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If my people, my commanders out there commanding those service and supply centers, or commanding the contract administration regions are not as responsive to any PM of any service or any buying command, as they are to me, then we are not doing our job. We are continuing to make improvements. Our efficiency is continuing to improve; and we must continue to do so if we are to keep track of a growing workload which is about 5 percent a year. We have plans in hand that will assure that their productivity improvements will take place. I will stop at this point; and be available for any questions.

PREPARED STATEMENT OF LT. GEN. DONALD M. BABERS, U.S. ARMY Mr. Chairman and members of the committee, I am Lt. Gen. Donald Babers, Director of the Defense Logistics Agency (DLA). I am pleased to have the opportunity to appear before you today to discuss DLA's programs and our partnership with the services in providing global logistics support.

Mr. Chairman, as you know there are some proposals for reorganization that are directed at DLA. While I fully support constructive changes that improve the combat capability of our forces, it may be that these proposals stem from less than a full understanding of our Agency. Some people think we are a logistics policy organization. We are not. We are in the business of providing day to day support to the services. I am here today to describe that business and try to give you an indication of how well we are doing.

To put my remarks in context, let me first comment on the nature and scope of this Agency. DLA was chartered in 1961 to provide worldwide supply support to the military services. It opened its doors for business with 13 percent fewer people than it had taken the services to do the job, with annual savings of $30 million. It was felt that greater economies could be realized in establishing one agency to manage items used by the services. This has been the case. Since that time DLA's mission has expanded, resulting in varied and decentralized worldwide operations. Today, DLA provides support to the military services in the areas of supply, contract administration, technical services and reutilization and marketing of excess Department of Defense (DOD) property.

DLA plays a key role in maintaining the readiness of our Armed Forces. Mr. Chairman, we run a large business, and we are trying to do it in a businesslike fashion. Our workload, which has been increasing in recent years, reflects the demands placed on the Agency by its military service customers. We:

Buy and supply fuel, food, uniforms and textiles, medical supplies, and more than half the hardware items used by the Armed Forces; about $14 billion in annual procurements. In fiscal year 1985 over 80 percent of contractual actions and 90 percent of our dollars were awarded competitively to satisfy these requirements.

Make annual stock fund sales of nearly $14 billion from an inventory of approximately $11 billion.

Receive and ship over 20 million line items annually from our depots.
Process over 30 million supply requisitions annually.

Administer approximately 450,000 contracts with a face value of nearly $220 billion.

Pay nearly 3 million invoices totaling more than $56 billion annually. Obtain over 99 percent of the discounts called for under the contracts we pay. Manage the reutilization and sale of surplus property having an acquisition value of over $4 billion. This involves the annual receipt and disposal of more than 5 million items.

Operate the Federal Catalog System, which provides descriptive and technical information on over 5 million items to DOD and other users.

Maintain a repository of scientific and technical data. Provide numerous other services. As you can see, DLA is not a logistics policy office. We are at the heart of the DOD Logistics System and play an essential role in readiness. The actions we take at DLA keep our operating forces supplied in the field. That is not to say we have been able to operate problem free. In recent years we have experienced some difficulties, that with your help we are in the process of correcting.

Of particular concern, is recent degradation in our supply support to the military services. During the last three years we have experienced an upward trend in procurement administrative leadtime. This is the time it takes from receipt of a pur

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chase request to award of a contract. Awards are not taking place on time. As a result, material is not available to respond to service requisitions. This upward trend in leadtime has contributed to a decline in supply availability, which while still the highest in DOD at 89 percent, is below past performance. In the last 2 years there has been a drop of over 4 percent in supply availability, which is the percent of time material is available in the system to fill a requisition.

Some of the increased leadtime is related to management actions to improve the quality of our contracts and to assure price reasonableness. We are requiring our buyers to spend additional time to assure the highest quality of each contract action. Other contributing factors include the many legislative and regulatory reforms implemented in recent years and, as part of our emphasis on quality, assuring that our contracting personnel have received mandatory training. Nearly 54 percent of our contracting workforce has less than 3 years of experience and almost half of our contract administration workforce has less than 5 years experience.

Since DLA resource requirements are primarily influenced by the activities of the military services, we must always be in a position to respond to our customers de mands. As such, we have had to bring additional people on board, particularly in the contracting and quality assurance areas, in order to keep pace with increased workload demands while at the same time developing a quality workforce. Development of a competent, professional workforce is a high priority at DLA. While increased training reduces productivity in the short term, the development of a well trained workforce inevitably leads to improved performance.

Through the creativity and hard work of DLA employees, improvements to business practices, and modernization of facilities and equipment we anticipate significant gains in productivity without corresponding additions to our workforce. Although, I believe we run an efficient business, I also believe we can continue to make improvements.

To achieve additional gains, we will continue to stress improvements in the quality of our workforce. In addition, we will stress modernization of our facilities and improvements in working conditions for our people. I am convinced that we can ammortize the investments we make in our people and facilities in a very short time. While the Gramm-Rudman reductions have delayed our fiscal year 1986 improvements, I am sure that over the long run our investments will prove to be worthwhile.

