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News | June 29, 2016

Cost summit helps build customer trust, understanding

By Dianne Ryder

In the spirit of providing customers financial transparency, Defense Logistics Agency finance and logistics operations leaders hosted their quarterly cost summit at the McNamara Headquarters Complex on June 27. 

The meeting was co-chaired by DLA Finance Director, Tony Poleo, and Mike Scott, deputy director of DLA Logistics Operations. Attendees included leaders from all the military services, U.S. Transportation Command and the Under Secretary of Defense (Comptroller)/Chief Financial Officer Tom McClutchy. 

Scott provided opening remarks and said he hoped the agenda topics would provide opportunities for cost savings and efficiencies. 

Poleo said the sessions were becoming more “granular.”

“The whole idea of these summits is to lay our costs out there, tell you how we’re doing things and generate discussion,” he said.

This is the sixth of these meetings, which support the financial stewardship piece of the director’s strategic plan, said Simone Reba, deputy director of DLA Finance.

“Our customers generally don’t see our prices going down like they would like, so we agreed that we would let them know what’s going on,” she said. “These summits are the main way we do that.” 

A primary goal of the cost summit is to identify types of costs as well as ways customers could potentially help themselves reduce costs, Reba said.

Among the topics discussed were those presented by Reba, inventory practices and audit readiness.

“I’m helping them understand the impacts of audit readiness to our inventory postures. Before audit readiness, the standards weren’t quite as high in regard to making sure all the records matched,” she said. “Now not only do we have to do physical counts, but we have to make sure it gets translated correctly into the property and financial books.”

DLA has long been a proponent of inventory retention and maintaining “just in case” stock. In this regard, audit readiness could prove to be a game changer, Reba said. 

“At DLA, we’ve always thought it’s cheaper to keep parts rather than re-buy them, but I’m here to tell you that based on what we’ve learned about the cost of maintaining audit readiness, it’s a whole lot more expensive than you’d think,” she said.

Though DLA has standard pricing and pays a portion of transportation costs, documentation is a critical part of the process. DLA Distribution has taken on a market-basket approach, which was another topic of discussion. 

“Customers who don’t provide the correct documentation, such as a pre-positioned-materiel receipt, would actually get charged a little bit more,” Reba said. 

The cost summits provide a big picture perspective for customers and help them understand why costs can’t always be reduced, Reba said. 

“I think it has built goodwill among our customers because they have a better understanding of what we’re doing,” she said. “But it’s going to be hard to reach consensus on changing something that one customer perceives is going to make his bill rise.”  

In light of budget constraints and continual pressure to lower prices, Reba sees the cost summits as a normal part of the financial culture. 

“As budgets get tightened, it will become even more important to have our customers understand the puts and takes of how their behavior affects us so we can mutually get to better support to the warfighter at less cost,” she said. 

During the meeting’s closing remarks, the executive director of the Air Force Sustainment Center, Jeffrey Allen said that as a result of these summits, he’s seen costs come down, and he thanked DLA leaders for hosting the meetings. 

TRANSCOM’s director for Program Analysis and Financial Management, Jim McGinley, thanked the leaders for including TRANSCOM and said he would like to attend future summits. 

Scott and Poleo indicated that TRANSCOM and Coast Guard representatives, who both  attended the summit for the first time, have a standing invitation to future summits. 

Poleo also noted the summits were productive and increased DLA’s credibility with its customers.