United States General Accounting Office Report to Congressional Requesters . ! May 1990 DEFENSE INVENTORY Defense Logistics Agency Needs to . Better Manage Procurement Leadtimes : Im3TmcTED --Not to be reieased outsic.b the General Acmnnting Office unless tqxciflw approved by the Off’ice of Congtwdmml Relations. :.. . *. . GAiO/NSIAD-90-124 United States GAO General Accounting Office Washington, D.C. 20548 National Security and International Affairs Division I%-239248 May 2,199O The Honorable John Glenn Chairman, Committee on Governmental Affairs IJnited States Senate The Honorable Earl Hut to Chairman, Subcommittee on Readiness Committee on Armed Services IIouse of Representati\,os As you requested, we evaluated the Defense Logistics Agency’s (DLA) controls over procurement leadtimes used in determining when to initi- ate a buy. You specifically wanted to know if DLA has adequate manage- ment controls to ensure leadtime estimates being used are appropriate to support mission requirements. If they are not,, significant adverse cffrcts can occur. Overstated leadtimes can cause increased investment for larger invento- ries, greater chances of buying excess material, and increased termina- tion costs if requirements change. Irnderstated leadtimes can cause shortages of needed supplies, which could affect the operational readi- ness of weapon systems or their components. As of September 30, 1989, average procurement leadtimes at DIA supply ccntcrs ranged from 4 months to 17 months. This required DLA to main- tain on-hand and on-order inventory levels valued at about $5.4 billion. The objectives of our review were to evaluate (1) the DLA practices and procedures for controlling procurement leadtime estimates and (2) DLA’S efforts to reduce actual leadtimes. To do this we identified and tested controls at two of ILA’S six supply centers-the Defense Electronics Supply Center (L)M(‘), Dayton, Ohio, and the medical supply activities of the Defense Personnel Support Center (a~), Philadelphia, Pennsylvania. At these support centers, we reviewed the reasonableness of the leadt,imes used for a small (nonprojectable) random sample of stock items. (See appendix I for a more detailed description of our objec- t ivcs, scope, and methodology.) has not implemented adequate controls to manage and minimize pro- Results in Brief DIG curement leadtimes as directed by the Department of Defense (non). Our sample items at the t M’() supply renters had leadtimcs that were either Page 1 GAO/NSIAIHO-124 Defense Invrnlory B-239248 for production leadtim<>. The longer the procurement leadtime, the more on-hand and on-order stock is needed t,o meet customer demands and ensure a continuous s111)ply of stock items. Longer than necessary Icadt.imes cause DLA to purchase items sooner than needed. This results in an earlier commitment, and obligation of funds and increases the risks of buying too much or too little stock. For example, if demand for an item decreases during a long leadtime period, the item being purchased c.an exceed the services’ needs. This would require DIA to cit,htlr c~anc4 the item on order, dispose of the item, or store it for longer periods. If, however, demand increases, longer lcad- times slow MA reac*tion time to get more items in stock, increasing the risk of being out of stock Overstated leadtimes could also increase safety level stocks. These are st.ock levels wi~ich ark ant horized to be on hand as a cushion should demand unexpectedly increase or the actual procurement leadtime take longer than forecasted. Safety level requirements are based on a com- plc~ formula and c~hangt~sin leadtime have a direct effect on the safety level requirements of i~tdividual items. DI,4 officials estimated that a lo- day change in leadtim<\ wollld have a corresponding change in safety 1~~1 rc~quircmcnt,s (11’I .7 days. Although WC do not know what effect this would have at th(, IX.:\ level, I)OL)estimates that for each day lead- times are reduced. MI l-wide. $10 million is saved in smaller quantities of safety level stocks. DIA manages about tiX5,OOO consumable supply items that, are based on a forecasted lcadtimt~ 11sc~1 to determine inventory requirements and when to initiate a t)ll> (‘onsumable items are discarded after USCas opposed to being r(~pmr~i or serviced. They include such items as cloth- ing. food. medical, industrial. construction, and electronics supplies. About 75 percent of t hc items managed by DLA have a unit price of less than $50. - On December 9. 