PART II QUALITY OF MILITARY SUPPLY MANAGEMENT Part I of this report deals with the scope and economic impact of military supply management functions. Part II will briefly cover the subject of the quality of military supply management. This subject has been a matter of grave concern to the Congress and to those who have studied it in detail during and since World War II on account of its impact upon resources, budgets, the debt, the national economy and specific segments thereof. STUDIES AND REPORTS In recent years the quality of the military supply management functions has been covered by a number of studies and reports: The second Hoover Commission identified the principal supply deficiencies in the Department of Defense in the following areas: 1 Inadequate integration in requirements Lack of uniformity in requirements planning factors, including operating levels, mobilization reserves, and economic retention reserves. Uncoordinated phasing of procurements of identical items which prevents maximum consolidation of quantities. Incomplete standardization of specifications for items to perform the same function. Inadequate integration in use of assets Duplication in inventories and pipelines. Inadequate interchange of assets to minimize total stocks and prevent concurrent buying and selling. Inadequate coordination in planning distribution of stocks to minimize transportation and handling expense, avoid crosshauls, backhauls, etc. Inadequate integration in use of facilities Excess depot facilities over those required by consolidated stockage. Duplicate overhead charges resulting from separate purchasing and supply offices. Inadequate integration in management Multiple managers of common-use supplies and services. Incomplete standardization of procedures and documents. Insufficient followup by Department of Defense on uniform practices prescribed in directives and instructions. 1 See Commission on Organization of the Executive Branch of the Government Department of Defense, logistics systems study project summary, pp. 1-6. As a solution to these deficiencies, the Hoover Commission recommended that Congress enact legislation establishing a separate civilian managed agency reporting to the Secretary of Defense to administer supply and service activities that are common to two or more services.2 These conclusions were much the same as those of the first Hoover Commission, the Bonner subcommittee in 1951-52, and the Dawson subcommittee in 1956.3 The Department of Defense did not concur in this recommendation but instituted a number of what it considered to be important improvements in its supply operations that would enhance efficiency and eliminate unnecessary duplication without creating a new agency. GENERAL ACCOUNTING OFFICE REPORTS During the past 2 years, the General Accounting Office, which is in the legislative branch of the Government, has made at least 100 detailed audit reports involving supply and service management activities in the Department of Defense. The examinations are made pursuant to the Budget and Accounting Act, 1921 (31 U.S.C. 53), the Accounting and Auditing Act of 1950 (31 U.S.C. 67), and the authority of the Comptroller General to examine contractors' records, as set forth in 10 U.S.C. 2313 (b). 4 Synopses of many of these reports are included in the hearings and staff report of this subcommitee and will not be repeated here. In essence, these reports reveal an alarming degree of waste and inefficiency in practically every facet of supply management from requirements determination to disposal. They reveal, furthermore, that untold sums of money and other vast resources can be saved through more effective supply management in the military agencies. TESTIMONY OF COMPTROLLER GENERAL OF THE UNITED STATES On January 28, 1960, Comptroller General Campbell testified before the Special Subcommittee on Defense Procurement. His testimony covered 4 general activity classifications. In the area of procurement the Comptroller General indicated a number of uneconomic practices such as: Failure to negotiate close prices In 16 cases reported to the Congress, excessive costs aggregated about $27.8 million. In many of these cases the Government's contract negotiators did not adequately review cost data submitted by the contractor in support of pricing proposals and frequently did not request an audit of cost data when obtained. 2 Commission on Organization of the Executive Branch of the Government, "Report on Business Organization of Department of Defense," p. 45. 3 H. Rept. 658, 82d Cong., 1st sess. Federal supply managament (military and related activities), June 27, 1951. H. Rept. 1994, 82d Cong., 2d sess. 23, 1952. H. Rept. 2330, 82d Cong., 2d sess. agement), June 27, 1952. Federal supply management (oversea survey), May Alameda medical supply test (Federal supply man H. Rept. 2013, Commission on Organization of the Executive Branch of the Government (food and clothing report) (depot utilization report), Apr. 18, 1956. Hearings, pp. 2-30, 450-467. Staff report, pp. 165-198. Benefits of competition in procurement prevented by inadequate provisions for use of contractor-prepared drawings developed for and at expense of the Government The Government is frequently denied the benefits of competition through failure of procurement officials to obtain or reserve the right to obtain manufacturing drawings prepared by contractors at Government expenses. Other uneconomical procurement practices Failure to adjust contract prices for changes in the scope of contract work has resulted in excess charges to the Government. Instances where the cost of Government procurement has been unnecessarily increased as a result of requiring contractors to carry insurance on Government-owned property. Need for improvement in the interservice