354 ANNUAL REPORT OF THE SECRETARY OF DEFENSE

Table 34
DEFENSE-WIDE SUPPLY
Net Annual | Annual
Line items) | Personnel | inventory | “sales | obligations
centrally | on board | investment) cmilltons | (nillions
managed (millions | of dollars) | of dollars)
of dollars)

SUPPLY CENTERS
June 80, 1962,
June 30, 1963

208, 000 | 13, 649
1, 029, 000 | 20, 572

Automotive Supplies !
June 30, 1962-

June 30, 1968. — 108, 000 692 89 10 8
Clothing & Textiles ?

June 30, 1962... ---- 20, 000 4, 606 1, 145 439 36%

June 30, 1963_.-.--- 28, 000 4, 020 1, 041 358 218
Construction Supplies %

June 30, 1962 12, 000 1, 860 8 1 (4)

June 30, 1963 122, 000 3, 874 109 35 46

Electronics Supplies *
Sane 30), M62. wal acme wen 433

June 30, 196: 9, O00 4, 202 40
General Supplies °

June 30, 1962___---- 50, 000 2, 878 125 105, 119

June 30, 1968_. ~~~. 45, 000 2, 691 | 149 120 105
Industrial Supplies *

June 30, 1962_.- 116, 000 1,532 "182 104 113

June 30, 196: 338, 000 2, 448 322 108 85
Medical Supplies *

June 30, 1962_-~---- 9, 000 487 221 94 106

June 30, 1963. ------ 9, 000 608 212 109 69
Petroleum 7

June 30, 1962_.. TSS! lees worn feccces (4)

June 30, 1963_— 1, 000 301 10 16 °16
Subsistence ?

June 30, 1962 1, 000 1, 665 116 800 850

June 30, 1963. -- a 1, 000 1, 646 102 827 790

1 Depurtment-wide responsibility for automotive supplies was established on April 13, 1961; center was
partially operational during fiseal year 1963 and became fully operational on July 1, 1963. fi

2 Operated as Single Manager agencies until transferred to Defense Supply Agency during the second
half of fiscal year 1962.

3 Department-wide responsibility for construction supplies was established on April 13, 1961; center was
partially operational during the closing months of fiscal year 1962 and hecame fully operational on November
1, 1982.

4 Less than $500,000, :

5 Department-wide responsibility for electronic supplies was established on December 27, 1961; center
‘was partially operational during fiscal year 1963 and is scheduled to hecome fully operational on April 1, 1064.

6 Partially operational as Single Manager agencies when transferred to Defense Supply Agency during
the second half of fiscal year 1062.

7 The Defense Petroleum Supply Center differs from the other centers in that the military Services retain
ownership of tieir whcl ‘sale stocks of petroleum supplies except for packaged petroleum products trans:
ferred to DSA ownership on Octoher 1, 1962. DPSC does, however, procure petroleum products, bulk as
well as packaged, for the military Services.

© Oblizations of Departmental petroleum stock fund divisions totaled $1,179 million.

4 Procnrament, awards hy NPAC for nateotanm totaled $1.12 million.


ANNUAL REPORT OF THE DEFENSE SUPPLY AGENCY 77

finance ity inventoriés, It funds certain surplus dixposal activities out of
the proceeds of sales,

DSA's O&M appropriation for fiscal year 1963 amounted to $175 million.
Various adjustments with the military departments and in other ayveay resulted
in a total net O&M direct obligational authority of $1784 million, Additional
funds were received from the military departments as reimbursement ; tofal DSA
operating costs in fiseal year 1968 amounted to $195.2 million.

DSA's O&M budget for fiscal year 196-4 provides for $255.6 million In direct
obligational authority. The increase of $77.2 million over fhe previous year de-
rives mainly from transfers of appropriations from the military Services. These
transferred funds are required to finance new management responsibilities as-
sumed over the course of the past year, including particularly those for the
new distribution system. Since in each case larger deductions have been made
from the budgets of the military departments as a result of the transfer of these
functions, the end result will be a greater net economy in operating expenses.
The fiseal year 1964 budget. does not provide for the operation of DIPEC or for
the assumption of any additional missions that the Secretary of Defense may
assign. These will be financed, as the DSA distribution system was initially, by
transfer of funds included in military department budgets for functions trans-
ferred.

