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News | Sept. 28, 2022

Historical commentary: DLA responds to procurement challenges with innovation, modernizes acquisition arm

By Colin J. Williams, DLA Historian, and Kim A. Villarreal, DLA Acquisition Support Group Chief

The Defense Logistics Agency became the federal government’s favored procurement agency early in the COVID-19 crisis because it could obtain large quantities of scarce items at reasonable prices. This ability wasn’t imbued on DLA by organizational design or extensive authorities but developed over time through repeated responses to unprecedented situations. 

When DLA formed, supplier conferences expanded vendor pools, contract administration determined if companies could deliver what they promised, and analysts looked at prior expenditures to identify what needed to be bought when. Innovation was limited because commerce was wholesale. Supply centers stocked depots and depots issued to customers. Efficiency came from integration, not creative acquisition.

The first change occurred in the early 1970s. Transfers from the services and the ever-growing electronics industry added items to the agency’s inventory at an alarming rate. Most had infrequent and hard-to-predict demand. Along with new financial and material management techniques, the agency responded with indefinite-delivery contracts. Indefinite-delivery contracts allow the government to negotiate prices ahead of need to decrease administrative lead time, create predictable prices and increase readiness. 

If the challenge in the 1970s was growth, the challenge after the Cold War was reduction. With the military shrinking, manufacturers no longer saw business with the government as profitable. The agency responded by increasing long-term contracts. Long-term contacts offer security for producer and buyer. They generate efficiencies by reducing many agreements to just one.

The 1990-1991 Gulf War interrupted force reduction by magnifying an old threat: parts obsolescence. DLA responded with the Warstopper program. A way to buy response vice inventory, the program rewarded vendors for storing critical items with limited shelf-lives, prepositioning long-lead components and raw materials, and maintaining industrial equipment.   

Prime vendor programs were long-term contracts that made one company responsible for all items of a certain class in a geographical area. DLA adopted the idea from civilian hospitals, which used electronic means to order all their food from one provider. Soon the agency was writing prime vendor contracts for military hospitals. When that proved successful, it added other subsistence customers, medical items, vehicle tires, aircraft tires and packaged petroleum. 

The digital revolution that made prime vendor programs possible showed DLA could respond to opportunity as well as challenge. The Defense Reutilization and Marketing Service was first to act, going online in 1994. The agency followed in 1998 with EMALL, a commercial marketplace that rapidly gained users.

DLA initiated Business Systems Modernization the same year it launched EMALL. While BSM introduced new material management technology, it also redesigned practices. In general, these practices moved the agency from managing supplies to managing suppliers. In particular, they absorbed an effort called performance-based contracts. Performance-based contracts committed producers to readiness standards. They paid companies for effectiveness, not items produced. 

Performance-based contracts and other innovations required agency-level management. To promote oversight, Army Lt. Gen. Robert T. Dail, the agency’s fifteenth director, elevated the agency’s acquisition directorate to a joint staff. Innovation now had headquarters sponsorship.

This sponsorship soon introduced two new processes: reverse-bid auctions and Captains of Industry. Reverse-bid auctions had companies bidding against each other to offer DLA the lowest price. While not appropriate in every situation, they saved almost $2 billion their first year. Captains of Industry were companies with which DLA wrote base contracts so future awards could be issued quickly. In addition to speed, agreements made value engineering – improvements in design, material or processes – beneficial to seller as well as buyer.

Innovations from indefinite-delivery contracts to Captains of Industry gave DLA Acquisition the tools for flexible strategies. Today, cyberthreats and a shrinking industrial base demand a new approach. To meet this threat, DLA’s procurement agents integrate contracting tools with market intelligence and data science to ensure security and increase speed. Instead of suppliers, they now manage entire supply chains.