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Mr. BATES. I don't know. I know when we cut down on inventories, and maybe many of them should be cut down, nevertheless you have certain basic mobilization requirements and when we start fooling with those and can't even satisfy the demands of a limited emergency, it seems to me we might be saving a little money in peacetime but where will we be when we need them? And that is the only reason for the existence of various services.

General MCNAMARA. That is right.
Mr. BATEs. Excuse me, Mr. Short.

Mr. SHORT. For each single manager assignment an operating agency was established, named for example the Military Subsistence Supply Agency, the Military Medical Supply Agency, and the Military Traflic Management Agency. Each Agency was headed by an Executive Director, normally of general or flag rank. Each established its own procedures.

While all these changes I have just enumerated were going on in the Department of Defense, with the objective of getting greater integration of supply, great advances were also being made in the field of automatic data processing. High speed computers made possible consolidations which would have been impossible before, because of the magnitude and complexity of the operations involved.

Each of the four single-manager assignments did prove successful. They proved to be effective. Supply effectiveness compared favorably with service-managed systems and with pre-single-manager systems for the same commodities.

They proved to be economical. Inventories were drawn down by hundreds of millions of dollars and payroll, storage, and transportation costs were reduced.

Mr. BATES. I just referred to those.
Mr. Short. To this, sir?
General MCNAMARA. He did.
Mr. BATES. Inventories.

Mr. SHORT. But by the end of 1960 it had become apparent that eight single-manager agencies distributed among several technical services and bureaus in two military departments were resulting in different systems and procedures for requisitioning, billing, reimbursing, pricing, cataloging, provisioning, and so forth, and were resulting in multiple-distribution systems for common supplies.

This situation was causing problems for customers and depots with only four assignments fully operational. As the four new agencies became operational, these problems would become acute, because the classes of supply would increase from 57 to over 200, and the item range from 41,000 to about three-fourths of a million.

Mr. BATES. Is that 200 classes the million items that you referred to? General McNAMARA. The 200,000 line items; yes, sir.

Mr. SHORT. This did not consider electronic supplies which the Armed Forces Supply Support Center after study had recommended for consolidated management. The potential in here as it appeared at that time would be over 500,000 additional items.

Mr. BATES. That makes the million ?

Mr. SHORT. Yes, sir; million point two. In March of 1961, the Secretary of Defense announced that he considered "continued prog

ress in the field of common supply to be one of the primary goals for the next 4 years.”

He appointed a committee consisting of the Department of Defense Counsel as Chairman, the Assistant Secretary of Defense (Installation and Logistics), and the three departmental Materiel Secretaries, to provide him with an assessment of three alternative plans which he described.

Plan 1 would continue the single-manager arrangements with improvements.

Plan 2 would provide a single consolidated agency for common supplies under one of the military departments.

And plan 3 would provide a single agency for common supplies outside the military departments and reporting to the Secretary of Defense through the Joint Chiefs of Staff or another designee.

This committee was assisted by staff studies prepared by teams in each of the military departments. It submitted its report without recomending any plan, but it listed advantages and disadvantages of each.

Mr. Bates. They were told not to write them into a plan.

Mr. SHORT. No recommendations; that is correct, sir. The Secretary of Defense consulted with the Secretaries of the Military Departments and the Joint Chiefs of Staff and in August 1961 announced à decision to establish the Defense Supply Agency. In September he announced that General McNamara would be DSA's first Director, reporting from Korea, where he was deputy commanding general of the Eighth Army, by the first of October.

Mr. Hardy. Do we have a copy of this report of that committee?
Mr. SHORT. I don't know.
Mr. HARDY. I would like to have one.

Mr. SHORT. Yes, sir. The Secretary of Defense announced that DSA would take over all commodity single manager operating agencies, the Military Traffic Management Agency, the Armed Forces Supply Support Center, the 34 Consolidated Surplus Sales Offices, the National Surplus Property Bidders Registration and Information Office, the Army and Marine Corps clothing factories, and the management of selected electronic supplies now managed separately by the military departments; and that DSA would administer the Federal catalog program, the defense standardization program, the defense utilization program, the coordinated procurement program, and the surplus personal property disposal program.

