GAO

United States General Accounting Office

Report to the Secretary of Defense 

August 2000 DEFENSE 

INVENTORY

Actions Needed to 

Evaluate Supply 

Purchase Options for 

Facilities Maintenance

GAO/NSIAD-00-194

Page 1 GAO/NSIAD-00-194 Defense Inventory

Contents

Letter 3

Appendixes Appendix I: Comments From the Department of Defense 24

Appendix II: GAO Contacts and Staff Acknowledgments 26

Tables Table 1: Installation Use of Prime Vendor Program 11

Table 2: Military Services’ Program Monitoring Efforts 15

Figures Figure 1: Ten Geographic Regions Served by DLA’s Maintenance, 

Repair, and Operations Prime Vendor Program 8

Abbreviations

DLA Defense Logistics Agency

DOD Department of Defense
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United States General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-285571 Letr

August 23, 2000

The Honorable William S. Cohen

The Secretary of Defense

Dear Mr. Secretary:

Since 1990, we have identified Department of Defense (DOD) inventory 

management as a high-risk area because levels of inventory were too high 

and management systems and procedures were ineffective.1

 We reported 

that adopting best business practices in inventory management and 

improving the reliability of financial management information are key steps 

toward solving these problems. Congress has also taken actions to 

encourage the Department to adopt best commercial practices to improve 

inventory management. Specifically, the National Defense Authorization 

Acts for Fiscal Years 1998 and 1999 required the Director of the Defense 

Logistics Agency and the secretary of each military department to submit 

schedules for implementing best commercial practices for the acquisition 

and distribution of selected inventory items. 

For several years, DOD has been working to adopt best practices to 

improve the efficiency and effectiveness of its operations and its ability to 

respond to the war fighter’s requirements. In 1997 and again in 1999, the 

Defense Reform Initiative report2

 highlighted the Defense Logistics 

Agency’s maintenance, repair, and operations prime vendor program as one 

of the Department’s success stories in adopting commercial best practices. 

Under the program, the Agency has contracted with prime vendors to 

provide facility maintenance supplies directly to military installations, as 

an alternative to using the traditional Defense supply system or direct 

purchases. 

1

 In 1990, we began a special effort to review and report on the federal program areas that 

we identified as high risk because of vulnerabilities to waste, fraud, abuse, and 

mismanagement. This effort, which was supported by the Senate Committee on 

Government Affairs and the House Committee on Government Reform, brought a 

much-needed focus to problems that were costing the government billions of dollars.

2

 The Defense Reform Initiative was established in November 1997 to increase funding for 

weapon system modernization programs by reducing infrastructure costs and streamlining 

business processes.
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This report assesses the Department’s efforts to implement the 

maintenance, repair, and operations prime vendor program. Specifically, 

we determined (1) how much the program is being used and how selected 

installations are using the program and (2) whether DOD has a mechanism 

for evaluating the program’s effectiveness relative to other procurement 

alternatives and for identifying and addressing implementation obstacles. 

We examined the implementation of the prime vendor program at 11 

military installations, and although the results of this analysis cannot be 

extrapolated to the entire program, they provide first-hand accounts that 

illustrate the actual impact of the program and highlight accomplishments 

and opportunities for improvement. 

Results in Brief The Department of Defense has begun implementing the Defense Logistics 

Agency’s maintenance, repair, and operations prime vendor program, but in 

fiscal year 1999, it covered only a small portion of business operations. The 

Agency has awarded prime vendor contracts to support military 

installations nationwide and at some overseas locations, and over 100 

customers placed orders with these vendors in fiscal year 1999. These 

orders represented about $59 million, or less than 10 percent of the 

estimated $670 million the Department spent on facility maintenance 

supplies during that year. Use of the program varied widely among the 

installations. At 7 of the 11 installations we examined, base personnel 

ordered, on average, about 55 percent of facilities maintenance supplies 

from the prime vendor during fiscal year 1999. Of the other four 

installations, three did not use the program in fiscal year 1999 and one 

could not quantify the extent to which the prime vendor was used. 

DOD does not have a mechanism to evaluate the extent to which the prime 

vendor program has been used to streamline logistics operations or 

increase overall logistics system effectiveness. In addition, DOD has not 

determined how the program should be used in conjunction with the other 

procurement methods to provide installations with the most efficient and 

effective supply system. Furthermore, the Defense Logistics Agency and 

the military departments have encountered significant issues while 

implementing the program that should be addressed for the program to 

operate as intended. For example, at some installations, ineffective 

working relationships among the Agency, the prime vendors, and the 

installations have limited the program’s use. Another issue raised by 

installation officials was that the prime vendors’ prices for facilities 

maintenance supplies were often higher than the price the installation 

would pay if the items were purchased directly from a local merchant. 
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We are recommending that the Secretary of Defense develop an approach 

to obtain the information that is needed to evaluate the use and 

effectiveness of the prime vendor program and identify and address 

implementation obstacles. The Department agreed with the contents of this 

report and its recommendations.

