oversight

Implementation of Recommended Improvements by the Defense Logistics Agency

Published by the Government Accountability Office on 1977-10-14.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                         DCCUMENT   ESUME
03685 -   82874145]

[Implementation of Recommended Improvements by the Defense
Logistics Agency]. CD-77-111; B-133118. October 14, 1977. 9 pp.
Report to Secretary, Department of Deferse; by Robert G.
Rotlwell (for Fred J. Shafer, Director, Logistics and
Communications Div.).
Issue Area: Military Preparedness Plans: Military Communications
    and Infornation Processing Needs (803).
Contact: Logistics and Communications Div.
Budget Function: National Defense: Defense-related Activities
     (054) .
Organizaticn Concerned: Defense Logistics Agency.
Congressional Relevance: House Consmmittee on Arted Services;
    Senate Committee on Armed Services.

         A review of the actions taken by the Defense Logistics
Agency (DLA) to implement the recomendations contained in the
report entitled "Autonated Support of Depot Operations Could Be
Improved" showed that DLA has not fully implemented those
recommendations that will provide the most substantial
improvements in the automated depot system.
Findings/Conclusions: DLA can realize substantial savings in
materiel shipment costs when it improves consolidation of parcel
posk shipments with freight shipments. Additional controls and
verification procedures are still needed before DLA should rely
on its microfiche records for its shipping and transportation
data.  Reccmmendaticns: The Secretary of Defense should direct
the Director of the Defense Logistics Agency to revise the
automated depot systems to identiv those parcel post shipments
that an be combined with freight Lhipments and sent at a
reduced cost and to incorporate adcitional procedures and
controls to provide assurance that all shipping data related to
its shipments is included in the microfiche records. In
addition, the Office of the Secretary of Defense should rovide
for evaluation of the process of establishing and maintaining
materiel descriptions used by the military services. After the
evaluation, the establishment of effective procedures should be
assured by the Office so that the freight description of
materiel will be consistent and uniform. (SC)
                                    UNITED STATES GENERAL ACCOUNTING OFFICE
                                            WASHINGTON, D:. 20548


      ;OGITICS AND COMMUNICATIONS
aC,             DIVISION


r4\         B-133118
           The Honorable                                             OCT 1 4 1977
           The Secretary of Defense
           Dear Mr. Secretary:
                We have recently completed a review of the actions taken
           by the Defense Logistics Agency (DLA) 1/ to implement the
           recommendations contained in our reporE entitled "Automated
           Support of Depot Operations Could be Improved" (LCD-76-i08,
           Feb. 20, 1976).. This work was performed under GAO Code
           941103.
                We evaluated DLA's p'cgress in taking timely and appro-
           priate actions to implement the improvements recommended in
           our report. We held discussions with officials at the Memphis
           and Ogden depots, DLA Headquarters, the General Services
           Administration, and DLA's Data Systems Automation Office,
           which has the responsibility for the operation and mainte-
           nance of DLA's automated depot systems.
                 In our February 20, 1976, report we recommended that
            changes should be made to DLA's automated depot systems to
            assist the Defense logistical system in
                    -- shipping materiel more economically,
                    -- assuring the accurate peparation, recording, and
                       reporting of materiel shipments, and
                    -- providing improved control over the processing of
                       customer requisitions.
            Once these improvements have been made, we stated that we
            believe the Department of Defense would have a depot informa-
            tion processing concept worthy of consideration for use at
            its other depots.


            1/Effective January 1, 1977, the Defense Supply Agency was
              designated the Defense Logistics Agency.
                                                                               LCD-77-111
                                                                               (941103)
B-133118



     On April 27, 1976, the Deputy Assistant Secretary of
Defense, Installations and Logistics, informed the Congress
he basically agreed with our recommendations, made in our
February 1976 report, and stated that implementing actions
have been or are being taken accordingly. However, he had
some reservations concerning the extent of savings to be
realized by greater consolidation of parcel post and freight
shipments.

     The contents of this report have been discussed with
DLA officials and their comments have been considered.

DLA'S ROLE-IN THE DEPARTMENT OF
DEFENSE'S LOGISTICAL SYSTEM-

      DLA was established in 1961 to provide effective logis-
tical support of common supplies and services to the military
services and other Federal agencies at the lowest feasible
cost.   On December 31, 1976, tis responsibility included the
management, procurement, storage, and distribution of approxi-
mately 1.9 million ite.is valued at about $3.15 billion.