DSA used Military Construction funds totaling $8.0 million during fiscal year
1963 to provide space for new administrative functions, and a total of $620,000
under the appropriation title “Procurement, Defense Agencies” to purchase nec
essary administrative vehicles, materials-handling equipment, and special pro-
duction facilities, Military Construction funds requested for fiscal year 1064
total $1,761,000 and Procurement funds $627,009,

The following data in figure 2, reflect, by center, operations of the Yefenxe
Stock Fund in fiscal year 1963 :

STOCK FUND DATA
(In Millions of Dollars)

Cenger Obligations Sales net AN, pert
Automotive......--------------- 7.6 9.5 1.9
Clothing and Textile. 7 217.7 359.4 141.7
Construction 2 45.7 30. 5 4 (+15. 2)
Electronics = 40.0 57.0 467.0 17.0
General... 105. 5 115.7 10.0 10. 2
Industrial. 85.1 107.9 202. 0 22.8
Medical_ 69. 6 HLL: jacccowowee: 42.1
Petroleum _ 15.5 17.2 13.0 1.8
Subsistence _ 790. 1 820:4: |___sesence 39. 3

Total_....---- ee 1,376.8 1, 638. 4 909. 0 261. 6
Figure 2

This inventory drawdown of $261.6 million ex~2eds the goal of $229 million
extablished when DSA was founded. Projections for fiscal year 1964 provide
for $1,863 million in sales and $1,740 million in obligations, and .an, inyentory
drawdown of $123 million, These inventory drawdowns represent, in each


82 ANNUAL REPORT OF THE DEFENSE SUPPLY :AGENCY

PLUS), this centralized matching svstem will be extanded fu sit ‘ems on
October 1, 1968, Similarly, Project SILAKEDOWN, thitiated asa test of joint
Service review of item identification data for cross-servicing iat Fedevad Supply
Class 2015 (Engine Puel System Components, Airevalt), was extended fo eight
additional classes of aeronautien! material ‘Pechuical perscunel have been em-
ployed fo search out all potential uses of parts of wenpous tems heing phased
out, such as NIKE-AJAN, As a restt, use of fhese purts has substantially
increased, DSA is also undertaking to ontimize inferservicing of supplies and
services at the retail level between installations of the Army, Navy, and Air
Force,

The value of long supplies and excess utilized throngh the Inte servicing:
program in fiscal year 1963 totaled $531 million, an increase of $46 million over
fiseal year 1962,

Increased utilization of materiel within Department of Defense or by other
Government agencies is more economical than disposal as surplus where the
return ix at best likely to be only a few cents on the dollar, Increased utilization
has resulted Ina smaller amount of property, in less desirable condition, ayail-
able for sale. ‘Thus in fiseal year 1963 the acquisition value of: materiel sold as
surplus usable property amounted fo $892 million as compared to §1.236.2 million
in fiseal year 1962, Proceeds of $59.4 million represented a return of 6.7 percent
of acauisition value as compared toa 7 percent refurn the previous year.

Surplus disposal by DOD remains, nevertheless, a large-scale enterprise, A
study of the entire program within the United States was conducted by DSA
during the year at the direction of the Secretary of Defense. Some recom=
mendations emerged from the study, many of which are now being carried out
with a view to muking substantial improvements in marketing and handling to
increaxe returns while cutting the casts of disposition,

In administering the Coordinated Procurement Program, DSA‘s main effort
has been toward developing improved policies and) procedures and prenaring
a list of existing coordinated procurement ignments, ‘This will be followed
by a review and up-dating of ex ting assignments in conjunetion with the
military Services and a study of additional arens for possible inclusion in the
program.