Background DOD uses a variety of inventory items such as hardware, electrical and 

plumbing supplies, paint, small tools, and building materials to repair 

buildings and facilities at military installations around the world. These 

materials are commonly referred to as maintenance, repair, and operations 

supplies or facilities maintenance supplies. In fiscal year 1999, the Defense 

Logistics Agency (DLA) estimated that DOD installations worldwide spent 

about $670 million for facilities maintenance supplies. In recent years, DOD 

has implemented two initiatives, a prime vendor program and government 

purchase cards, that provide military installations new alternatives to 

obtaining facilities maintenance supplies.3

First, in 1997, following implementation of prime vendor programs to 

improve the management of medical and food inventories, DLA established 

a prime vendor program for facilities maintenance supplies. Although 

prime vendors can be used in different ways, the basic concept requires a 

prime vendor to obtain supplies from a variety of suppliers and deliver the 

supplies directly to the customer within hours or days after receiving an 

order. In August 1998, recognizing the potential benefits that could be 

derived from using the prime vendor program, the Deputy Secretary of 

Defense directed the military services to designate points of contact to 

oversee implementation of the program, identify sites that should 

thoroughly evaluate program participation, and assist DLA in 

implementation.4

 The Deputy Secretary of Defense also directed DLA to 

work with the military departments in evaluating potential sites and 

developing implementation plans for target locations. In its 1999 Defense 

Reform Update, DOD projected that the prime vendor program would 

steadily expand over the next few years, with sales through the prime 

3

 Facilities maintenance supplies may also be obtained from the General Services 

Administration and the DOD Electronic Mall, and through other procurement methods.

4

 Department of Defense Reform Initiative Directive #45 − Prime Vendor Contracting 

Program for Facility Maintenance Supplies (Aug. 24, 1998).
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vendors increasing from about $18 million in fiscal year 1998 to $29 million 

in fiscal year 1999 and up to $56 million in fiscal year 2000. 

Under the second initiative, military installations obtain facilities 

maintenance supplies primarily from local merchants and pay for those 

supplies using government purchase cards5

 for orders of $2,500 or less. 

Purchase cards are currently the more commonly used method by which 

military installations obtain facilities maintenance supplies. For orders that 

exceed $2,500 (the micropurchase threshold), installation contracting 

offices generally contract with suppliers to provide the required items 

using a competitive selection process. Supply operations at an installation 

can involve a few to more than 20 military and civilian personnel and 

require facilities, vehicles, and other resources to order, purchase, 

transport, store, and distribute inventory. 

The National Defense Authorization Act for Fiscal Year 1998 required that 

at least 90 percent of DOD’s purchases under the micropurchase threshold 

be made with the purchase card by October 1, 2000. More recently, in the 

1999 Defense Reform Update, the Secretary of Defense established a goal 

of using purchase cards for at least 90 percent of all Defense purchases of 

$2,500 or less by January 2000. DOD met its goal, reporting that over 

91 percent of micropurchases in fiscal year 1999 were made with purchase 

cards. 

Use of the Facilities 

Maintenance Prime 

Vendor Program 

DLA has awarded prime vendor contracts to provide facilities maintenance 

supplies to military installations nationwide and at some overseas 

locations. As of the end of fiscal year 1999, about 40 percent of the potential 

customers identified by DLA had begun placing orders with the prime 

vendors. Overall, those customers’ purchases amounted to less than 

10 percent of the total estimated facilities maintenance supplies purchased 

throughout DOD for that year. At the 11 installations we examined, each 

installation used the prime vendor program to different degrees. Base 

personnel at seven installations that used the program in fiscal year 1999 

and were able to provide us with usage data, ordered, on average, about

55 percent of facilities maintenance supplies from the prime vendor. For 

example, at Camp Lejeune, North Carolina, installation personnel 

5

 Purchase cards are commercial credit cards—either MasterCard or VISA cards—that are 

issued to authorized DOD military and civilian users to acquire and pay for low-cost supplies 

and services. 
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purchased about 21 percent of facilities maintenance supplies from the 

prime vendor, the remainder of these items were purchased from local 

merchants using government purchase cards or from other sources. In 

contrast, personnel at Parris Island Recruit Depot, South Carolina, 

obtained 84 percent of all facilities maintenance supplies through the prime 

vendor in fiscal year 1999. The differences in how each installation used the 

prime vendor program were attributable primarily to decisions made by 

installation commanders, which were based on prime vendor capabilities, 

local vendor support, and openness to using new business practices.

Nationwide Contracts 

Awarded for Prime Vendor 

Program

As of August 1999, DLA had awarded contracts to five prime vendors to 

provide facilities maintenance supplies to military installations nationwide, 

as well as to customers in Japan (including Okinawa) and South Korea. The 

1-year contracts between DLA and the vendors include four 1-year renewal 

options and require the prime vendors to support military installations 

within 10 geographic regions. The Southeast, Southwest, Northeast, South 

Central, and Hawaii regions are each served by two of the five vendors, 

with each one supporting specific military installations within a region. The 

other four regions (Alaska, Northwest, North Central, and Pacific) are each 

supported by one vendor per region. Prime vendor contracts for 

installations in Europe are pending. (See fig. 1.) 
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Figure 1: Ten Geographic Regions Served by DLA’s Maintenance, Repair, and Operations Prime Vendor Program 

Source: Defense Logistics Agency.

