B despite a 15% reduction in surplus property turned in ($5B acquisition value). Revenues up by 13% to $415M. Sales improve by 42% to $320M. Corporation achieves profit of $26M after previously suffering annual losses greater than $200 million."

  Any corporation would tout these great improvements in their annual reports. In fact, DRMS has made such superb gains for two years in a row. These dollars saved and revenue generated have gone directly back to the Department of Defense to fund additional needs.

  This spectacular performance improvement is directly related to reinventing business processes and adopting best business practices. The increase in sales resulted from an improved rate of return on assets and property sold (up 52% over FY 1994's rate), since the volume of business decreased by approximately 15%. Practices such as commodity--oriented sales and the use of the worldwide web (with asset photographs) to advertise R/T/D and sales, reflect dramatic changes in the way DRMS does business ... these changes emulate the best business practices of successful private sector firms. Additionally, DRMS teamed with private industry to accomplish sales by awarding contracts to auctioneering firms, and by tapping into highly regarded firms with proven track records to use their successful methods and business base to sell government property. Innovations are still underway, including a very promising effort to negotiate a joint venture arrangement for the sale of certain property.

  DRMS reinvention successes saved the Department of Defense over $300M in FY 1994 and FY 1995. The additional revenue generated by DRMS permitted the Department of Defense to reduce the prices charged for new materiel purchases.

• Electronic Files and Automated Process Controls Slash Cycle Time and Costs. The Defense Logistics Agency makes extensive use of automation to manage 3.8 million consumable spare parts with sales of over $11 billion a year. The accomplishment of this mission requires extensive new automation at the desktop as well as mid- and mainframe computing. Most orders are transmitted electronically to vendors with on-line support for item managers and procurement specialists. However, this support still includes millions of hard copy item and contract folders. Contract, item and technical data, although electronically stored, are often accessed through paper reports or time-consuming inquiries from multiple systems and data bases. Desktop "off the shelf" products can be integrated to improve productivity of workers dramatically in this transaction intensive process.

  The time and effort required to access the various information sources requires up to 30% of item manager, procurement and technical specialistsÕ time. The DLA electronic folder and workflow management initiative is targeted to reduce this time to 5%. Savings of $1.1 billion are planned in the engineering support and parts management areas over a 10 year period. Even greater savings are anticipated for the contracting, item management and technical support areas. What is planned is a client workstation at each work center that serves as a gateway to all databases and digitized files required to do one's job from the "electronic desktop." Besides significant productivity gains, these capabilities will also include production workflow management, correspondence and suspense management, job prioritization, suspense management, and tailored access to logistics information. These capabilities will also reduce logistics response time. For example, cycle time for engineering support from the Military Services is expected to be reduced from 110 days to less than 30 days.

• System Provides Real-Time Performance Management Information. The Performance Labor Account System (PLAS) was developed to deploy a Government Performance and Results Act ready labor accounting system that measures the cost of processes, outputs, customer support, and performance goal attainment on a continuous basis. PLAS consolidates current time and attendance, and similar reporting systems used within DLA, to provide user-friendly, real-time performance management information.

  Since the development of PLAS, several high level managers have had numerous success stories involving PLAS. At DCMC Lockheed Martin - Sunnyvale, PLAS data indicated that quality assurance personnel were spending a large amount of time on administrative processes. By decentralizing indirect functions, quality assurance "time on mission" was increased from less than 80% to more than 90% of time available. As a result, these adjustments helped to save considerable dollars for the Navy Trident Missile Program. The annual savings from the early use of PLAS data exceeded $250,000. Furthermore, PLAS data has been used to identify mature, low-risk processes in order to divert attention and resources to new workload generated by the merger of Lockheed and the Martin Marietta Corporation.

  DCMC Wichita used PLAS data to reveal a high proportion of effort being expended on nonmandatory product inspections. The data permitted management to refocus effort on improving Process Oriented Contract Administration Services surveillance and driving down the cost of inspections. The ability of DCMC Wichita managers to see where resources were being applied at the process and location level, contributed greatly to a Performance Plan goal that is specific, actionable, and links performance in the field directly to established DCMC policy.

  For DCMC Hughes Los Angeles, PLAS has played a crucial role in helping to build its budget. According to the director, the two or three minutes it takes to enter information provides extraordinarily useful data. The data helps management identify crucial processes and directly results in process improvements.

• Reducing Oversight Costs. The objective of this joint Defense Contract Management Command (DCMC)/Defense Contract Audit Agency (DCAA) initiative is to reduce both contractor and government oversight costs without increasing cost, schedule or performance risks. Representatives from DCMC, DCAA, Defense Logistics AgencyÕs buying activities, and selected defense contractors have established teams at ten major defense contractor locations to identify government oversight cost drivers and related cost premiums, assess if the degree of government oversight is appropriate based on risk, and identify and implement management and manufacturing process improvements to reduce oversight and related cost premiums.

  The estimated targeted aggregate annual cost savings to date associated with process improvements being studied or tested is $118.7 million, with the potential for even greater savings. Examples of the process improvements being studied or tested include the following:

  - Replace multiple government quality assurance requirements with a single, performance based quality assurance process.

  - Use sampling techniques to perform soldering inspections, rather than 100 percent inspections.

  - For low risk suppliers, eliminate the mandatory and final inspections.

  - Eliminate the plant clearance process for low-value or unserviceable government property excess to contracts. Dispose of the property using the companyÕs process, rather than the process described in the acquisition regulation.

  - Increase the dollar threshold for government furnished property accountability.