In exercising DSA‘s traffic management functions during fiscal year 1963, the
Defense Traffie Management Service (D'TMS) quoted 967,000 freight rates and
28400 passenger rates on behalf of ious Defense elements, issued 146,000
freight route orders, and arranged 14,661 group movements, Some 23 million
short. tons of freight and 4.8 million passengers were moved under DTMS cog-
nizance at a cost of $463.5 million and: $126 million, respectiv DTMS esti-
mated economies under the DOD Cost Reduction Program, acerning to the mili-
tary departments, of $16.4 million as a result of increased use of less than first
class air accommodations, through-bill movement of household goods, and use of
Great Lakes ports.

Moreover, Orms' Ability to respond to an emergency was mere than amply
demonstrated during the Cuban crisis, when arrangements for lirge scale move-
ments of men and materiel to the southeastern United Stites had to be made
on short notice.) Close teamwork between DTMS, the Interstate Commerce
Commission, and rail and motor officials vastly expedited these movements: and
assured that the men and supplies would be in place to execute whatever action
the President decided upon.

The end of fixeal yenr 1963 marked the first anniversary of operations under
MILSTRIP, the new standard requisitioning and ixstie procedures now used by
all elements of the Department of Defense. ILSTRIP, essentially a2 means
of automating thexe processes, hax proved to be an efficient: and successful



ANNUAL REPORT OF THE DEFENSE SUPPLY AGENCY 79

staffed with 60 percent Army personnel, 19 percent Navy, 48 percent Air Force,
and 8 percent Marine Corps. The ultimate plain provides for 39 pervent Army,
27 percent Navy, 29 percent Alr Force, and 5 percent Marine Corps. The pres-
ent rate of progress indicates this goal will he achieved by Tune 1M.

To provide for emergency Or war, a total of 977 mobilization designation post-
tions, authorized by the military Services for DSA. activities, has been incor:
porated in DSA Joint Mobilization Tables of Distribution. Assignments of
qualified reservists to these positions are being effected.

The Procurement Areo

Procurement awards by DSA centers during the year totaled $2.67 billion. The
planned procurement vate for fiscal yen 1964 is, $3.0 billion, Three commodi-
ties—food, clothing, and petroleum—comprise more than two-thirds of the total
procurement program, with the balance divided among the.remgining six com-
modities purchased by DSA. .

DSA seeks to reduce administrative procurement Jeadtime to a minimum
through standardization and simplification of procedures and, through increased
competition, reduce procurement cost of those items for which it has procure-
ment responsibility.

In the past fiscal year, 91.3 percent of the dollar yalue of DSA procurement
was on a competitive basis. Awards to small business firms totaled $943 mil-
lion, equivalent to 40.5 percent of dollar awards to all U.S, firms and exceeding
the established goal. Of domestic awards over $10,000, contracts totaling
$415.1 million were let in labor surplus areas,

DSA will continue to expand its efforts toward improvement in ‘these pro-
grams during fiscal year 1964 by further broadening of the base of competition,
emphasizing the opportunities the DSA market offers to industry, and inereas-
ing use of formal advertising.

Jn an effort to cut the time and costs of procurement administration, DSA is
testing the use of computers in the complete cycle of the procurement process.
The high volume of small purchases has been the subject of intensive study
with a view to reduction and more expeditious processing.

To improve the U.S. balance of payments position and reduce the outflow
of gold, 828 out of 458 proposed purchases valued at $6.2 million that normally
would have been awarded for items of foreign origin were directed to be awarded
for items of domestic origin at a premium of $1.3 million or 21 percent over
foreign prices.

In the field of industrial mobilization planning, programs were established at
six centers in fiscal year 1963 and these will he extended to the other centers
during fischl year 1964. A field staff has been set up to accomplish detailed
readiness planning for about 500 key items with 5,500 potential producers: with
plans for expansion during the coming year.

DSA is continually implementing and yefining an integrated quality and relia-
bility program. This program, in addition to establishing a manageable system
for assuring the quality and yeliability of procured materiel, stresses the preven-
tive role of the quality discipline through liaison with developing, retailing, and
using agencies.