1

2

3

4 5

6

7

8

10 9

Pacific Europe

1 - Southeast 6 - South Central

2 - Southwest 7 - North Central

3 - Hawaii 8 - Alaska

4 - Northeast 9 - Europe

5 - Northwest 10 - Pacific
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DLA has contracted with the prime vendors to provide military customers 

with a single source of supply to meet all of their facilities maintenance 

inventory requirements. The prime vendor is required to provide an 

electronic ordering system, electronic catalogues that have been tailored to 

each customer’s needs, 72-hour delivery of inventory that is in-stock, 

24-hour delivery of inventory for emergency repairs, and direct delivery of 

inventory to multiple locations. According to DLA, using the prime vendor 

for these services can reduce an installation’s inventory levels as well as 

storage, contracting, and administrative costs and provide installation 

personnel greater flexibility in selecting products. Both DLA and the prime 

vendors apply surcharges on each purchase an installation makes through 

the program. These surcharges are included in the price the installations 

pay for each item purchased. DLA applies a 3.9-percent surcharge, while 

the prime vendors’ surcharges range from 10 to 30 percent on each item 

purchased.6

In contrast to the requirements of DLA’s program, the relationship between 

some private sector companies and the prime vendors has been expanded 

to include all aspects of inventory management. For example, one private 

sector company we visited has completely integrated its prime vendor into 

day-to-day operations. Prime vendor employees are responsible for all 

aspects of facilities maintenance inventory management from ordering 

supplies, storing inventory, and delivering supplies to the customer’s end 

users. The prime vendor also provides the customer with management 

reports, inventory usage information, and consolidated billing that reduces 

the administrative burdens on the customer. Much of the savings the 

company has achieved by using the prime vendor as an integrated supplier 

have resulted from reducing administrative costs associated with 

purchasing, receiving, stocking, and delivering supplies; and preparing 

purchase orders and processing invoices and eliminating the need for 

investments in inventory. 

6

 Prime vendor surcharges vary by vendor, region, installation, and commodity. Under the 

prime vendor contracts, each vendor has the flexibility to adjust the surcharge applied to 

each item, within the 10- to 30-percent range, as long as the surcharge is below the 

prescribed 30-percent ceiling. 
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Installations Use the 

Program to Varying Degrees

Although DLA had contracted for prime vendor services nationwide and in 

some overseas locations, overall, the extent to which military installations 

were using the prime vendors varied. As of the end of fiscal year 1999, DLA 

had identified 278 potential customers for the prime vendor program.7

 Of 

these customers, 110 (about 40 percent) had placed at least one order with 

the prime vendor during fiscal year 1999. These orders amounted to about 

$59 million in purchases in fiscal year 1999, which was about twice the 

$29 million in sales that the Department projected for that year. Overall, the 

1999 prime vendor sales represented less than 10 percent of the estimated 

$670 million DOD had budgeted for facilities maintenance supplies. 

Also, each installation we examined used the prime vendor program to 

different degrees and installation officials viewed the prime vendor as one 

of several alternative sources of facilities maintenance supplies. For 

example, at Camp Lejeune, installation personnel purchased about 

21 percent of their facilities maintenance supplies from the prime vendor in 

fiscal year 1999. The remainder of their purchases were made through local 

merchants using the government purchase card (about 53 percent) or 

another alternative method (about 26 percent). At Fort Stewart, Georgia, 

installation personnel purchased about 33 percent of facilities maintenance 

supplies through the prime vendors, purchasing the majority of their 

supplies using their purchase cards. In contrast, four other installations we 

examined (Kadena Air Force Base, Okinawa; Port Hueneme, California; 

and Marine Corps installations at Barstow, California; and Parris Island, 

South Carolina) used the prime vendor as the source for over 50 percent of 

facilities maintenance supplies in fiscal year 1999. To encourage use of the 

prime vendor program, the commander of the Marine Corps Logistics Base 

in Barstow has directed that the prime vendor will be the primary source 

for purchasing facilities maintenance supplies and that government 

purchase cards will only be used for purchasing such supplies in 

emergency situations, when the prime vendor cannot meet compressed 

time constraints. Table 1 summarizes the extent to which the prime vendor 

has been used at the 11 installations.

7

 This does not equate to 278 installations, as there may be more than one “customer” at an 

installation. For example, at the Naval Base Ventura County, Port Hueneme, California, five 

separate organizations participate in the prime vendor program.
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Table 1: Installation Use of Prime Vendor Program

Source: GAO’s analysis of installation information.