  - Streamline the cost/schedule control system by eliminating or consolidating the reporting requirements which contain similar information, and focusing only on significant areas.

• Endangered Blue Butterfly Sighted at Fuel Terminal. The Defense Fuel Support Point (DFSP) San Pedro, California, has worked diligently to protect and restore species of flora and fauna native to the Palos Verdes Peninsula. Most of this effort has focused on the Palos Verdes blue butterfly, an endangered species which was thought to be extinct prior to a March 1993, sighting on the DFSP. The DFSP is the only place where the blue butterfly is known to exist. The DFSP is also home for two threatened species (the California gnatcatcher and the California coastal sage plant) and numerous other species, including over 150 plant species, 500 arthropod species, and 75 bird species.

  Since the rediscovery of the blue butterfly, the DFSP has developed several unique partnerships to promote species and habitat restoration. Partners include the U.S. Navy, the U.S. Fish and Wildlife Service, and the University of California. Three organizations (the Audubon Society, Rhapsody in Green, and Los Angeles Clean and Green) provide volunteer workers. During 1995, 720 local volunteers contributed 2,200 hours of work toward habitat improvement.

  This work will provide critical information needed to prevent the extinction of the Palos Verdes blue butterfly and it will enhance blue butterfly populations at the DFSP without adversely affecting the DFSP mission. This project at DFSP San Pedro could serve as a model for the reestablishment of the blue butterfly at other sites on the Palos Verdes Peninsula.

  The project has received very positive coverage from local and national news media and receives strong support from the local community, the Department of Interior, and the Department of Defense. In October 1995, The Honorable Bruce Babbitt, Secretary of the Interior, presented letters of recognition and a special award to DLA personnel. Secretary Babbitt noted in the letters, "I believe that an agency can carry out its mission while at the same time protecting endangered species."

• Use of Heat to Control Insect Pests. DLA has initiated and successfully implemented the use of heat for killing powder-post termites in crates and boxes. Typically, termites in wooden crates and containers are controlled with fumigants, which in many cases are Class I ozone-depleting chemicals. With heat treatment, infested wood is placed in a specially designed chamber and heated until the insects are dead.

  There is a growing public concern about the release of pesticides and toxic chemicals in the environment. Food safety, occupational safety, and increase in pest resistance to pesticides are also concerns. Heat control is an environmentally and economically better alternative than the use of many chemical fumigants. DLA is exploring ways to heat treat other infested products.

• Data Problem Solved with Commercial Products. Satisfying the empowered employees' need for the right financial information at the right time is a challenge. The Defense Logistics Agency had a repository of financial data to be used by analysts and top managers. The data base was operating on an obsolete minicomputer using software that was no longer supported by the developer. Users of the system throughout the country were experiencing problems getting needed information, the system was subject to frequent outages, and there was insufficient storage space on the system to retain all needed information.

  The Agency created a foundation for future growth and improvement by replacing the minicomputer and software with new commercial off-the-shelf products. The existing data base was converted in January 1994 and put into operation in March 1994. The new software is widely used in business and industry applications.

  In October 1995, the Agency purchased a point-and-click data access tool to work in conjunction with the new minicomputer and software. This tool will replace the data query menu tool that was developed in-house. The analysts will enjoy new capabilities, such as linking different types of information and generating custom reports and charts, while at the same time improving the response time. An initial training class will be provided to all analysts as an introduction to the tool.

  This action encourages competition, reduces costs, and decentralizes the financial data, thereby enhancing the manager's ability to improve customer service. The improvements benefit both the financial information systems group and all customers of the financial status information. The use of current commercial products benefits the Government by reducing the time and effort to maintain the system and by making new capabilities available without in-house system development.

• Video Teleconferencing Initiative. The Video Teleconferencing (VTC) capability was implemented at the Defense Logistics Agency (DLA) to reduce government travel costs, provide better management of time, and allow more people to participate in meetings, thereby improving communication and decision-making. The Director has used this technology at DLA Headquarters to participate in Joint Logistics Commanders meetings with his Military Service counterparts. The Joint Logistics and Contingency Operations Group uses it to discuss readiness issues with DLA Supply Centers. Examples of other types of meetings DLA has conducted via this technology include In Process Reviews and Monthly Management Reviews. Agency TDY (Temporary Duty) travel costs have dropped as a result of implementing this new technology.

  The planning and implementation of a VTC capability within DLA occurred over a three-year period. The goal was to accomplish a reduction in TDY costs by utilizing VTC, thereby improving communications internally and between DLA and its major customers and suppliers. The planning team identified equipment requirements and 10 site locations for the DLA Network and conducted the economic analysis which identified expected savings of $1.9 million over a five-year period from reductions in TDY. The team also requested and received funding, allowing it to implement this new technology within DLA during 1994 and 1995. Besides substantial financial benefits, implementation of the VTC capability within DLA improves communication and decision-making, reduces overhead costs in support of acquisition and logistics, improves customer service, improves weapon support and readiness, and allows employees to participate in VTC meetings with over 150 DoD organizations currently with VTC capability, plus major defense contractors using the SPRINT Meeting Channel. This is especially useful in the Defense Contract Management Command in communicating with a myriad of Defense contractors in the management of major weapon systems contracts. The availability of this technology during logistics readiness operations will greatly facilitate DLAÕs support to the warfighter.

  Based on the results of actual cost avoidance of $1.838 million achieved from October 1994 to March 1996, cost avoidance over the next five years is estimated to be $7.412 million.