Materiel Management Systems

One of DSA’s primary goals is the establishment of uniform systems and
procedures for all of ity centers to follow in the many facets of materiel manage-
ment. Design of a complete materiel management system must, however, proceed
concurrently with operations under variant systems inherited from the. military
departments. Improvements in these exinting systems cannot await the-ultimate


78 ANNUAL REPORT OF THE DEFENSE SUPPLY AGENCY

case, sales withont replacement of long supplies and excess, and do not involve
stocks needed to satisfy normal peacetime needs of the miltary Services or
mobilization reserves.

Personnel

The increase in DSA personnel strength from 16,501 to 25,970 during the
course of the past fiscal year has been directly related to the absorption of addi-

) tional functions from the military departments. [Tt has involved a rednetion of
approximately 3,700 in the total DOD personnel required to perform the fune-
tions now assigned to Dad, Summary statistics on-the growth and distribution
of DSA personnel strengtlFare shown in figure 3:

STATUS OF DSA PERSONNEL

June 30, 1962 Tuna 80, 1963
Organization
‘Total Civilian | Military | Total Ctvillan | Military
692 670 22
4, 020 3, 934 86
3,874 | 3, 790 84
4,292 | 4,176 116
2, 691 2,585 106
2, 448 2, 403 45
1, 203 1, 190 13
608 572 36
301 281 20
1, 646 1, 507 139
DTMS 1, 006 926 80 1, 026 935 91
Procurement Support
i ee a a re 549 540 9
Mechaniesburg De-
fen: .
ity 771 764 7
Tracy Defense Depot... 941 926 15
Administrative Sup-
port Center. ------- 80 59 21 188 138 50
Headquarters, DSA--- 535 435 100 720 621 |. 99
Total__ 16, 501 | 15, 769 732 | 25,970 | 25, 032 938

Figure 3

Further transfers of spaces from the military departments during fiscal year
1964, estimated at around 5,000, will be mainly in connection with full imple-
mentation of the distribution system and the gradual assumption of management
functions by DIPEC. , -

The staffing of DSA has involved innumerable difficult personnel adjustments.
DSA has made every effort to ease the economic and psychological impact on the
individuals involved, and to provide for personnel transferred or assigned to
DSA ample opportunity for growth and development, A comprehensive civilian
career management program has been established.

In the military personnel area, one-of DSA’s most important goals is a genu-
inely jointly staffed organization. The organization DSA Initially inherited was



ANNUAL REPORT OF THE DEFENSE SUPPLY AGENCY BY

and yelated standard Defense procedures. Tn several of these arers. the agency,
Das specint responsibilities for the commodities it mamaiges as well ws generat
responsibility for Defense-awide administration. Tn cooperation with the military
Di ces, DSA hats tnade sign
More far-reaching menstres, involving major new concepts, ave under stody or
development.

AX primary problem in the Defense supply system. in recent yerrs Imis been
the rapid growth in the number of items in the Defense Catalog. In exer ng
its xtandardigution and entaloging re sponsibilities, DSA is attneking (his prob-
Jem through two approaches, first by reduction of ifemms in the existing citalog
and second, by controlling the entry of new items.

In item reduction, DSA continued to place primary emphasis on items is
signed to it for management. Supply centers reached agreement with’ the mili-
tary Services on the elimination of 28,000 DSA-ussigned items during the year,
plus 9,000 yeluted Service-rmanaged items, This exceeded the established gonl.
‘A goal of eliminating ut least twice this number of unnecessury items has been
set for fixenT year 1964,

Steady progress hax alxo been made toward improving Defense-wide standard:
ivation, Both the Logistics Management Institute and DSA have undertaken
analyses of the program, and major new concepts are evolying out of these
studies, Concurrently, actions have been tuken to improve the program within

~ present concepts. Among these are initiation of a progr to accomplish effec:
tive standardization of guided missile components, identification and necelerntion
of other significant standardization projects with Defense-wide impact, develop-
ment of new procedures to expedite the completion and revision of xpecitiontions,
and increused use of industry standards through negotiation of ugreements: with
industrial associations and similar organizitions.