Installation Extent to which prime vendor program is used

Air Force

Kadena Air Force Base, Okinawa

Shaw Air Force Base, South Carolina

This installation obtained about 57 percent of facilities maintenance supplies through the prime 

vendor in fiscal year 1999. Installation officials expect to increase reliance on the prime vendor to 

obtain about 95 percent of facilities maintenance supplies in fiscal year 2000.

This installation did not use the prime vendor program in fiscal year 1999. It began using the 

program in October 1999 and as of May 2000 had obtained about 20 percent of facilities 

maintenance supplies through the prime vendor.

Army

Fort Hood, Texas

Fort Jackson, South Carolina

Fort McCoy, Wisconsin

Fort Stewart, Georgia

This installation did not use the program in fiscal year 1999. It began using the program in 

December 1999 and as of April 2000 had obtained about 12 percent of facilities maintenance 

supplies from the prime vendor for this fiscal year.

This installation did not use the program in fiscal year 1999 or 2000. This installation piloted the 

prime vendor program for the Army, but it withdrew from the program in April 1998, after 

12 months, because of concerns about item prices and customer service. DLA offered Fort 

Jackson the opportunity to rejoin the program with a different prime vendor, but installation 

officials declined to participate. Instead, in November 1999, Fort Jackson established its own 

prime vendor contracts with four local vendors covering about 400 items. 

This installation obtained about 31 percent of all facilities maintenance supplies through the 

prime vendor (primarily for large dollar value items over $2,500) during fiscal year 1999, and 

increased usage to 57 percent as of April 2000. 

This installation obtained about 33 percent of all facilities maintenance supplies through the 

prime vendor in fiscal year 1999; officials expect to expand use of the program this year.

Marine Corps

Camp Lejeune, North Carolina

Logistics Base, Barstow, California

Recruit Depot, Parris Island, South 

Carolina

Air Ground Combat Center, 

Twentynine Palms, California

This installation obtained about 21 percent of all facilities maintenance supplies through the 

prime vendor in fiscal year 1999 (primarily for large dollar value items over $2,500). It recently 

switched to another prime vendor, and officials expect to increase usage for fiscal year 2000.

This base obtained about 63 percent of all facilities maintenance supplies through the prime 

vendor in fiscal year 1999. 

The depot obtained about 84 percent of all facilities maintenance supplies through the prime 

vendor in fiscal year 1999. 

Installation officials were unable to quantify the extent to which the prime vendor program was 

used in fiscal years 1999 and 2000. This installation joined the program in May 1998 and 

switched to a new prime vendor in June 1999.

Navy

Naval Base Ventura County, Port 

Hueneme, California

This base obtained 100 percent of supplies needed for construction projects that require that the 

materials be accumulated and stored off-site for just-in-time delivery to the construction site 

through the prime vendor in fiscal year 1999.
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At most of the installations we visited, officials stated that they believed 

that the prime vendor program had not resulted in significant cost 

reductions associated with reducing inventory, personnel, or 

infrastructure. When inventory and personnel reductions occurred, the 

reductions were the result of reengineering business processes and

DOD-wide downsizing efforts and, for the most part, the reductions took 

place before the installations joined the prime vendor program. Installation 

officials were unable to quantify the extent to which these reductions have 

occurred because historical records were not retained. Some installation 

officials stated that using the program had enabled them to more easily 

cope with previous personnel reductions but had not resulted in additional 

downsizing of base supply staff. 

Factors that Influence 

Implementation Decisions 

at the Installations 

Several factors play a significant role in determining the extent to which 

each installation uses the prime vendor program. The military services 

have delegated to each installation commander the authority to decide 

whether the installation will order supplies from the prime vendor and the 

role the prime vendor will play at that installation. The services also 

encourage, or in some cases discourage, the installations’ participation in 

the program. For example, the Marine Corps, in an October 1998 

memorandum, “strongly encouraged” installation commanders to take 

advantage of the program. The Army’s Training and Doctrine Command, 

however, issued a memorandum in April 1998 that terminated Fort 

Jackson’s participation in the program and stated that such a program is 

not “a cost-effective method for this command in today’s environment.”8

Officials from each military department stated that they believe the 

installation commanders are in the best position to make these 

determinations and should be allowed maximum flexibility in determining 

the methods their installations use to obtain facilities maintenance 

supplies. Several factors, such as (1) the prime vendor’s capabilities, (2) the 

availability of local supply sources, and (3) the willingness of installation 

personnel to accept and use this new business practice, influences 

installation decisions on how much the prime vendor program is used. 

One factor that influences the degree to which the program is used by 

individual installations is the prime vendor’s capabilities. Officials at 

8

 DLA officials have reviewed the prime vendor’s performance at Fort Jackson and disagree 

with the Training and Doctrine Command’s assessment. 
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several of the installations we visited told us that they would like the prime 

vendor to manage their facilities maintenance inventory. Some prime 

vendors have extensive experience in integrated supplier relationships and 

are well equipped to purchase, store, and distribute facilities maintenance 

supplies for their military customers. Other prime vendors do not have the 

facilities or the experience to perform such functions. In the past year, DLA 

has allowed installations to switch prime vendors to improve customer 

satisfaction by allowing installations to work with prime vendors that can 

better meet the installations’ needs. For example, the Marine Corps Air 

Ground Combat Center at Twentynine Palms switched to a new prime 

vendor in June 1999, after about a year in the program, because the first 

vendor was repeatedly unable to meet delivery dates and did not provide 

the level of customer service expected. DLA recently allowed two more 

Marine Corps installations to switch prime vendors for similar reasons.