     To meet its supply management responsibilities, DLA has
supply centers compute materiel requirements, procure needed
materiel, process customer requisitions, and perform related
financial activities. The physical handling of materiel is
performed by its depots, when directed by the responsible
center.

ADDITIONAL IMPROVEMENTS COULD BE MADE

     DLA has taken a number of actions to carry out our rec-
ommendations but still needs to improve its automated depot
systems to

     -- combine shipments to customers to minimize shipping
        costs and assLre the accuracy and completeness of ts
        microfiche records of materiel shipments.

Also, although DLA has essentially implemented our recom-
mendations for improving materiel freight descriptions, which
are the basis for determining correct transportation charges,
there appears to be a need for evaluation o the procedures
and to assure the implementation of consistent and uniform
assignment of freight descriptions.


                              2
B-133118



MATERIEL COULD BE SIPPED
MORE ECONOMICALLY

     The Government could save an estimated $1.2 million
annually if DLA's automated depot systems were revised to
identify those shipments that could be combined as recommended
in our report. During fiscal yat 1976 DLA spent about
$71.7 million to ship materiel from its depots. Of this
amount about $18.7 million was spent for parcel post ship-
ments. On April 27, 1976, the Deputy Assistant Secretary of
Defense informed the Congress that transportation costs for
parcel post shipments could be reduced if changes were imple-
mented; however, DLA has not fully implemented revisions to
its automated depot systems that incorporate these changes.

Improving materiel shipment methods
     Currently, DLA's automated depot systems combine requi-
sitions for the same customers into shipments based on such
things as the customer's urgency of need for the materiel,
the location f the materiel in the warehouse, and whether
the materiel is compatible for packing with other materiel
ordered by the customer. After the equisitions have been
combined, a program in the computer determines whether the
shipments will be sent by parcel post or freight. This de-
termination is based primarily on the shipment's weight and
urgency of neeo without regard to the transportation costs.
Generally, all shipments weighing over 66 pounds are auto-
matically shipped by air or motor freight while all shipments
weighing less than 66 pounds are generally shipped as parcel
post. DLA established the 66-pound weight limitation to
essentially comply with the U.S. Postal Service maximum
weight limitation of 70 pounds for parcel post shipments.

     Becauue these automated systems do not include criteria
to consolidate parcel post and freight shipments for the same
customer or geographical area, individual parcel post and
freight shipments are processed and made concurrently. Many
of these shipments could be combined and shipped more eco-
nomically as freight.

Materiel shipments can be combined

     DLA's depot at Ogden, Utah, reported on February 4, 1977,
that our recommendation for reducing tha cost of shipping
materiel to its customers had been tested. The test results
confirmed transportation cost savings can be expected when
parcel post shipments are combined with freight shipments
                               3
6-133118



already going to the same geographic area. Based on these
results, depot officials projected over 53,000 parcel post
shipments could be combined annually with freight shipments
and about $75,000 could be saved annually at the Ogden depot
alone.

     However, the depot's test procedures considered consol-
idating only routine parcel post shipments weighing between
20 and 46 pounds. The test excluded the possibility of con-
solidating routine parcel post shipments weighing less than
20 pounds and between 46 and 66 pounds with freight shipnments,
higher priority shipments, or air freight shipments.

     On March 3, 1977, DLA agreed with the content of the
Ogden depot's test report and requested that the depot pre-
pare the functional requirements for implementation of the.
i.proved procedures DLA-wide. However, DLA does not believe
that 20 pounds is the lowest weight limit that could be used
since lower weight limits could be established at DLA depots
that do not have the mechanized materiel handling equipment
used at the Ogden depot. Also, DLA believes tnat those de-
pots with this materiel handling equipment can lower their
minimum weight capabilities by using weighted trays or
baskets.

     Since the Ogden depot processes about 25 percent of
DLA's parcel post hipments, we estimate the consolidation
of parcel post shipments weighing between 20 and 46 pounds
with freight shipments could save DLA an estimated $300,000
annually, if similar conditions prevail at the other DLA
depots. Had the Ogden test considered routine parcel post
shipments weighing between 10 and 66 pounds, rather than
20 to 46 pounds, the number of parcel post shipments that
could have been combined with freight shipments could have
been substantially increased. We estimate this change could
increase the savings, at the Ogden depot alone, to about
$200,000 annually and DIA's total savings could be $800,000
or more annually. Should DLA expand this capability to in-
clude both routine and high priority parcel post shipments
weighing between 10 to 66 pounds, we estimate DLA could save
at least $1.2 million annually.