Development of an effective “front » yeen” to prevent the entry of umnecessary
new items is a primary TSA goal. Full development of the “front sereen”
depends on accumulation of adequate technical data on existing items to pre-
vide a basis for compuring them with proposed new ones, The primary initial
effort is being concentrated in this aren. However, the Defense Logistics Serve
ices Center (DLSC) now provides mechanized screening of manufacturer part
numbers of new items on request to determine whether they match items ale
ready assigned Federal stock numbers. With the accumulation of technical
data, new techniques have been or will be introduced at the supply centers te
supplement normal catalog sereening by seveening against itent characteristics.

Whether as a result of these efforts or not, the DOD section of the Federal
Catalog in fiscal year 1968 for the first tine showed a net reduction—a decline
from 3,966,000 to 3,942,000 items, (Net growth in the entire Federal Catalog
from 4,160,000 to 4,222,000 is explained by an increase in the number of civilian

+ agency items cataloged.)

At the same time, DSA is seeking to improve catalog wervice to customers.
A standard format for catalogs prepared by DSA centers hax been developed.
In response to General Accounting Office recommendations, 0 DSA task force

_is studying how best to clarify the scope of items cataloged, introduce inter-
changeability and substitutability: data into the central file. and minimize the
assignment of multiple Federal stock numbers to the same item. These efforts.
of course, closely mesh with thoxe involved in item reduction and the extablish-
ment of nn effective “front nereen,”

. The (fateriel Utilization Deegiyil ts also being accelerated and strengthened
along reveral Hex. | Procedures have been revixed and codified and a new
reporting system in‘being instituted, Ax a rennlt of the success of ‘in geryice
test of automated matching of xervice requirements against a cent ral inventory
of long supply and excess items at the Defense Logistics Service Center (Project

ant advances i improving these programs,



Annex B
ANNUAL REPORT
of the

DEFENSE SUPPLY AGENCY

July 1, 1962, to June 30, 1963

‘This report covers (he first full fisenl year of Defense Supply Agency (DSA)
operations, During the year. DSA made substantial progress: iu the assump
tion of responsibilities

integrated manager of assigned suppli and services:
for the Department of Defense, tems centrally managed increased five-fold aid
inventory by more than 40 percent,

\ Most of the miss and organizations initially igned DSA had by the
end of the fiscal year been suc fully absorbed, In addition, a wholesale

ment re

ab preduc-

ses of

distribution

stem for assigned supplies wis instituted; new miamte

sponsibilities for chemical supplies. pitch reed petroleum, and indust
tion equipment were undertaken; and amity
deronattical materiel wits launched, Realization of all potential bene
consolidated management Wats enhaneed by the continued introduction of niaine
agement Fmprevenents and the couduct of toms studies.

| This major forward step in intewrated Defense supply and: serv
ff

jor study of selected ches

ve MATE Ee*
y Ser

ment has been taken without impairment of support to the mil Vices,
as attested by DS's high standard’ of performance during the Cuban ©

estab-

Moreover, it has ¥
lishment, AL of thes ecomplishiments have been due inne stall measure bo
the cooperation of the military departments and the Office of the Secretary of
Defense in working out Che many difficult adjustments: involved,

Ited In mimerous economies in the Defense logisti

Assumption of Item Management Responsibility

DSA centers generally have met phased schedules
the assumption of item Inanagement responsibilities.
Supply Center
W622 the De
November 1, 1 tnd the Defense Automotive Supply Center en July 1. 1963.
The Electronics Center capitalized its frst increment on December 11s and
hy the end of the fixeal year was centrally mamuging 848,000 items: Under an
accelerated schedule, it will become fully operational on April 1, 1964, a un
of electrical supplies ineluded in the original electronics package are
being shifted to the General and Industrial Centers, with the former assuming
the predominant: share in phased increments July 1—Decemher 31, 1 The
Industrial Center, which became fully operational in its originally signed
classes on July 1. 1968, will assume a single ndd-on chiss, (electric wire and
cable) by September 1, 106

stublished last year foe
The Defense Petroleum
on October 1,
ense Constrnetion Supply Conter became fully operational on

nned management of packaged pet roleum stoc

class



737-LoA

84 ANNUAL REPORT OF THE DEFENSE SUPPLY AGENCY

ellects
rec

the stock position of centrally stocked items
yed and edited. The other--on-time ship
re offered a

measure—stock availability
al the time a requisition fs
ments—reflects the proportion of centrally stocked fers which
carrier within the time period allowed under MILSTRIP procedure:

[Measured in these terms, over-all stock availability for DSA fisend year
1963 was 89.8 percent and on-time fill 8038 nesta The degree of effectiveness
varied between centers from month fo month, Variations were caused by imple-
mentation of MILSTRIP, establishment of new supply centers. a capitalization
of large blocks of items with insufficient pipelines, and differences: in the re-
porting systems and data utilized in computing sepply performance,

The real test of any military supply systent is its perfarniamnce in se emergency,
(During the Cuban crisis, when high priority requisitions inerensed uinefold
and the total volume of requisitions doubled over a J-week emergency period,
DSA proved its ability fo function effectively in such a xiftation| The short
duration of (he crisis and the absence of significant resupply requirements pri
cluded a full test of mobilization readiness, but DSA‘s immediate resnons
hess, procedures, and relationships with the Services and the Joint Chiefs of
Staff were realistically and fully tested. Close liaison with Service and joint
planning staffs made it possible for DSA to promptly alert the supply centers,
to activate the DSA Emergency Supply Operations Center, and to dispatch
supply expediters to major user location: The procedures for referral of pri-
ority allocation problems to the Joint Chiefs of Stuff were effective and respon
sive. The performance of all DSA centers resulted in numerous expressions of
appreciation by Service commanders.

A Logistics Readiness Center, established during the Cuban crisis, has been
continued as a permanent part of the Headquarters organization to provide an
over-all focal point within DSA for efficient, economical, and responsive sup-
port of the military Services and unified commands’ emergency and contingency
a

Bole | Bibel Fou ti Lo . Se Lost Reduction Prograne,

oo Vhile maintaining or improving suuply effectiveness, DSA is also proving that
it can do so at less cost to the taxmayer, The Director has assigned the task of
meeting DS.A's.goals in the DOD Cost Reduction Program a priority second only
to that of efficient service to the armed forces, DSA's contributions to cost
reduction are both direct and indirect, Direct participation ix limited to these
goals which are directly ociated with DSA's own operational functions and
inventories. Tndirect contributions result from DSA‘s efforts in administering
Defense-wide programs and performing Defense-wide services—for instance,

‘ from materiel interservicing and traffic management—and are reflected” in
economies achieved and revorted by the military departments.

During fisenl year 1968, DSA accomplished direct cost reductions totaling
$61.8 million, exceeding ‘its established goal of $51 million by 21 percent. [Phe
é largest single item, rednetion in operating costs, accounted for $31.3 million, this
being, in large part, the difference between military Service estimates of the cost
of performing DSA functions and the amount actually budgeted and spent by
DSA for these purnos Refinement of secondary item requirements and sav-
ings achieved in init sre provisioning accounted for $24 million, Value
engineering accounted for an additional $2.1 million, item reduction decisions
on DSA-agssigned materiel, $2.8 million, increased competitive procurement, $1.0
million, and shift from cost-plus-fixed-fee to firm-price or incentive-type contracts,

$0.6 million,
{ft addition to these recurrent: annual savings, the inventory, drawdown of
1.6 million produced a one-time saving: me $142.7 million} f which has

ee

|



ANNUAL REPORT, QF THE DEFENSE SUPPLY AGENCY 83

peacetime systent, nnd during the Cuban crisis if was expeclilly effective, In
keeping with its assigned responsibilities, DNA has maintained monitorship of
MILNTRIP operations and procedures, including coordination of changes aud
improvements recommended by users.