1985, IIOI) issued an instruction’ that required all ser- DLA Lacks vic,cs and ILA to cstabhsh specific management controls to minimize pro- Appropriate Leadtime curement leadtimes. Xlt hough LLA headquarters and the supply centers Controls WY visited had taken s\om(l actions to implement this instruction, imgro\-rments are still ncbc,dcd.More specifically, we found that DIA and/or the centers Ilild no1 Paye 3 GAO:NSIAD-90.124 Defense Inventory contract award. Tht> Tt~c~hnical Directorate gets involved in the procure- ment action, primarily to identify product, vendors and ensure that items meet specificat ions. Hased on our discussions with Supply Direc- torate officials, thr supply tnanagcment review, if done! would include only the procedures and actions of the supply directorat,e. DLA Has Not Set The DOUdircctivo rclquircs IKA to establish procedures to ensure that leadtime estimates art‘ based on representative procurements-those Standards or Developed with routine and rc,c,urring procurement actions and circumstances. To Accurate Data to Identify do this, the directivca rc,quires IL+. to develop standard times (in days) Abnormal Leadtimes for carrying out, t,he different phases of routine procurement actions. ‘L‘hcse standards allow IHA to identify abnormal delays or nonroutine cvcnts and keep them from inflating future leadtime estimates. The directive also requires IL.\ to maintain historical information on all procurements (act,l~al tmlc’s for various phases of the process) and use rcprcscntative times from t,his database to establish forecasted lead- t,imes. This requirctrtc~nt is dt++cd to help ensure that the forecasted Icadtime used by IL \ 15appropriate and will not unnecessarily distort inventory requirtmon15. At the two locations wt’ visited--r)rwc and r)Esc-we found that these rcquirc,ments had not t)c,cti implemented. Moreover, neither organization had instituted effect ivtb alWrnative procedures to ensure the forecasted leadtimes rcpresentcd rout inc or recurring procurement actions. In fact, our tests of 57 supply items. selected from a universe of 24,000 high demand value items, shoived that 37 (67 percent) had administrative Iradtimes that includrd cvt~nts we believe to be nonrepresentative. Thrst~ events inclutic~rl lost purchase requests, nonrecurring time to iden- i ify a nc’w source. man~~gt~tncnt direct,ed delays, contractor requested delays. delays causc~i tly training and excessive buyer work load, and onct-time technical rc\ ithws. LNXSC buys electrical cotit acts for the three military services. Forecasted adtninistrative lcadt,imc, for the most recent, purchase at the time of our rcavicw was 357 days. To dctcrmine this number, DLA used a weighted average formula whic+l gives greatest, weight to the two most recent purchases, assuming t ltt’y will be more representative of the future. Therefore. in assessing the accuracy of the 357 days. WClimited the l It took 150 days longer than normal to process the buy in part because interns, being used to process the buy, were in school for 30 days. DPSC officials were unaware of the causes for the remaining 120-day delay, and records were insufficient to show the reasons. If I)I’SC had eliminated the times associated with these nonrecurring events, WC estimate (using DLA’S weighted average formula) that admin- ist rative leadtime for the most recent buy would have been reduced by i 1 daysPfrom 177 to 1Oti. This would have reduced inventory and safety level requirements by $990 and $167. respect,ively. For all 57 items we revrewed. inventory requirements and safety levels could have been reductd by about $2 12,000, if DLA had a system to iden- tify and eliminate unusual or nonrecurring events from forecasted lead- times. We rannot project these findings to DLA’S total inventory based on ow small sample. Ilowc~vcr, our review indicates that significant savings may be possible considering that DU manages about 686,000 inventory it,ctns that use leadtimrb to determine requirements. For the above cxamplcs, WC’were able to identify the causes of signifi- cant delays only after tlxtensive reviews of the contract files and talking wit,h the appropriate buyers and item managers. For many of our sam- ple items, we identified delays but were unable to determine a cause. This was due to insufficient information in contract files and buyers and item managers not being able to recall contract events. In some cases, buyers had retired, transferred within LKA, or quit. The lack of records