MICROFICHE RECORD ACCURACY
NEEDS MPROVING

     During our earlier review, DLA requested our approval
to destroy the supporting shipping and transportation


                              4
B-133118



documentation and rely solely on microfiche records 1/ for
such informra.ior.

     We found tha the microfiche records did not include
all the information contained on the original documents nec-.
essary to assure DLA that materiel was shipped only to author-
ized recipients and shipments were made at the most econom-
ical freight rate. As a result, we recommended that DLA
incorporate control procedures. These procedures would pro-
vide assurance that all of the information needed to identify
and control the movement of materiel and o serve as the
basis for payment to carriers was included in the microfiche
records.

Additional controls-required

     Although the DepLt:y Assistant Secretary of Defense said
corrective actions would be taken and DLA has made changes
to improve the reliability of its microfiche records, many
microfiche records still do not accurately describe or sup-
port how tht materiel shipments were actually made. The
newly incorporated controls are inteneed to provide assur-
ance that all bill of lading information is recorded on
microfiche.  These controls do not provide assurance that
the bill of lading information is itself complete before
being transferred and recorded.   In addition, control proce-
dures have not been implemented to assure that when manual
changes are made to bills of lading these changes are entered
correctly into the system and reflected on the microfiche
records. We found that many of the manual changes to bills
of lading were not entered correctly into the system. As a
result, our analysis indicates DLA can expect a 15-. to 26-
percent error rate in the corrective entries that are made
to the microfiche records.

     We believe DLA should develop and incorporate record
counts and verification procedures to provide assurance
that all shipping information used to prepare bills of lad-
ing and all manual changes to bills of lading are properly




l/Microfiche records contain photographic pages of informa-
  tion in reduced size and are used by the depots as their
  primary source of information for responding tc shipment
  inquiries.

                               5
3-133118



recorded on microfiche records.  In view of the above, LA
should continue to retain copies of bill c of lading with
supporting documentation until it can provide greater as-
surance that its microfiche records are accurate and com-
plete, and General Services Administration and Department
of Defense regulations have been changed to allow retention
of microfiche records in lieu of paper copies of bills of
lading.

FREIGHT CLASSIFICATION GUIDE
SYS'.EK- INCORPORATED AS BASIS
F:IFUOTERIEL DESCRIPTION

     As recommended in our February 1976 report, DLA has
adopted the Freight Classification Guide Syst:em information
as te basis for materiel freight descriptions in its auto-
mated depot systems.   owever, DLA is not consistently fol-
lowing the procedures specified by Department of Defense
regulations or those described to the Congress by the Deputy
Assistant Scretary of Defense in his April 27, 1976, letter.

      bco make certain that the Government describes the materiel
it ships in a uniform and consistent manner which can be recog-
nized and accepted by all freight carriers and transportation
agencies, the Department of Defense requires the military
services to use the materiel freight description information
provided in the Freight Classification Guide System. This
system is managed by the Military Traffic Management Command.
To be sure that uniform and consistent materiel freight de-
scriptions are available for use by the military services,
the Department of Defense designated its Defense Integrated
Data System for.distribution of the Guide System's informa-.
tion.    Because a proper description of the materiel is nec-
essary to assure the appropriate assessment of transporta-
tion charges, DLA has made its depots responsible for assur-
ing that the Guide System's description information is suit-
able for DLA man.ged materiel.

     DLA is to report materiel freight descriptions consid-
ered to be unsuitable or believed not to be in the Govern-
ment's best interest to the Military Traffic Management Com-
mand for consideration and to maintain a record of all re-
ported deficiencies.

     Unless the Military Traffic Management Command agrees
with DLA's suggested change and corrects the Freight Clas-
sification Guide System and/or DLA is notified of the change,
prior to issuance, DLA depots must continue to use the


                                 6
B-133118



freight description i.nformation provided by the Guide
System. While this corrective process may require the tempo-
rary use of freight description information that might not
be in the Government's best interest, DLA must assure that
its depot3 consistently use the freight descriptions that
have been authorized by the Military Management Command.

     In his April 27, 1976, response to our report, the
Deputy Assistant Secretary of Defense said all DLA depots
had been directed to preserve the information established
by the Military Traffic Mana   ent Command and not to change
this relationship without the Command's concurrence. During
this follow-up review we found DLA (1) did not always use the
freight description information provided by the Guide System
and (2) records did not indicate that the Military Traffic
Management Ccmmand had authorized the deviation. Instead,
DLA had used descriptions that depot officials believed more
suitable, for the materiel being shipped, without the de-
scription K=inq authorized by the Military Traffic Manage-
ment Command.

