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TABLE 6. INTERAGENCY NONSTOCK SUPPORT PROGRAMS, ESTIMATED
COST PER $100 PROCURED
get. Management has a direct cost responsibility only for the first two. The third is not considered, and the fourth is considered only from the standpoint of the financial health of the stock funds. All of these cost categories result from taking title to goods so as to provide responsive support to the user when the need arises. However, the total cost to the Government of stocking goods for interagency support is substantial. Economy requires that all costs of support should be considered in evaluating alternative means of providing commercial product support to using activities.
Interagency Nonstock Support Programs
which the stock support is provided. The VA can tailor its operational systems for specific requirements to a greater extent than can generalized support activities. This is due largely to the visibility VA has over its own operations. • Even without considering obsolescence, DSA support costs are significantly higher than those of civilian activities. This is due to the type of management required for military logistics support beyond that required for civilian systems, to the economic and demand characteristics of the items being supported, and the high costs of inventory investment associated with low turnover. • The cost of subsistence support by the military system is significantly lower than that of other military product line support activities. This is the effect of item limitations, high turnover, and low obsolescence rates for product lines provided by the Defense Personnel Support Center (DPSC).' • The data give no clear indication of economies in size of operations. The VA, the smallest activity, was very low in cost. Within DSA, no clear relationship was apparent between size and cost.
Four categories account for most of the cost of depot stock support programs:
• Inventory management costs • Storage costs • Annual return on investment costs for inventory owned • Costs or economic losses associated with disposal of obsolete and unneeded inventory.
Of these four cost categories, only the first two are shown currently in the operating bud
For some requirements, interagency support is provided by means other than depot stockage. Commercial distribution channels may be used to provide direct delivery to the user or to some point between the manufacturer and the user. In this case, the price paid the vendor will be higher to reflect the distribution services received. Total costs of interagency nonstock procurement programs are estimated at $87.3 million annually, as shown in table 6, and the average cost of this support is estimated at $3.40 per $100 procured.
A comparison of the data in tables 4 and 6 shows that the cost of interagency activity for stock support is many times that for nonstock support, whether obsolescence costs are included or excluded. Part of this difference is offset by higher delivered prices for nonstock program items.
In addition to these direct delivery purchases, each of the agencies shown in table 6 operates call-contract programs for use by field pro
.A more detailed analysis would show a range of costs for the individual activities shown, depending on the product line being considered.
curing activities. The annual volume of procurement under these programs is over $1 billion for DSA (Supply Bulletins), $751 million for FSS (Federal Supply Schedules), and $78 million for the VA (Federal Supply Sched
commercial products. The cycle starts at the point of demand or user need and includes costs such as local procurement, supply, handling, storage, and accounting, and extends through delivery to the user.
for providing call contract support under these contracts is very low due to high overall vol ume usage. Estimates of cost per $100 procured were $0.79 for FSS, $0.16 for VA, and under $0.05 for DSA.10 Transaction costs by field agencies in using these contracts are also very favorable.
lected activities and were supplied data on operational costs and the costs of support functions. It was necessary to cost personnel time and rely on the activities visited for estimates of time and resources devoted to support programs. The costs developed do not consider any allocations of general management overhead. Functional management was included only if time had been allocated to the specific activities being considered. No costs were included for financial control or payment systems. Generally, costs were developed based on time used or estimated average costs for a type of transaction.
Our sample primarily represents military activities because civilian activities visited could not generate suitable data, or the level of activity was so low that segregation of specific costs was not meaningful.
Vehicle Fleet Maintenance
The cost of interagency support activities is substantial.
The cost per $100 of providing interagency depot stock support averages 15 times greater than that of providing nonstock support. Part of this difference is offset by higher base prices for direct delivery programs.
The cost of stock support in military logistic systems is significantly greater than in civilian systems. Much of this difference arises because of the nature of the items and the primary missions supported.
There are no indications that size of a Government operation contributes to economy in interagency support. No simple correlation of cost and volume is apparent.
There is a lack of visibility of the cost of interagency support programs.
Consideration of the cost of interagency support is essential if economical support systems are to be developed and installed.
We estimated the cost of support for vehicle maintenance activities at eight locations. The systems and procedures used to fill requirements varied widely due to different operating conditions. These cost estimates 11 are summarized in table 7.
Table 7 shows that: • The cost of station support for vehicle maintenance varies from $27 to $108 per $100 of parts used. Generally, lower costs are associated with high-volume users. • The average cost of this support, at $44 per $100 used, is a substantial cost element in meeting user needs. • The lowest cost for support per $100 used is $27 at location 7. This activity has a contractor operated parts store (COPARS) support program for part of its needs. The same is true for location 8, the $36 cost operation. Low operational costs of these
STATION SUPPORT COSTS
We estimated the costs incurred for procurement and distribution support provided at the level of the using activity. This complemented our analysis of interagency support costs. Support at the using level encompasses the complete cycle of the costs of meeting needs for
20 Study Group 18A (Commercial Products). Final Report, Feb. 1972, vol. II, exhibit VII-2-2, 2-3, and 2-6.
11 Costs here are for the support activities only; they do not include the prices paid for the products themselves.
TABLE 7. COST FOR STATION SUPPORT TO VEHICLE MAINTENANCE USERS
activities result from the favorable support characteristics of the COPARS and other functional support contracts (discussed in Chapter 4).
For five using locations, we estimated the cost of providing support to civil engineer or facility maintenance activities. The systems and procedures varied between activities. The five cost estimates 12 are summarized in table 8.