prevented reconstruct ion of the causes of procurement delays. DLA offi- cials believe they art’ doing the best, they can with available resources to carry out the 19% directive. We recognize that the current DL\ proce- dure. which is intended to identify gross differences between projected and actual lcadtimcs, has helped identify some inflated leadtimes. IIow- c\‘cr. the procedure dtlpends extensively on the individual initiative and jrtdgmcnt of itctn managers. During our review we found item managers tried to carry out tlrtx procedure but usually lacked sufficient informa- tiott to identify abnormal leadtime events. Use of Contract Delivery LLA computes foreuastt,d production leadtime twice on every purchase. Dcpcnding on the st agr’ of the purchase, the forecast is based on a Dates Distort Forecasted weight t,d average of tit her the current contractual or the actual delivery Leadtimes time and the old avtsragr in the automated system. At the time DIA issues II contract, it ust~ the contract delivery date to update forecasted Icadtimes in the automated system for t,he next buy. Actual delivery t%gt. 7 GAO/‘NSIAD-W-124 Defense Inventory B-239248 completed in March 1987, centered on ways to shorten administrative leadtime by increasing automation and improving contracting t WII- niques and management practices. The plan did not inc4udr ways to reduce production leadtime even though it now accounts for about CO percent of total procurement leadtimcl. The IJnder Secretary’s December 1986 memorandum enc,ouragf>d the reduction of production Icadtimc. The memorandum includrd rc’c.om- mendations to reduce procurement leadtimc that had btlcsn mad<’ by the Logistics Management Institute in its 1986 report on pro~ut’cmcnt lead- times.” However, WV found that DESK and I)PSC‘ had not implcmcnt~~d spc- cific recommt>ndations for reducing production Icadt imc by having supply units request thcl cont,ractors’ best delivery times. Thc~ timt,s can be used, where possible. to rcduc*r forecasted leadtimes for stihsC- quent buys and in selecting a contractor. In fact. the’ buyers at theso centers normally rcqnc‘st contractors to deliver t,hr items on the dat c specified in ULA’S automated inventory system. They do not ncc-t,ssarily want the contractor’s btxst delivery times on all pnrctrasc~s. I)ESC~ officials explain4 that a contractor’s best delivery time, should be reserved for items tllat ark Ilrgently needed because of supply shortages. In their opinion. contract,ing for the best delivery time in all cases would cause vcsndors to inflate future delivery times to avoid con- tract penalties for late, deliveries. In turn, they said that pressure to achieve the best delivc>ry time on all buys would rcducc thtl ~cndo~~‘s willingness to providt, quick deliveries on urgent tx~ys. If UIA requested thcl b& delivery time in compctitivtl solicitations. con- tractors that inflat ~1 d<,livtlry times to avoid fut urc pcnalt ies would lessen their chances of’ receiving the contract awards. This. in our view. is enough of an inccWive to obtain some improvemom in dclivcxry t imcs. In addition, the best dt>livcry time does not necessarily mean “urgt’nt” delivery time. In ernc~rgc~ncysituations, LLA still has tlrc‘ option 01’ offcr- ing incentives for the, contractor to meet more> urgc,rrt schedultx The bottom line, however. is that the uw centers arc’ not folknving the llnder Secretary’s 11186direction and arc missing an opportunity to reduce actual produc,tion leadtime. This is importwnt~ hccxllstl IHA’s anto- mated inventory system uses both the contracted and a(.( ual prodllc,tion leadtimc to generat (3t’or(~(.astcd lradtimcs for fu(utx> buys. Paye 9 GAO,‘NSIAD-90-124 Ikfiwsr Invmlory B-239248 We, therefore, recommend that the Secretary of Defense direct the Director, DLA, to . conduct periodic, objective, and comprehensive management reviews at the supply centers to assure all center directorates involved with lead- time comply with applicable DOD procurement leadtime policies and procedures; . set sound standard time frames for key administrative leadtime events, develop reliable information on the actual time taken for such events, and then compare standards to actual times to remove unusual events in forecasting leadtimes; . use only actual delivery dates to forecast procurement leadtime unless they are not available or considered unrealistic; and . request a contractor’s best delivery time to reduce forecasted leadtime for future buys and where possible give that