     We believe DLA has essentially implemented our recom-
mended improvements for the use of descriptions. However,
we believe DLA's practice of using materiel descriptions
that deviate from the Freight Classification Guide Systfem
indicates the need for evaluating how the Department of De-
fense establishes and maintains these descriptions. While
we agree that materiel shipped should be described correctly,
we believe the procedures ,,sed for maintaining these descrip-
tions should also be evaluated. For example, the claim by
depot officials that DA descriptions are believed to be
more suitable raises questions about.the accuracy of the,
Freight Classi'fication Guide System.

OTHER IMrLEMENTED IMPROVEMENTS

     On April 27, 1976, the Deputy Assistant Secretary of
Defense stated that in response to our recommendations, DLA
had revised its automated depot systems to select correct
freight tariffs and compt'te acceptable estimates of trans-
portation costs. Also, DLA had revised these systems to can-
cel bill of lading numbers assigned to voided bills and to
assign new bill numbers to the reissued bills. Finally, DLA
had adopted the use of a common data file to eliminate the
need to regularly reconcile the individual working files
of its two automated depot systems.


                                 7
B-133118


CONCLUSIONS AND RECOMMENDATIONS
     DLA has implemented several of our recommended
improvements in its automated depot systems; however, it has
not fully implemented those recommendations that will pro-
vide the most substantial improvements. We believe that
these improvements should be made expeditiously so that DLA
can

      -- ship materiel more economically, and
      -- rely on the microfiche records for the shipping and
         transportation data.

     DLA's Ogden depot has demonstrated the economic desir-
ability of identifying parcel post shipments that car. be com-,
bined with freight shipments going to the same geographical
area. Although the full potential of our recommended improve-
ment was ot tested by the Ogden depot, we believe DLA can
realize substantial savings in materiel shipment costs when
DLA improves its consolidation of parcel post shipments with
freight shipments.   Such savings could be at least $1.2 mil-
lion annually.
     We also believe DLA has improved the accuracy and re-
liability of its microfiche records. However, additional
controls and verification procedures are still needed before
DLA should rely on these records for its shipping and trans-
portation data. These changes are aeea=d to assure that all
data used by DLA to ship materiel to its customers is re-
flected on the microfiche. DLA must continue to retain
copies of bills of lading with supporting documentation,
until two conditions are met. First, DLA must be able to
provide assurance that its microfiche records are accurate
and complete and second, the General Services Administration
and Department of Lffense regulations must be changed to
allow retention of microfiche records in lieu of copies of
bills of ading.
     We reconmmend that your Office provide for evaluation of
the process of establishing and maintaining material de-
scriptions used by the military services. After the eval-
uation, we recommend that the establishment of effective
procedures be assured by your Office so that the freight
description of materiel will be consistent and uniform.

                                  8
B-133118



     We again recommend that your Office direct the Director,
Defense Logistics Agency, to
     -- revise the automated depot systems to identify those
        parcel post shipments that can be cmbizned with
        freight shipments and sent at a reduced cost and

     -- incorporate additional procedures nd controls to
        provide assurance that all shipping data related to
        it- shipments is included in the microfiche records.

We believe that when the improvements relating to DLA have
been mrade, DLA will have essentially complied with the intent
of or February 1976 recommendations, and the Department of
Defense should consider using DLA s automated techniques at
other Defense depot activities.

     As you know, section 236 of the Legislative Reorganiza-
tion Act of 1970 requires the head of a Federal agency to
submit a written statement on actions ta':en on our recommen-
dations to the House Committee on Government Operations and
the Senate Committee on Governmental Affairs not later than
60 days after the date of the report and to the House and
Senate Committees on Appropriations witn the agency's first
request for appropriations made more than 60 days after the
date of the report.

     If you wish to obtain more specific information or have
questions cncerning any aspect of this report, please con-
tact Mr. C. C. Smith, Assistant Director, on 275-6572.

      Copies of this report are being sent to the House and
Senate Committees on Appropriations; the House Committee
on Government Operations; the Senate Committee on Govern-
mental Affairs; and the House and Senate Committees on Armed
Services.   Copies of this report are also being provided to
'.he Director, Defense Logistics Agency.

                               Sincerely yours,




                               Fred J. Shafer
                           *    irector




                               9