A second factor that influences the extent to which the prime vendor is 

used is an installation’s geographic location. Of 11 installations we 

examined, those located in overseas or remote areas—such as Kadena Air 

Force Base and the Marine Corps Recruit Depot at Parris Island—were 

likely to use the prime vendor more extensively than those in larger areas. 

Installations in larger, metropolitan areas—such as Shaw Air Force Base, 

located near Columbia, South Carolina, and Fort Stewart, located near 

Savannah, Georgia—were more likely to rely on local merchants to obtain 

facilities maintenance supplies. Installations located in metropolitan areas 

generally had more options in the surrounding area, including local 

merchants and national chains, from which to obtain facilities maintenance 

supplies. 

A third factor that influences how much the program is used is the 

willingness of supply personnel at each location to accept and use new 

business practices. To ease the transition to a prime vendor program, 

officials at one private sector firm we contacted told us that they 

implemented their own facilities maintenance prime vendor program on a 

unit-by-unit basis and that joining the program was always voluntary. The 

officials also emphasized that educating end users about the program 

before beginning implementation is critical to success. In addition, these 

officials commented that the program must be tailored to meet the specific 

needs of the customer and that customer feedback must be continuously 

encouraged and promptly addressed. 
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Program Results Not 

Being Evaluated, and 

Implementation Issues 

Remain 

DOD does not monitor the extent to which the program is being used to 

streamline logistics operations or measure the program’s impact on the 

overall supply system. Neither DOD nor the military departments are 

collecting the information necessary to evaluate the program’s 

effectiveness or to determine how the prime vendor should be used in 

conjunction with the purchase card or other procurement methods to 

provide the installations with the most efficient and effective supply 

system. Further, DLA and the military departments have encountered 

several issues while implementing the prime vendor program that should 

be addressed for the program to operate as intended. 

Management Information 

Needed to Assess Prime 

Vendor Program

Management information that would enable DOD to evaluate the prime 

vendor program’s effectiveness and determine how the program should be 

used in conjunction with other programs is not available. Specifically, DOD 

has not collected the information needed to evaluate and compare the 

estimated costs and benefits of using the program to other procurement 

methods—primarily the government purchase cards. While DLA performs 

some limited monitoring of usage of the prime vendor program, it is not 

sufficient to measure actual savings realized from using the program at the 

installation level. For example, DLA officials monitor the number of 

installations using the program and the volume of prime vendor sales made 

to each installation. They also monitor various customer service aspects of 

the program, such as orders filled and on-time delivery, to provide a basis 

for future contracting decisions. However, DLA does not collect, on a broad 

scale, information on the costs associated with operating the program at 

the installations or the savings, if any, associated with using the prime 

vendor program (such as inventory or infrastructure reductions) rather 

than using other procurement methods to obtain facilities maintenance 

supplies. Likewise, the military departments have not developed 

mechanisms to capture and evaluate the costs and benefits of participating 

in the program. As shown in table 2, efforts to monitor the prime vendor 

program vary by military department. 
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Table 2: Military Services’ Program Monitoring Efforts

Source: GAO’s analysis.

In addition to limited information on the cost and effectiveness of the 

prime vendor program, DOD does not have complete information on the 

estimated cost of operations using the purchase card program. Our work 

on DOD’s purchase card program has shown that actual savings estimates 

associated with the program are unavailable.9

 The Army Audit Agency has 

estimated savings of $92 per transaction when supplies or services are 

purchased using government purchase cards compared to using the 

traditional procurement methods. However, comparable data for other 

DOD components are not available. In its Annual Performance Report for 

Fiscal Year 2000, DOD reports that using the purchase card has resulted in 

sizable manpower-related savings but does not provide specific savings 

estimates. 

Program Implementation 

Issues Can Hinder Progress 

DLA and the military departments have encountered several obstacles 

while implementing the prime vendor program that provide lessons learned 

for future implementation. For example, in some cases, DLA, the vendors, 

and the customers did not work together effectively to implement the 

program. Other implementation obstacles, such as high item prices and 

information technology, have frustrated program participants and may 

have deterred potential customers from using the program. DOD plans to 

use its Logistics Reform Senior Steering Group as a forum to address such 

implementation obstacles. 

Military service Monitoring efforts

Air Force Collects program data (such as items purchased, item prices, length of time required to obtain a quote 

from the vendor, and delivery dates) from its Civil Engineering Material Acquisition System to monitor 

Air Force installations’ use of the facilities maintenance prime vendor program.