delivery time some weight in contract awards. In its oral comments on our draft report, DOD generally agreed with the Agency Comments and report. DOD acknowledged that greater emphasis needed to be placed on Our Evaluations both accurately forecasting and reducing procurement leadtimes. DOD stated that DLA would review its supply centers’ (1) procedures and ini- tiatives to minimize and accurately forecast leadtimes, (2) criteria and practices for identifying nonrepresentative buy situations with a goal of developing consistent agencywide guidelines by April 1991, and (3) parameters and related procedures for reviewing leadtime updates. DOD commented that aggressive action in this area will implement com- mitments made by the Secretary of Defense and the lJnder Secretary of Defense (Acquisitions) to pursue a cultural change within DOD'S acquisi- t ion process in which cost-effectiveness is given increased priority. 1101)acknowledged that ILA had not conducted the required periodic on- site supply management reviews since 1986. In DLA's opinion, the payback in terms of problems identified and corrected did not justify the expenditure of the resource required. Rather than doing the required periodic revickvs, ILA performed “intensive” reviews on spe- cific known problem areas. nou also commented that since 1986, DLA hat rontinucd to perform its contract management reviews, which concen- t rated on contracting practices and included administrative leadtime issues. Thus, DOD belicvcts ILA is in compliance with the DOD instruction. GAO, NSIAD-90.124 Defense Inventory Appendix II Major Contributions to This Report Richard A. Helmer, Assistant Director National Security and International Affairs Division, Washington, D.C. Richard Strittmatter. Assignment Manager Cincinnati Regonal Michael J. Hazard, ISvalrlator-in-Charge Office Donald I,. Allgyer, Site Senior Katrina D. Stewart, I:valuator IIarry IL Benchuff. .Jr., Assignment Manager Philadelphia Regional -John R. Kirstein, Sittl Svniol Office George A. Scott, Evaluator (391613) Page 15 GAO/NSIAD-90-124 Defense Inventory Requests for copies of GAO reports should be sent to: U.S. General Accounting Office Post Office Box 6015 Gaithersburg, Maryland 20877 Telephone 202-275-6241 . The first five copies of each report are free. Additional topic $2.00 each. I There is a 25% discount on orders for 100 or more copies m; single address. I Appendix I Objectives, Scopeand Meihodology The Chairmen, House Committee on Armed Services and the Senate Committee on Governmental Affairs, asked us to evaluate the Defense Logistics Agency’s (DLA) procurement leadtime practices and proce- dures. The underlying concern was that leadtimes may be too high. Our objectives were to evaluate the practices and procedures for controlling DLA leadtime estimates used for determining inventory requirements and I)LA’S efforts to reduce actual leadtimes. We performed our work at the Office of Secretary of Defense and Headquarters, DLA, Washington, D.C.; Defense Electronics Supply Center, Dayton, Ohio; Defense Personnel Support Center, Philadelphia, Pennsylvania; and the Logistics Manage- ment Institute, Washington, D.C. We reviewed pertinent documents and reports and met with officials to determine how the DLA supply and procurement systems worked. We identified key DLA systems and controls to manage leadtimes and tested their effectiveness. We used DIA computer programs, reports, and records. We used a case study approach to determine if leadtimes were too high and if controls were in place and working. An initial random selection of 50 high demand value replenishment items was drawn from D1.A supply computer tapes, for both the Defense Electronics Supply Center and Defense Personnel Supply Center, as of September 1988. Our review of controls focused primarily on administrative leadtime since DLA has greater control over actions that make up administrative leadtime. We completed evaluations on 34 electronics items and 23 medical items. We were unable to project the results of our sample because of its small size and the variance of the results. Nevertheless, our analysis does indi- cate that adequate controls are not in place and administrative leadtime has not been minimized as required by thr Department of Defense. We conducted our review between August 1988 and November 1989 in accordance with generally accepted government auditing standards. Page 14 GAO/NSIAD-90.124 Defense Invrntory B.‘23924X We do not take issue with the statement that L)I.