May 8, 2019 —
When Secretary of Defense Robert S. McNamara created the Defense Supply Agency in 1961, the military services understood there were efficiencies to be gained in commodity management. They resisted an independent supply agency, however, because they thought they were already addressing the issue. After Congress created the Department of Defense in the late 1940s, the services split the provision of common articles among themselves. The Navy, for example, managed fuel for the Army and Air Force as well as sailors and Marines. Likewise, the Army acquired food, clothing and textiles for all the services. Known as the single manager system, this division of responsibilities stopped the services from competing against each other, effected economies of scale and reduced personnel.
Experienced at finding efficiencies in the automotive business, the secretary of defense thought the military could do better. After consolidating the management of shared commodities under DSA, he set cost reduction goals for the agency to meet. Meeting these goals would help convince doubtful service secretaries and a cost-conscious Congress of the new organization’s value.
DSA exceeded McNamara’s goals, realizing $225 million in savings in its first year of operation. Why did the agency prove so successful? How was it able to achieve efficiencies that the services could not, especially since it consisted of those same supply chains?
A close look at DSA’s first years of operation suggests the agency found efficiencies through consolidation, standardization, structure and emphasis. After establishing a headquarters, the agency did not accept personnel from the services whose jobs would be duplicated under the new structure. The result was that DSA performed the same missions as the single managers with 3,481 fewer people. An even greater reduction came in inventory. As single managers, the services could cut neither supplies nor the warehouses where they were stored. DSA did both.
More efficiency came from standardizing supply procedures. Under the single manager system, units had to be familiar with forms and processes used by all three services. Because DSA controlled the federal catalog and standardization program in addition to multiple supply chains, a customer could buy fuel, repair parts and food using the same request and receipt paperwork. Having only one agency responsible for buying multiple commodities also achieved savings, especially after DSA grew to provide electronics, industrial plant equipment, printing services and other supplies. Limited in their operations, single managers were never able to achieve the same level of standardization.
Structurally, DSA eliminated layers between DoD and commodity managers. DoD leaders previously had to go through a service’s headquarters and logistics headquarters to reach a commodity manager. But because the agency reported directly to the secretary of defense, its creation allowed senior officials to go through only one headquarters before obtaining information or implementing policy.
Placing a single agency in charge of supplies and services also increased the emphasis on automation, workforce management and value engineering. Depots, procurement commands, service centers and contract management regions all sought substitutes, less expensive materials and techniques that increased quality and reduced cost without sacrificing performance or safety. At the same time, DSA’s contract management division saved money by reducing errors in production. And DSA’s subordinate commands had employees who were dedicated to value engineering and who were recognized and financially rewarded for ideas that saved DoD money. Ideas even came from contractors, whose rewards included increased business and profit.
Finally, centralizing supply functions under one agency allowed DSA to automate data, something that could achieve efficiencies in the early 1960s only when the number of transactions was large. DSA acquired two computers in its initial consolidation of single managers, and automated data processing allowed DSA to reduce the labor involved in everything from warehouse operations to distribution processes.
Efficiencies gained from consolidation, standardization, structure and emphasis permitted DSA to achieve savings that single managers could not. Because of its successes, the agency continued to receive more responsibilities from DoD and Congress. Although it has changed greatly since taking over service supply chains, the Defense Logistics Agency continues to use its reach, size and independence to save the tax payer money.