The Defense Logistics Agency (DLA) procures supplies and services to support the U.S. military in peace and war. DLA is undergoing major transformations in business practices and organization by incorporating improved supply chain practices in buying goods and services for DoD, the military and some other government customers. As part of the Agency's Business Systems Modernization effort, eight supply chains have been identified. They are aviation, maritime, land, clothing and textiles, medical, subsistence, construction equipment and energy.

PURCHASING talked to Pete Runfola, chief of supplier operations at DLA headquarters, who provides contract operation oversight to the DLA field contracting offices. Part of his responsibility is to review and provide guidance on more complex acquisitions, in which the field activities are pursuing innovative solutions.

Q: What initiatives has DLA taken in spend analysis?

A: Under the Strategic Material Sourcing (SMS) Program, we have conducted a spend and demand analysis on the 3.4 million hardware items that DLA manages. Our sales and demand drivers focus on what is important to the customer and include sales, demand, lost sales, non-mission capable, war-stoppers, readiness, critical, and Command-focus items. The spend/demand analysis captures 80% or 85% of the items over a two- or three-year period and varies by supply chain or commodity. The analysis targets a SMS population of approximately 551,000 items and includes the aviation, land, maritime, construction and equipment supply chains. Out of these, 224,000 are currently being sourced through long-term contractual arrangements. The sourcing strategy uses the four quadrants to determine the proper strategy in leveraging Department of Defense (DoD) buying power.

Q: How long has this effort been underway and what have been the results?

A: We started back in 1999 with our Strategic Supplier Alliances (SSAs) that are under the purview of SMS for spare parts. Our objective is to move away from transactional, one-time buys and to establish more long-term contractual arrangements. Furthermore, we are building the partnerships within a Supplier Relationship Management infrastructure. The challenge is that hardware spare parts purchased in the aviation, land, maritime, and construction and equipment supply chains do not necessarily have similar commercial distribution systems in place as exist in the medical, subsistence, and clothing and textiles commodities. For those commodities, DLA established Prime Vendor arrangements and was able to leverage existing commercial distribution supply chains.

Q: What have been the results?

A: Significant results under the SSAs include improved overall average pricing reduction of 20% for the items under long-term contracts. Initial efficiencies in DLA's sourcing strategies aggregated $55 million savings from fiscal 1999 to fiscal 2003 from one-time inventory reductions.

Q: Have you changed the type of suppliers you do business with?

A: No. The suppliers are the same. The difference is we are entering into SSAs with the objective of partnering with our suppliers and building mutual goals and objectives as we transition from managing supplies to managing suppliers.

Q: Describe this process.

A: Senior-management-level commitment to these alliances is a priority, including the director of the Defense Logistics Agency, senior industry partners as well as the military services. Part of the SSA process is for all senior-level partners to sign the charter. Beyond that, there are executive and joint steering committees that monitor progress and execute the mutual goals and objectives and tasks. By establishing this kind of commitment, DoD and our industry partners ensure that the resultant contractual arrangements are performance-based and have a high likelihood of success for all stakeholders. We're able to provide items to the warfighter at reduced prices with improved contract delivery times. We are also working to provide better supply forecasts to our suppliers. In other words, it becomes a win-win situation for all of us.