Army Formed a working group to collect program data similar to that collected by DLA (i.e., installations 

using the program and sales volume); the working group also shares its data with DLA program 

officials.

Marine Corps Relies heavily on DLA program data and monitors installation satisfaction through regular contact with 

installation personnel and program review sessions with installations, DLA, and prime vendors.

Navy Does not actively monitor installation participation in the program.

9 Defense Management: Electronic Commerce Implementation Strategy Can Be Improved

(GAO/NSIAD-00-108, July 18, 2000).
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Working Relationship Issues The working relationship among installation personnel, DLA officials, and 

prime vendor representatives is a critical factor directly related to the 

program’s success at any given installation. As discussed earlier, once DLA 

awards the prime vendor contracts, installation commanders determine the 

extent to which each installation will use the initiative in its operations. 

The willingness of DLA and the prime vendor to respond to installation 

personnel’s concerns, personalities, and even cultural differences may 

affect program effectiveness at a particular installation. Overall, at the 

installations we visited such relationships have been fairly productive. 

However, when this is not the case, it has led to the program failing at that 

particular installation. All three parties must work together to make the 

program successful. 

At installations we visited where the relationship was one of cooperation 

and partnership, the program had flourished. For example, at the Marine 

Corps Logistics Base at Barstow, DLA, prime vendor, and installation 

personnel have developed a cooperative working relationship and the 

program has been successful. As discussed earlier in this report, the base 

commander has directed that the prime vendor will be the primary source 

for purchasing facilities maintenance supplies.

Without such cooperation, the program is likely to fall short of 

expectations. For example, officials at Fort Jackson, one of the pilot test 

sites, stated that they did not believe DLA and the prime vendor were 

responsive enough to their concerns regarding slow delivery times, the lack 

of a useful electronic catalog, and other prime vendor performance issues. 

The officials also noted that they believed that DLA representatives took 

their complaints as attempts to undermine the program. As a result, during 

the 12-month pilot period, these problems were never satisfactorily 

resolved, leading to the installation’s withdrawal from the program. 

Item Pricing Issues At most of the installations we visited, officials expressed concerns that the 

prime vendors’ prices for facilities maintenance supplies were too high. 

The prime vendors price for individual facilities maintenance items, with 

added vendor and DLA surcharges, can be higher than the price the 

installation would pay if it purchased the same items directly from a local 

merchant. For the installations we visited, we found that the prime vendor 

often purchased facilities maintenance supplies for a particular installation 

from the same local merchants the installation used prior to joining the 

program. This was due, in part, to the installation personnel’s requests that 

the vendor obtain the specific brand or type of items they had used in the 

past from the same local merchants. Installation supply personnel have 
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stated they are reluctant to sever long-standing relationships with local 

merchants and encourage prime vendors to continue patronizing local 

businesses. Such emphasis on purchasing supplies from local merchants 

tends to preclude the prime vendors from leveraging their buying power 

and using economies of scale to obtain the most favorable price from 

larger, national businesses.

DLA has not performed a nationwide pricing review to determine whether 

the prime vendors’ prices are typically higher, lower, or about the same as 

the prices charged by local merchants; however, it has reviewed prices at 

some individual installations. The reviews have determined that on many 

items the prime vendor’s price is lower than the local price available. For 

example, at one location, DLA reviewed the prices of 40 selected items and 

found that the prime vendor’s price was lower than the local merchant’s 

price on over 30 of the items. However, according to the DLA program 

manager, when reviewing the results of the comparison, supply personnel 

tended to focus on the six or seven items that were more expensive when 

purchased from the prime vendor. 

According to DLA officials, concern over item price increases is a major 

obstacle when a prime vendor program is first introduced to potential 

military customers. DLA officials admit that the program may increase the 

unit price of some items. However, they noted that this increase should be 

offset by (1) a larger, but less visible, reduction in total DOD costs due to 

lower administrative, overhead, and infrastructure expenses; (2) better 

product quality; and (3) improved customer service due to greater 

availability of parts and faster deliveries to the customer. A comprehensive 

evaluation of unit price increases that would consider these total system 

costs, product quality, and customer service is characterized as a “best 

value” analysis.

Getting the customer to shift from a unit price to a best value focus is 

difficult. One DLA approach has been to conduct baseline cost 

comparisons at specific implementation sites to show the customer how 

the total cost under the new program is lower than the total cost under the 

traditional supply system. However, it may be difficult, if not impossible, to 

develop similar baseline comparisons on a broader scale because of 

significant weaknesses in the reliability of reported DOD inventory data 

and cost information. Consequently, the Department uses obligation data
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or other estimates of actual cost.10 According to DLA officials, many 

installations are reluctant to participate in baseline analyses.

Information Technology Issues Another obstacle affecting program implementation centers on the 

difficulty installations face when ordering items from the prime vendors. 