Organizationally, DSA is an operating agency. It is separately organized within the Department of Defense, outside the military departments and the Office of the Secretary of Defense, and its Director reports directly to the Secretary of Defense.

Functionally, in addition to its Defense-wide functions in the fields of cataloging, standardization, utilization, and disposal, that is, the administration of these programs, DSA, for the items it manages, performs certain functions which I would like to enumerate, then enumerate the functions performed by the military departments, and then show how these interrelate.

For the items it manages, DSA computes or forecasts replenishment requirements. It reviews—and, when authorized by the Secretary of

a military department, computes-special program and mobilization materiel requirements. It conducts or directs procurement inspection and quality control. It conducts mobilization and industrial readiness planning. It manages, controls, and operates assigned wholesale warehouses and depots. It arranges for the use of other Government or commercial warehouses.

It controls distribution and redistribution. It prescribes requisitioning procedures, prescribes reporting procedures, participates in provisioning, recommends research and development projects to the military departments and/or to the Director of Defense Research and Engineering. It makes standardization decisions for DSAmanaged items.

It directs, controls, and supervises, all functions incident to the procurement and use of commercial freight and passenger transportation service in the continental United States. This is the traffic management function.

DSA's operations are limited to the continental United States excluding Alaska and Hawaii, except as specifically extended by the Secretary of Defense. The charter provides for direct support from the continental United States of oversea, field, and operating forces when mutually agreed upon by DSA and the supported service. The history behind this provision goes back to the Air

Force, primarily, which closed out its oversea depots in 1958. This allows direct requisitioning by an Air Force base overseas and the consignment by DSA, in shipping, of the goods to that base. Notice this is only when mutually agreed upon by DSA and the military service.

When authorized by the Secretary of Defense, DSA also conducts analyses of the supply and service system of the military services to recommend improvements in integrated management techniques.

The military departments perform research and development. They acquire and manage their weapons systems and combat type major items and supporting items which are of critical importance to and must be managed with their weapons systems and major type combat items.

They manage and operate their oversea supply systems. They manage, below the wholesale level in the United States, those items assigned to DSA for wholesale management.

Mr. Bates. Who establishes the level of the retail activity?

Mr. SHORT. Who establishes the stock levels at the retail activitythe military services.

Mr. Bates. The individual service?
Mr. SHORT. Yes.
Mr. BATEs. Will establish their retail requirement of stocks?
Mr. SHORT. Yes, sir.
Mr. BATES. What if you don't agree with their stock level ?
Mr. SHORT. It is up to the military service; they have control.
Mr. BATES. Will there be DSA folks in the retail activities?
Mr. SHORT. No, sir.
General McNAMARA. Are you talking about a building ?
Mr. SHORT. You mean retail-

Mr. BATES. Is the retail activity to be solely directed by the service

Mr. SHORT. Yes, sir.
Mr. BATES. Involved ?

cetera.

Mr. SHORT. Yes, sir.
Mr. BATES. They are going to establish their own level?
Mr. SHORT. Yes, sir.

Mr. BATES. If they send a requisition in to DSA will you honor it

General McNAMARA. Without question.

Mr. SHORT. I am coming to that, sir. The military services determine their own qualitative requirements and bases of issue for the items assigned to DSA through complete control over tables of organization and equipment, tables of allowances, allowance lists, et

Mr. Bates. Quantitative as well as qualitative?

Mr. SHORT. Yes, sir. I will come to that. They compute mobilization and special program materiel requirements unless they authorize DSA to do that. No one as yet has asked DSA to do that. With this chart I will try to relate the DSA functions with the military service functions. The services continue to have under their complete control all research, development, test and evaluation, deciding whether they want to standardize the item, and the development and writing of the specifications.