• The lowest cost station support program for facility maintenance was $10 per $100 used. This program was a 100-percent contractor operated civil engineer supply store (COCESS) support activity that operates on a concept similar to COPARS. Its favorable cost is due to the desirable support characteristics previously discussed for COPARS.
In facility maintenance support, the delivery of requirements through a Government source was more costly than delivery through local vendors. The lower cost of local vendor support is due primarily to the fact that the products obtained were not stocked by the using activity. Facility maintenance is an excellent example of a program that can be supported in several different ways. The best method of support could be selected by item or by families of items forming a logical product group. The economies of various combinations must be evaluated. These vary from 100-percent dependence on local vendors to 100-percent dependence on mandatory Government sources. The decisions for structuring a support program must be tailored to the using activity being supported.
Table 8 shows that: • There appears to be no consistent relationship of value of parts used to support cost. The average costs of station support to facility maintenance users ranged from $10 to $63 per $100 of products used. • The cost of meeting user needs is substantial. The average cost for station support of facility maintenance users was $48 per $100 of product used.
TABLE 8. COST FOR STATION SUPPORT TO FACILITY MAINTENANCE USERS
We estimated the cost 13 of support for commissary operations in six locations. This included support for nonperishable subsistence items to six food service or mess hall operations and two resale stores. The cost analyses did not include costs of food service or store personnel involved in receipt or requirements development. Commissary resale operations often were specially organized and did not use regular supply operations. Also, the resale operations personnel were authorized to place orders with vendors against indefinite delivery contracts. The cost analyses of these support activities are presented in table 9.
The estimated cost of using-activity support for food service operations ranged from $8 to $31 per $100 of food handled, and the average cost was $16. These costs are considerably higher than those incurred at station level in ordering and handling food for resale. Lower support costs for resale operations are mainly due to higher volume procurement.
identify authorized requisitioners and to bill using activities.
Personnel from outlying offices, some a hundred or more miles away, also obtain supplies from these stores. It is difficult to ascertain how many trips are made just to pick up supplies because many people periodically visit agency offices in Federal centers and pick up supplies at that time.
The cost of the GSA self-service stores is $14 per $100 of support as shown in Appendix F, table F-2. This cost does not include space costs or any costs associated with the requiring activity. The cost of acquiring office supplies through the use of GSA retail stores should be considered in determining the most cost-effective method of office supply support.
Station Support Characteristics
GSA Retail Stores
The GSA retail stores provided by FSS in major Federal office building complexes offer direct retail services to using activities. In these self-service stores, users select their needs from stocked shelves. A credit card is used to
Many activities are large enough to have specialized procurement and supply functions while in others these functions are part of the duties of user activities. Station support costs for product lines analyzed varied widely but typically are in the range of $10 to $63 for each $100 purchased.
The development of interagency and agency support systems over a period of years is impressive. Computerized systems and other management tools have been developed and implemented; automatic processing and transmission systems have reduced the cost of
Source: Appendix F, table F-9.
The cost of station-level support varies. The characteristics of the using activities, the different organizations and techniques used, and the functional activities and product groups involved contribute to this variance.
The cost of the station-level support component is comparable to interagency support costs.
There has been a lack of emphasis in developing more efficient and cost-effective station-level support systems. This appears to be an unexploited opportunity for cost reduction.
individual transactions and provided capabil. ity for national inventory control; and new systems currently are being implemented to automate operations under such systems as the DSA managed programs and the standard military logistics data systems.14
In contrast, the development of systems for station-level support have received far less emphasis. We found no station-level inventory control system that has been programmed to produce delivery orders under national or local requirements contracts.15 Exceptions are the systems at the station that interact with agency and interagency support systems.
Station-level support provided directly from nongovernment sources involves procurement from vendors, while interagency support involves internal Government operations only. System development for interagency-level transactions is therefore simpler because the restrictions in procurement from vendors are excluded. Prescribed supply and procurement concepts at this level have inhibited the development of responsive, efficient station-level systems. As a result, local acquisition costs have been higher than necessary in many in
r than necessary in many instances.
Landed cost, as previously defined, is the total cost to provide an item to its user. Landed cost includes the purchase price plus support system costs. These two cost elements generally have an inverse relationship. Consolidation of requirements in the interagency and agency stock support systems permits more favorable prices, but it also increases the costs of providing the product to the user.
Vehicle Fleet Maintenance Costs
Station-level procurement and supply support costs are substantial. This is true for products procured locally or obtained from Government sources.
14 SAMMS - Standard Automated Materiel Management
Defense Automatic Addressing System
Procedures 15 Interagency activities such as FSS have such programs for replenishing their depot stocks. Local using activities automatically develop FEDSTRIP and MILSTRIP requisitions, but not delivery orders to vendors.
The support portion of landed cost for vehicle fleet maintenance shown in figure 2 is based on the data previously presented. In each case shown, the purchase price equals $100 worth of supplies.
The sample data in figure 2 show that the most costly systems are those that use elements of interagency support. The lowest cost system, the contractor operated parts store (COPARS), eliminates both the supply and procurement functions for item-by-item actions.
We priced a number of requirements taken from work orders of one installation. The sample totaled 122 items that were procured locally, primarily on a competitive, small purchase basis. The same or equivalent items were priced under a COPARS contract and under the Federal Supply Schedules and regional term contracts (RTC) used to support the Army in Region 10 of the Federal Supply Service (FSS) procurement office. It was not