~\is doing “intcnsivc” reviews to correct major problems at certain supply centers. IIowt~vcr. since the periodic reviews were curtailed and our rcvicw has indicated that the instruction’s objectives (i.e., ensuring that lcadtimes were mini- mized, policies wtbrc being followed, and Itadtimr forecasts werr acc~ rate) have not ber>n achieved, we do not bt%evc r)I,z\ is in full compliance with the r)ot) instrllct ion. As arranged with your offices, unless you publicly announce its contents r,arlicr. we plan no further distribution of this report until 30 days from its issue date. At that time, we will send copies to the Chairmen, Sltb- committees on Dtlfcnsc. Senate and Ilouse Committees on Appropria- t ions; Senate and LIouse Committees on Armed Scrviccxs; t hc Director, r)l& the Director. Office of Management, and Budget; and other intcr- clstctl parties. WC will make copies available IO othclrs upon request. If you or your staff have any questions, please call me on 2’6841% Major contributors to thrl report are listed in appendix II. Donna M. lleivilin Director, Logist ic.5 Issncs Page 12 B-239248 Part of the reported 12.percent reduction in leadtime resulted from across-the-board changes in leadtimes made by the two Centers we vis- ited. These changes were not, however, based upon actual changes in procurement processing time. At DESC cuts in leadtime were made to reduce requirements and help solve a severe funding problem. While the funding problem may have been mitigated, the cuts distorted DKT'S leadtime data. DIW officials admitted these across-the-board cuts were arbitrary and may have produced negative effects on supply operations had it not been for decreasing demands at the time. r)r’sc also made across-the-board cuts because its leadtimes were too high. Moreover. DI,.~ officials informed us that the Centers all made across-the-board cuts because leadtimes were too high DLA-wide. In its oral comments on our draft report, DODsaid that it agrees that DLA needs to do more to reduce leadtimes. As an example, DOD said that DLA is developing automated systems to use “best delivery” data on future buys. Its Contract Decision/Analysis Support Program initiatives are designed to provide this capability. According to DOD, t,arget dates for implementation of’ this initiative extend beyond 1995. We believe that conditions found at the two DLA centers indicate a need Conclusions and to establish better controls and procedures to manage and minimize Recommendations leadtimes as required by the DOD policy directive. Specifically, r&i offi- cials had not (1) periodically reviewed leadtime practices at these sup- ply centers to ensure that policy was fully implemented, (2) established standards for leadt imes or collected complete and accurate informat,ion on actual leadtime, so that proper evaluations could be made to elimi- nate nonrepresentative procuremtnt actions from forecasted leadtime. or (3) used accurat~e contract delivery dates in computing forecasted lcadtimes. While r)I.i\ officials did take some steps to rcducc administra- tive leadtime. they virtually ignored production leadtime. The primary emphasis of DLA officials has been on ensuring that stock is available to meet customer needs. Since using longer lcadtimes can increase stock availability, there is little incentive to reduce leadtimes. We believe it is import ant that DLA officials implement effective manage- ment controls over procurement leadtimes because r)td\ has large invest- ments in supplies to srlpport leadtime requirements. Page10 GAO/NSIAI%YO-124Defensr Inventmy B-239248 time is used to updat,c the forecast only after 51 percent of the largest, contract line item has been delivered. However, if actual delivery times differ from the contract times, t,he forecasted leadtimes can be distorted. R7e compared actual and contract delivery times on 109 cont,racts for the 57 supply items WC reviewed at IIESCand L)t’s:(’to det,ermine if these dates differed and, if so, the extent of the difference. We found only one case where the contract and actual delivery time was the same. For the other 108 contracts: - Actual deliveries for 58 occurred on the average of 51 days after the rontract delivery date. This understated inventory requirements and could have resulted in shortages of items valued at about $200.000. - Actual deliveries for 50 occurred on the average of 6 1 days before the contract delivery date. This overstated inventory requirements and could have resulted in