supply support program The Department of Defense has not developed effective procedures for redistributing inventories of excess or long supply among military services having a requirement for such stock. Need for improved supply management controls Procedures are inadequate to determine stock position or compute their requirements within a reasonable degree of accuracy. The critical testimony of the Comptroller General of the United States before the special subcommittee and the continuous stream of reports from the General Accounting Office reflected against 6.7 million "procurement actions to buy material at an annual expenditure of $23.9 billion" prompted Chairman Douglas to inquire as to the degree of the sampling of contracts for GAO audit purposes: The CHAIRMAN. I would like to ask this, Mr. Campbell: To what degree do you think that these are fair samples of the work of the Defense Department, that is, did you pick out the lurid cases, or is this a pretty fair sample of the procurement and supply practices of the Department of Defense? In the nature of the case, you could only sample a relatively small number of the cases; isn't that true? Mr. CAMPBELL. Mr. Chairman, our policy is to set up our programs on the basis of the money spent. In other words, we naturally give our greatest effort in areas where the expenditures are high, because we have a limited staff. I, therefore, would say that we would program an activity regardless of whether we had heard something on the outside that things are not going well, or that we had a report adversely on it. We would go into the matter regardless of whether the performance is reported to us to be good or bad. For example, we had a report recently on one of the Government corporations which was a very favorable report; commended the organization for what they had done. So I don't think that these reports that you have before you represent only the bad situations. I think they represent a cross section of what we have found. The CHAIRMAN. In other words, you think they are a pretty fair sample? Mr. CAMPBELL. Yes. The General Accounting Office reports and the testimony of the Comptroller General of the United States confirm the criticism of the Second Hoover Commission as to deficiencies in the DOD supply and service systems as stated above. Hearings, pp. 2–30. 7 Staff report, p. 3. Hearings, pp. 21–22. While most of the GAO reports deal with individual contracts, installations, and supply problems, two of the most recent deal with broader aspects of the supply management systems themselves. They are entitled: "Initial Report on Review of Administrative Management of the Ballistic Missile Program of the Department of the Air Force" (Report B-133042 of May 19, 1960), and "Review of Supply Management of Electronic Supplies and Equipment within the Department of Defense" (Report B-133313 of May 31, 1960). The essence of the B-133042 Report is that the Department of the Air Force has, by contract, delegated important governmental functions to a private contractor who in turn is working for the Government. The Comptroller General of the United States makes this significant statement: We believe that a program of this importance should be conducted under the direct leadership and responsibility of the Government agency to which it is entrusted. Furthermore, a function which so significantly affects a major segment of our industry more appropriately should be performed by a Government agency rather than by a contractor, particularly when the program is continuing in nature. The Comptroller General also states: Our review was seriously handicapped by denial of access to certain essential records and delays in making other records available to us. This matter is discussed in detail beginning on page 107 of the report. The Comptroller General while pointing up the fact that the Department of the Air Force has delegated basic duties and responsibilities and has, in fact, created "government by contract" does not raise the question as to why the Air Force pursuant to the intent of the National Security Act of 1947, as amended, does not have its engineering, electronic work, etc., done by the Army Engineers or the Signal Corps or the Navy's Bureau of Yards and Docks. The hearings on the original National Security Act of 1947 are clear 9 that it was not the intent of the Congress or the proponents of the new Department of the Air Force to establish separate supply and service agencies for the new Department. The Eisenhower-Spaatz agreements which were intended to implement the National Security Act also contemplated that separate supply and service agencies would not be established by the new Department of the Air Force. The Report B-133313 of the Comptroller General on Electronic Suplies and Equipment covers the suply management of electronic supplies and equipment within the Department of Defense. This report deals with some 900,000 separate electronic/electrical items included in the various supply systems of the military departments.10 The Comptroller General's letter dated May 31, 1960, transmitting the Report B-133313, states: Our review disclosed that inadequate coordination of electronics supply management activities among and between the military departments is resulting in significant additional costs to the Government and is adversely affecting the efficiency and effectiveness of supply operations. Unnecessary purchases and inadequate supply support are resulting from the failure to consider and obtain needed items available and in long supply in other services; excessive costs 9 H. Rept. 1994, 82d Cong., 2d sess., May 23, 1952, pp. 29 ff. 10 See H. Rept. 2042, 86th Cong., 2d sess. (Military Supply Management) (Progress in Single Management), June 30, 1960, pp. 11 et seq. |