As I mentioned earlier, recent proposals concerning the organization of the Department of Defense have addressed DLA specifically. Great care must be taken in assessing the merits of such proposals. We do make some mistakes. With a business this size that is bound to happen. However, because the logistics business is our only business we can focus all of our efforts to support the services.

In its first year DLA managed 1.2 million items; it now manages over 2.5 million, an increase of over 125 percent. In 1964 the Agency shipped 6.2 million line items, in 1985 it shipped 19.2 million with approximately the same resources. DLA assumed the contract administration function for the majority of Defense contracts in 1965 with 10 pecent fewer people than it had taken the services to do the job with annual savings of $19 million. The number of contracts administered has almost doubled from fiscal year 1966, the first full year of operation under DLA, to today. Assumption of the Reutilization and Marketing Program in 1973 was done with 24 percent fewer people than had been performing the function in the services with annual savings of $16 million.

Workload increases continue to outstrip personnel growth while additional consolidated and staffing realignments have been made through the years to economize and streamline our operations. Our fiscal year 1987 O&M estimated workyears of 52,605 are at approximately the same level as fiscal year 1975 despite an increase in workload of about 60 percent since that time. During that same period the complexity of many of our tasks increased, particularly in the procurement area. We are committed to the same kind of productivity gains in the future, while at the same time maintaining or improving our performance.

Much of DLA's efficiency and effectiveness stems from specialization. For supply support we specialize in consumable items. These are items that are replaced when they wear out, not repaired. It is more efficient to have one organization buying and distributing an item used by more than one service than to have each service duplicate that function. For those items which are used by only one service, the advantage comes from their similarity to other items managed by DLA. By concentrating on certain types of consumable items, DLA managers and buyers have developed the expertise and knowledge of the marketplace and consequently can do a better job in supporting the military in these areas. By managing only consumable items DLA is able to reduce the number of layers of management needed to accomplish its mission. The effectiveness of centralized supply support is demonstrated by comparing performance statistics between DLA and the services. DLA manages 35 percent of all national stock-numbered items used by DOD today. DLA's stock availability ranges from 4 to 12 percent better than the services and DLA's requisition processing time is as good or better than the services even though many stocks are not located at the point of their use.

Items are transferred to DLA for management from the Services. Items such as spare parts first get into the DOD system when the services buy equipment such as planes and ships. This equipment is made up of many parts, some of which are reparable and some of which are consumable. The services decide who will manage each part, based on a set of criteria jointly developed by the services at the direction of Congress. Based on this criteria the services retain management of all major end items and all reparable items. They also retain management of spare parts which are security classified, used in nuclear propulsion, are design unstable, need to be fabricated, or which are considered weapon system management sensitive. Weapon system management sensitive items are items which, because of their criticality to weapons readiness, require special management controls for quality assurance, testing, engineering, restrictive issue or their relationship to the end item. The services also retain management of certain items considered essential to the performance of military missions. Items which do not meet the criteria for management by the services are assigned to DLA or GSA.

Once the service identifies the item is to be managed by DLA, they have the op portunity to designate the item as having application to a weapon system. By doing this, the item automatically enters the DLA Weapon System Support Program (WSSP). This program allows DLA to provide attention and support to the items commensurate with the weapon systems criticality.

I hope I've made it clear that the services decide which items they manage and which items DLA manages. We do not decide. We rely on the services to tell us what is important and consistent with our role of support to them, so that we can direct our resources towards the priorities they establish.

In closing, DLA is an effective organization well suited to carry out its mission. The concept of a specialized organization which can concentrate on a few aspects of a complex business to increase effectiveness and efficiency is proven in DLA While we are not mistake free we do what we do well, not that we can't do better. With your continued support we will be able to improve performance and logistics support to our Armed Forces. I will be glad to answer any questions you may have.

Mr. NICHOLS. Thank you, General. You have been before this committee before; and we always appreciate your testimony.

Looking at the evolution of DLA, you were formed back in 1961, or thereabouts. Your personnel end-strength, has ebbed and flowed over the years, depending on the mission.

I notice that in 1965 you had about 37,000 people. You reached a maximum of about 65,000 in fiscal year 1967 when the Vietnam conflict peaked. Then you phased down to around 40,000; but the workload, I presume, has pushed that up from time to time.

My figures show that your 1975 budget was $823 million, and you had a work force, at that time, of 55,000 people. Your fiscal year 1986 budget, as I read it, is a little over $2 billion. And we are looking at a work force of some 53,000 employees.

Am I correct that, when we established the Defense Supply Agency back in 1961, and then renamed it the Defense Logistics Agency in 1977, that at that time your unit was formed in recognition that we possibly needed some sort of a coordinated military buying outfit, to buy items that were common to all three branches of the service? I am not sure that that was in your original charter, and I want to clarify that point in my mind.