DLA’s contracts with the prime vendors require that the vendors provide an 

electronic ordering system. However, at several of the installations we 

visited, electronic ordering capability is not yet available because the prime 

vendor has not yet developed an electronic catalog of frequently used items 

for that particular installation. As a result, installation personnel must place 

orders with the prime vendor via telephone or fax machine. At other 

installations, the prime vendor has provided electronic ordering capability 

using the Internet. However, according to installation personnel, placing 

orders with the prime vendor via the Internet can be a slow and tedious 

process, sometimes taking hours to complete one order, due to security 

firewalls and access restrictions. 

In addition, incompatibility between DOD’s and the vendor’s information 

systems sometimes presents problems, requiring installation personnel to 

record each order twice—once in the prime vendor’s system and once in 

the service’s system. For example, in early 1998, Shaw Air Force Base was 

the first Air Force installation to participate in a test of the prime vendor 

program. During the test, incompatibility between the vendor’s information 

system and the Air Force’s Civil Engineering Material Acquisition System11

required each order to be entered twice—once to order from the vendor 

and the second time to input the order information into the Air Force 

system. The Air Force customers deemed this process too time-consuming 

and chose to delay participation in the program until an interface with the 

prime vendor’s system could be developed. After a yearlong test of the 

interface, Air Force installations began joining the program in September 

1999. To date, DLA and the Air Force have developed an information 

system link with three of the four prime vendors. DLA has also worked 

with the Army to create an interface between the Army’s Supply 2000 

system12 and the Defense Supply Center in Philadelphia, Pennsylvania, 

10 Department of Defense: Progress in Financial Management Reform

(GAO/T-AIMD/NSIAD-00-163, May 9, 2000).

11 This system is an Air Force legacy system that installations use to track inventory usage 

and account for expenditures by building number.

12 Supply 2000 is a software application supporting facility maintenance activities.
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which manages the prime vendor program. This interface eliminates the 

need for dual transaction entry and should be available to all Army 

installations by the end of this fiscal year. The Navy, the Marine Corps and 

DLA, however, have not yet developed solutions to this problem. 

Logistics Reform Senior Steering 

Group Provides a Forum to 

Address Implementation 

Obstacles

In response to our January 2000 report on DLA’s best practice initiatives, 

DOD stated that it will use its Logistics Reform Senior Steering Group, 

which is comprised of senior-level logistics officials from each military 

department, as a forum to address obstacles to implementing DLA’s best 

practice initiatives.13 According to DOD, this group will promote 

participation by DOD activities in those initiatives to the extent they 

provide the combination of quality, timeliness, and cost that best meet 

DOD’s requirements. This group will also highlight the benefits of 

participating in the initiatives, consider appropriate outcome measures, 

and share lessons learned. DOD further stated that DLA would take the 

lead in presenting these issues to the group.

Conclusions While DOD has developed initiatives to improve the acquisition of facilities 

maintenance supplies, it has not collected information that is needed to 

determine if the prime vendor, the purchase card, or some combination of 

these and other methods would provide DOD with the most cost-effective 

and efficient way of buying facilities maintenance supplies. Nor is the 

Department collecting information on implementation issues such as 

relationships among the Defense Logistics Agency, vendors, and military 

installations; concerns over unit price; and information technology issues. 

Further, the Department’s continuing problems in developing reliable cost 

information limit broad scale cost comparisons. If DOD is to continue 

implementing the prime vendor program, it must have information on the 

costs associated with operating the program and the savings associated 

with using the prime vendor at the installation. Without this information, it 

is uncertain what procurement method should be pursued, opportunities to 

reduce logistics costs and improve customer service may be lost, and the 

program may not operate in its most efficient and effective manner. 

13 Defense Inventory: Opportunities Exist to Expand the Use of Defense Logistics Agency 

Best Practices (GAO/NSIAD-00-30, Jan. 26, 2000).
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Recommendations To assist military installations in choosing the most efficient and effective 

methods of obtaining facilities maintenance supplies, we recommend that 

the Secretary of Defense direct the Director, Defense Logistics Agency, and 

the secretary of each military department to undertake a cooperative effort 

to determine how the prime vendor program best fits within DOD’s 

operations in conjunction with other procurement methods, particularly 

the government purchase card. This effort should include

• developing a mechanism to monitor and measure the cost and benefits 

of using the facilities maintenance prime vendor program when 

compared to other procurement methods and to identify 

implementation obstacles as they are encountered at each military 

installation and

• establishing an analysis model that considers the estimated total cost, 

product quality, and customer satisfaction and that installation 

commanders can use to determine the appropriate mix of prime vendor, 

purchase card, and other procurement methods for procuring facilities 

maintenance supplies at each installation.

Agency Comments DOD agreed with our recommendation and stated that the Defense 

Logistics Agency will take the lead in working with the military 

departments to develop a mechanism to monitor the costs and benefits of 

using the facilities maintenance prime vendor program and identify 

implementation obstacles. DOD further stated that the Defense Logistics 

Agency will also take the lead in working with the military departments to 

develop an analysis model that installation commanders can use to 

determine the appropriate degree to which to use the program. DOD 

expects completion of these efforts by March 2001. DOD’s comments are 

reprinted in their entirety as appendix I.