unnecessary items vahled at about $99,000. According to KID, the reason DLA uses estimated contract delivery dates as much as it does to forecast leadtimes is linked to DLA'S inability in the past, to react to rapidi>. increasing production leadtime by suppliers. The DOD leadtime instruction clearly states that if information to be used to forecast leadtimes is known to be inaccurate, it should not be used. TJsing inaccurate estimated delivery dates, even if from a real world buy situation, creates inaccurate leadtime forecasts and does not solve the problem as originally intended. The inaccurate delivery information becomes the major factor in forecasting leadtime for the next purchase of an item, because it is the basis for computing that purchase’s esti- mated contract delivery date. Therefore, DLA'S current system for corn- puting lcadtime continues to be based on inaccurate information and perpet,uates inaccurate leadtimes. That is why we believe that ILL needs to curb its practice of using estimated contract delivery dates in fore- casting production lewdtimes. __. Although DLA has reduced leadtimes by 12 percent in response to the DLA Can Do More to 1986 directive, we found that ILA had not implemented t)or) recommen- Reduce Leadtimes dations with regard to production leadtime and that the 1P-percent reduction resulted in part from funding limitations and across-the-board actions. In December 1986, the IJnder Secretary of Defense (Acquisition and Logistics) directed 1~4 to develop a specific plan to significantly reduce procurement leadtimes by the end of fiscal year 1988. The DLA plan, Page8 ~AO/NSIAD-90-124Defe~~srl~1vrntory sc*opc of our evaluation to these two most recent purchases. Our evalua- tion identified several nonroutine or nonrecurring events that p1.A should have excluded in arriving at forecasted leadtimc. . The buyer had a high work load of 500 purchase requests at the time tlw system rcconuncwlcd t hc purchase. As a result, 91 days lapsed before the buyer ~uld start the procurement process. Normally this takes about 5 days. During this delay a second buy was initiated and combined with the first buy, increasing the size of the buy to over the S25.000-ceiling for small purchases. This required even more steps t,o be taken and additional proc’urcment delays. . A potential contractor rcyucsted and received a X)-day extension on the time to submit, a bid. This did not occur on the previous buy and should not happen on every pllrchasc. l Two bidders included unapproved parts in their proposals. The Techni- WI Directorate’s rc>vic,w and approval of these parts added 100 days to the procurement proc~s. On the previous contract, no technical reviews were required and no alWnate parts were bid. l l’hc contractor refustsd to submit cost and pricing data, as required for purchases over d 100.000 claiming an exception to the regulations. The resolution of this r~nu~al t)roblem took r%%C: 89 extra days. Only I out of 1 1 contracts for tnis ;t.tm since IR81. has exceeded $lOO,OOU. If DESChad climinatc4 I hc t imcs associated with these nonrecurring events. we estimate> (u’iing DIA’S weighted average formula’) that admin- istrative leadtimc I’or t IW most recent buy would have been reduced by 130 days-from 357 t 1) 227. We estimate that this would have rcduc*ed kadtimc and safety IPWI requirements by $8,230 and $1,400, rcspcctivcly. oInc‘-Medical buys cannula sets (tubes to drain fluid from the body) for the three military sc~~~icr~s.E’orccastcd administrative leadtime for the most, recent purchase at the time of our review was 177 days. Our evalu- ation of the two most rcac.txntpurchases showed the following nonrout,inc or nonrecurring events that r)l-&.should have excluded in arriving at forcacasted lt‘adtimtt . A 1987 reduction in force eliminated some buyers at WW, and it took an extra 5fi days to proccn\s the purchase rcquclst. Page Ii GAO,'NSlAtWO-124 Drfensr Inventory B-239248 . conducted periodic supply management reviews, * established leadtime standards or developed complete and accurate leadtime information, and * used appropriat,c actllal delivery times as a basis for estimating procure- ment leadtime. DOD recognizes that procurement leadtimes need to be controlled. Its pol- icy states that if lcadtimcs are permitted to increase unchecked. stock quantities can also rise, increasing the cshance of buying items in excess of needs. DLA Has Not Conducted The 1985 r)or) inst ruc.tion requires DLA to conduct periodic supply man- agemcnt