In other words, “what they want”; the qualitative requirements. They also really determine their quantitative requirements. They have complete control over their tables of organization and equipment, tables of allowances, and so forth. This we know as establishing the “basis of issue:" Will every man have one of something? Will every other man have one? Will there be 1 per ship or unit, or 10?

They have complete control over this, their basis of issue. Here they are beginning their complete control over quantitative requirements. Also, they have complete control over their quantitative requirements, or forecasting of them, for general mobilization or inplace or pre-positioned reserves or any special program, such as activation of a new division or a big construction project.

They have complete control over the stock levels they maintain in their retail stockage points both in the continental United States and overseas: “how many they want”; quantitative requirements. The things that the services control are printed in blue, and the green is DSA.

For the items assigned to DSA, as it issues these items or ships them to the military services on their request, it builds up, accumulates, demand and issue data, not only what is shipped to the service but maybe what the service had originally asked for. I will explain this in a minute, sir.

It computes-taking these data and taking the data given to it by the military services, which we refer to commonly as program data, such as their forecasted troop strength, deployments, organization and so forth, plus the tables of organization and equipment and tables of allowances which provide the basis of issue, and other data which is given to DSA by the military services, DSA then takes all this information, together with its own demand and issue data, and computes or forecasts replenishment requirements a year or more in advance. This is what is meant by computing replenishment requirements.

DSA computes how much to buy, and how much they will have to have in wholesale stock to meet ihe needs of the military services,

based on these computations plus the quantitative requirements furnished by the military services. They buy it and they maintain it in wholesale stock.

An element of the service then sends a requisition to DSA. This tells DSA what they want by Federal stock number. It tells DSA how many they want by indicating the quantity. It tells DSA where they want it by telling DSA to whom they should ship the goods and it tells DSA when they want it by a priority designator as a part of a system approved by the Joint Chiefs of Staff.

DSA then ships the goods according to this requisition. It has no authority to deviate in any respect from what the service says it wants on that requisition. What they want, how much, where or when. DSA meets the terms of this requisition. There are, as you know, authorized substitutions. But DSA does not substitute an item unless this has been approved by the military service. This is true even within the military service supply systems, as you know.

DSA then ships to the service and here the service takes over and issues to the users, the troop units, the operating forces.

Mr. Bates. I have sort of lost sight in the development of this as to who has got control of the stock fund and how much DSA would have

Mr. SHORT. They both have stock funds.

Mr. Bates. The local service will have a stock fund, it might be an appropriated account, nevertheless they are limited by the amount of funds permitted for these particular accounts?

Mr. SHORT. I would say just as everybody is and always has been limited, sir.

Mr. Bates. Their requisitions would be limited then to the amount of money that they can have in that particular account?

Mr. Moot. I might point out, Mr. Bates, the requisitions are based on funding, but the funding in itself is based on an approved stock level. So what the services do is replenish from DSA stocks the retail stock levels.

Mr. BATES. Who establishes that stock level?

Mr. Moot. It is established by each of the military services for their own retail and overseas supply system.

Mr. BATEs. We only have so much money in each of the stock funds. If DSA is taking over that aspect of it pertaining to wholesale, then there is only so much left for retail.

Mr. Moor. That is right, sir.

Mr. BATES. How limited are they going to be at that particular level in the size of their stocks?

Mr. Moot. I am sure you appreciate that the stock funds themselves are revolving accounts in which they carry inventory and are replaced by sale to the O. & M. appropriation, to the consumer funds. So they are in a sense not limited except by the business they do, the supply discipline established in terms of the stock level is the controlling investment point of the stock funds.

Mr. BATES. It has an effect upon their level. That is all I am talking about. They would have to replenish more frequently if the level is low in the stock fund.

Mr. Moot. Most of them reorder on an economic basis. For lower value they order more frequently and for the higher quality less frequently.

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