When you were formed, General Babers and Mr. Secretary, the original creation-am I not correct that that was the idea behind the creation of DLA?

Dr. WADE. Yes, sir. I think when you go back to this 1961-62 time period, that the original approach was to focus on items primarily consumable and items that were common throughout the Department.

Mr. NICHOLS. Then how have we gotten into buying specific items for the Army, that are not common to the Navy, that are not common to the Air Force?

Dr. WADE. Well, one--
Mr. NICHOLS. Has your mission changed?

Dr. WADE. No, sir. I think what has happened here is we have gotten smarter over time. And we have found, for example, that many of these items fall into what we call a family of items, and can be managed, I think, more efficiently and more coherently, even if they are, for example, service-unique. Looking from the 1962 to 1985 time period we: One, have tried to improve the overall productivity of the Agency, and in this regard I think it has to be agreed by the military departments, that by looking at a family of items, and having one Agency manage these items we have been able to be more efficient in the sense of cost economy, but also in the context of availability of product.

General Babers might want to add to that.

General BABERS. I think we have grown smarter over time. We stock a lot of different types of nuts, bolts, washers, diodes, you name it; we know the marketplace.

Mr. NICHOLS. Let's skip the diodes just for the moment, and the toilet seats. (Laughter.]

Dr. WADE. I wish we could get rid of that problem permanently.

General BABERS. But again, this specialization by hardware family has enabled us to get to know the marketplace better, and I think, become better and more sophisticated buyers.

Mr. NICHOLS. And is it not true that the services, themselves, have come to you and asked you to buy certain items for their service?

Dr. WADE. Yes, sir. I think if you look at, for example, the past 12 months under the increasing interest of the Agency and Department, that we have on the order of about 30,000 more items (stocked items) being carried by DLA. This is just another indicator of the overall cost effectiveness of this operation.

Mr. NICHOLS. It appears to me that a good argument was made back in 1962 when you created DLA, that can be made now, for some sort of a centralized buying agency. It would appear that you ought to be able to buy common items in volume cheaper than the Navy could buy them, the Army could buy them, or the Air Force could buy them singly. Despite that, the Navy tells me that they can buy paint cheaper in Norfolk then they can buy it from DLA.

There is another concern that has cropped up from time to time. You mentioned that you were there in Vietnam, and bought a lot of material that the military needed. Where would your civilians be in time of a real shooting war? If they were uniformed people when a tank breaks down, or something, in a war zone, we can order them to fix it. Would DLA civilians be there at all in wartime?

General BABERS. Sir, we are predominantly civilian. About 1,000 military.

Mr. NICHOLS. I hope you will break down that 53,000 people. What percent are civilian, and what percent are military?

General BABERS. About 2 percent are military.
Mr. NICHOLS. Two percent; ninety-eight percent are civilian?

General BABERS. Yes, sir. The overriding majority of work is done here in the continental limits of the United States, not overseas. We have some functions in oversea areas, but that is very limited.

Mr. NICHOLS. Are you telling me that in a wartime scenario your civilian people would not be in the combat area, would not be called into combat areas?

General BABERS. No, sir; that is not envisioned. It would be just like the work force at Anniston, AL. They would stay at that depot, overhaul those tanks in war just as they do today. We stay back and buy the parts and have them on the shelf so when Anniston wants them, or they are wanted in Grenada, or Germany, if they can place a requisition, we will fill it.

Dr. WADE. Mr. Chairman, let me add a comment to that, which I think is important. When you look at the makeup, or the functioning, or what I would call, the overall people force that make up our acquisition system, it is terribly important that we underline the fact that we want quality in the operation, we want the very best people to manage the acquisition of our weapons systems, the implementation of the logistics operation. One of the initiatives I have underway is to make some changes with the support of the Congress, that, as a general rule, these billets should not only be set aside for one person or the other, but the filling of that job should be based primarily on performance as a very major criterion. I think, in this context, General Babers has been doing a superb job in enhancing the overall efficiency of the work force, both military and civilian. I think we need to do more of that across the whole force.

Mr. NICHOLS. In hearing testimony from the various service secretaries, the Secretary of the Navy feels like he can do the job better. I believe he so stated that he would generally support the abolishment of DLA, as contrary to the other service secretaries, who feel like some changes might be in order but none of them had said abolish Defense Logistics Agency.

Why would the Secretary of the Navy, why would his position be that he felt like he could take on the buying responsibilities that you are now doing for the Navy, at no additional cost, in fact, perhaps, at a cost savings in the purchasing area?

Dr. WADE. Mr. Chairman, I believe the right person to ask that question of and I presume he has been in front of this committee, is my dear friend, John Lehman. My observation would be that, No. 1, the facts should speak for themselves; and here, as we presented both in my statement and the comments from General Babers, is that we are providing efficiency in our operations, the cost-effective analyses are all positive.

And we see, for example, that the operating arms of the Department of Defense are even asking for the DLA to pick up more of the national stock items. We can do better.

But I think, before we accept some of these theses on moving out the management of these items and breaking them up and, per

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