reviews to onsur( leadtimes arc minimized, policy is being fol- Supply Management lowed, and leadtime forecast.s arc accurate. According to I)I,A Reviews Kcquirements Ilranch officials in the Supply Directorate (rcsponsiblr for conducting the revi<‘\\ ). these supply management reviews have not been conducted for WUWI years. They could not recall when the last one was done, nor 1)I’(bvidc ;I report documenting that a review had been done in the past. ‘l’h~~ Hranch officials recognized the importance of the reviews but said i h(~r Hrancb lacked funds to do them. As a substitute for t INSrc>views. the officials said that leadtimes were discussed at annual s;11pply conferences attended by supply managers l’rom IL\ htadquartctrs and supply centers. They also told us that, lead times were discusscltl during management visits to the supply centers. One official said the l3rxnc+ does not maintain records to support the frequency or conttsut in Lvhich leadt,imes were discussed. The Supply Directorat c has litt,le incentive to minimize leadt,imcs. The focus of supply managt’mc~nt is primarily on having stock available to meet customer demands. Inflated leadtimes increase on-order and on- hand invent,oritks ~vlric II improves t,he directorate’s ability to meet cus- tomer needs and ~sllrt~s management indicators of supply availability rtbmain high. Grtlattsr c,mphasis on supply availability overshadows r)lA’s mission rcquircmtW 10 c,ost-r~ft’c~ctively support the military services. Although responsibilil)’ for conducting the supply management reviews lies within r)I,A’s Srlpply I)ircctorat~. two other directorates-the Con- tracting and I’rodrlc~tion Directorate and the Technical Directorate-also have w major role in managing Icadtime. The Contracting Directorate incurs most of the ;I(Iilllrlistrativc‘ lcadtimc days in preparing for thtl Pay? 4 GAO/NSIAtS90-124 Defense Inventory B-239248 -_ overstated or undcrst atcd, thus increasing the risk of buying too much or too little stock. Spccific*;rlly, 1~4 has not . conducted required sr~pply management reviews to ensure that lead- times are accurately forecast cd and management actions are being taken t,o minimize leadtimf,. . set standards for the various stages of the buying process or developed complete and accurate information so that, nonrepresentative procurc- ment actions can be itlent ifiod and eliminated from the database used to forecast procurement lcadt imes; 01 . used realistic deliver>, date‘s to forecast leadtimes. Although LL+ has taken m(%sures to reduce the time it takes to award contracts, it has not tried to reduce production and delivery times by obtaining the best dclivc>ry dates from contractors. Production and delivery tiIncs acc’ount for fi0 pcrccnt of total procurement leadtime. In late 1985, non issrwti a policy directive that identified management Background controls to minimix> 1~roc~rIremcnt leadtimcs. In December 1986, I)OL) directed DLA to dcvr>lop a sptcit’i(, plan to reduce leadtimes by shortening the amount of tinIt> nc~cd~~dto order and deliver supplies. A 1989 I)LA lcadtime indicators rc~por-t shows that the forecasted lcadtime (measured in averagc dollar wrxighttd kadtime days) had been reduced by about 1 month, or 12 pcrccsnt sinc,c 1CM-from 323 to 286 days. I During this period leadtimc rcqIIirc>Inc>nts went from about $6.0 billion to $5.4 billion. The 1~4 supply ccntc~ use an automated inventory system that periodi- cally compares in\,clnt ory requirements with assets on hand and on order and recomm(Ms ;IC,~ions to inrreasc or reduce stock levels to meet projected demands. OIW of the important considerations in the auto- mated system is t hcl f’orocxstt~d pro~uremcnt, lcadtime. This is the amount of time IN. 1 csstiInatc,s that it will need to buy items in advance, so it will not run 1IlIt cbl‘sr~pply before the iteIns are delivered. The forecasted proc~ rcimcnt lcadt imc is divided into administrative lradtime (the time Ix~clIlirr~d to initiate a buy and award a contact) and production leadt iIrrc\ / t hlb t imc for the contractor to produce and deliver the item). ~~1’s 1989 Ioacltirnr~ data show t,hat about 40 percent of the procurement lcadt irucs Is l’or administrative lcadtime and 60 percent is Pa@? 2 GAOjNSIAD-90.124 Defense Inventory
Defense Inventory: Defense Logistics Agency Needs to Better Manage Procurement Leadtimes
Published by the Government Accountability Office on 1990-05-02.
Below is a raw (and likely hideous) rendition of the original report. (PDF)