Scope and 

Methodology

To determine the extent to which the prime vendor program was being 

used, we met with officials from DLA headquarters, Washington, D.C., and 

DLA’s prime vendor program manager located at the Defense Supply 

Center, Philadelphia, Pennsylvania. In addition, we analyzed information 

on the overall status of program implementation in terms of (1) contracts 

awarded to prime vendors, (2) potential customers identified by DLA and 

number of installations participating, and (3) total prime vendor program 

sales data for fiscal year 1999. 
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To determine how the program was being implemented at selected 

installations and identify opportunities for improving program 

implementation, we visited or obtained information from 11 installations. 

To select the installations, we asked DLA officials to identify locations 

where the program was being used and provide information on the volume 

of purchases made through the prime vendors. From information provided 

by the officials, we judgmentally selected 11 installations to visit or obtain 

information from. To ensure that we obtained a variety of views, we 

selected installations representing each military service and served by each 

of the five prime vendors, as well as installations that are frequent users of 

the program and installations that do not use the program as much. We 

visited Fort Hood, Texas; Fort Jackson, South Carolina; Fort Stewart, 

Georgia; Shaw Air Force Base, South Carolina; Parris Island Marine Corps 

Recruit Depot, South Carolina; Marine Corps Logistics Base, Barstow, 

California; Marine Corps Air and Ground Combat Center, Twentynine 

Palms, California; Camp Lejeune Marine Corps Base, North Carolina; and 

Naval Base Ventura County, Port Hueneme, California. At each installation, 

we met with logistics personnel and end users involved with the prime 

vendor program to obtain information on implementation experiences, 

customer satisfaction, and lessons learned from implementing the program 

at their installation. We also contacted officials at Fort McCoy, Wisconsin, 

and Kadena Air Force Base, Okinawa, by telephone and electronic mail to 

obtain their views on implementing the program and lessons learned. 

To obtain the prime vendors’ perspective on the program and discuss 

implementation experiences and lessons learned, we met with 

representatives of Cameron and Barkley at its Charleston, South Carolina, 

facility and Graybar Incorporated at its Dallas, Texas, facility. We selected 

Cameron and Barkley because it was located near several of the military 

installations we visited. We selected Graybar Incorporated because it also 

supplied one of the private sector companies we contacted.

To provide a private sector perspective on best practices for managing 

facilities maintenance inventory, we visited or contacted several private 

sector companies who had adopted leading-edge business practices to 

manage facilities maintenance inventories. Specifically, we visited Texas 

Instruments in Dallas, Texas, to obtain information on its long-standing 

facilities maintenance prime vendor program. While at Texas Instruments, 

we met with company officials, as well as Graybar representatives, to 

discuss their experiences and lessons learned from implementing a 

facilities maintenance prime vendor program. We also obtained similar 
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Page 22 GAO/NSIAD-00-194 Defense Inventory

information from officials of Coors Brewing Company, in Elkton, Virginia, 

and the Saturn Corporation, in Springhill, Tennessee.

We conducted our review from October 1999 through June 2000 in 

accordance with generally accepted government auditing standards.

This report contains recommendations to you. The head of a federal agency 

is required under 31 U.S.C. 720 to submit a written statement on actions 

taken on our recommendations to the Senate Committee on Governmental 

Affairs and the House Committee on Government Reform not later than

60 days after the date of the report and to the Senate and House 

Committees on Appropriations with the agency’s first request for 

appropriations made more than 60 days after the date of this report.

We are sending copies of this report to the appropriate congressional 

committees. We are also sending copies to Lieutenant General Henry T. 

Glisson, Director, Defense Logistics Agency; the Honorable Louis Caldera, 

Secretary of the Army; the Honorable Richard Danzig, Secretary of the 

Navy; the Honorable F. Whitten Peters, Secretary of the Air Force; General 

James L. Jones, Commandant of the Marine Corps; and the Honorable 

Jacob Lew, Director, Office of Management and Budget. We will make 

copies available to others upon request.

If you or your staff have any questions concerning this report or wish to 

discuss the matter further, please contact me at (202) 512-8412. Key 

contributors to this report are acknowledged in appendix II.

Sincerely yours,

David R. Warren,Director

Defense Management Issues
Page 23 GAO/NSIAD-00-194 Defense Inventory
Page 24 GAO/NSIAD-00-194 Defense Inventory

Appendix I

Comments From the Department of Defense ApApenednxidexiIs
Appendix I

Comments From the Department of Defense

Page 25 GAO/NSIAD-00-194 Defense Inventory
Page 26 GAO/NSIAD-00-194 Defense Inventory

Appendix II

GAO Contacts and Staff Acknowledgments ApendxiI

GAO Contacts Charles Patton (202) 512-4412

Robert Repasky (202) 512-9868

Acknowledgments In addition to those named above, Penney Harwell, Robert Malpass, and 

Adam Vodraska made key contributions to this report.

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