MILSTRIDP techniques have extablished a precedent with witimifed potential
for upplieation in other areas. A Milltary Standard Transportation wud Mave-
ment Procedures (MILSTAMP) will be placed in effect worldwide Octoher 1,
1963, and DSA has heen assigned a role of monitor similar to that tf performs for
MILSTRIP. DSA is also furnishing the chairman for a task force charged with
developing a sinilir systent for xtandardizition of inventory management dite
called MILT (Military Standard Reporting and Accounting Procedure).

Civil Defense Supplies

DSA continued support of the Office of Civil Defense Fallout Shelter Program
through procurement, djstribution, storage, and supply of specially designed
shelter’ items of. food, water containers, sanitation kits, and medical kits. Pro-
eurement during fiscal year 1963 approximated $100 million representing sup-
plies for an estimated 50 million shelter spaces. ‘The materiel management as-
pects of this program, with stocks supplied (o local Civil Defense customers
through a network of 86 wholexale storage locations, are effected by the Defense
General Supply Center, which also handles stock management for Civil De-
fense stockpile materiel.

Relations With GSA

DSA continues its close relationship with the General Services Administra-
tion in effecting cooperative arrangements for cataloging, disposal, standardiz:
tion, procurement, and supply of common items, The aren of most active interest
during the past year has been that of supply management. The extablished
policy of the Secretary of Defense in this area ix that GSA should be ured as a
source of supply for the DOD whenever it is more economical and there ix no
loss in Capability fo support military requirements. During the fixeal year, total
GSA sales to DOD components were valued at $778 million, representing an in-
crease over fisen] year 1962 of F108 million,

Of major import during the latter part of the year were discussions partici
pated in by the Burean of the Budget, the Office of the Necretary of Defense,
DSA, and GSA which resulted in agreement on axsignment of all hand tool
and paint items to GSA, except those retnined for management by the DOD
as weapons related. ‘The ensuing transfer, xcheduled for fixeal year 1904, will
increase the number of items accepted by GSA by approximately 20,000, In
accordance with a recommendation of the Joint Economic Committee of the
Congress, a moratorium has been declared on any further substantial transfers
pending the results of a study, to be conducted under the aunpices of the Bureau
of the Budget, aimed at the development of a, “genuine Federal supply xystem.”

Supply Effectiveness

While carrying out a reorganization of major proportions, DSA hax success
fully maintained a record of supply effectiveness at lenst equal to that under
arrangements existing previous to its establishment, and in some cases has
improved on it. Exnet statintical comparixon is difficult, both because systems
employed by the xeveral departments fo measure supply effectiveness differed
and because the ICSAipproved priorities system under MILSTRIP significantly
shortens the time period allowed for filling requisitions. MA has established
its own standard system to measure supply effectiveness in two ways. One


pic

80 ANNUAL REPORT OF THE DEFENSE SUPPLY AGENCY

complete design. The approach has, therefore, been fo proceed by individual
segments while making interim improvements in other areas, For instance, the
Distribution System and the Management Information System are segments for
which design has been completed and implementation begun. During fiscal year
1963, some progress was also tiade in the areas of requirements, provisioning,
and technical data,

AIL DSA commodity centers are now computing replenishment requirements.
thereby eliminnting the necessity for dual forecasting of thexe requirements by
the military Services, Improvements have been made in computing procedures
and techniques. Qfeanwhile, after a year of field research, n DSA study team
has defined a baxe for development of a uniform system for application to all
DSA commodity centers. A uniform system throughout DSA will improve re-
quirements management on a broader basis, The study ix currently being stuffed.
and implementation is expected to commence during the next fiscal year.

A thorough study has alxo heen made in the closely related functional area of
provisioning—that is, the furnishing of spare parts, repalr parts, special tools,
and test and support equipment required for end items. The major result of the
provisioning study has been a draft regulation, to be insted during the coming
yeur, detining the relationships between DSA and the military Services in the
provisioning process and prescribing standard procedures and formats for pro-
Visioning data.

In provisioning, as well as in procurement, cataloging, standardization, inter-
Service supply support, maintenance, and inventory control, technical data pro-
vide the foutidation essential to keeping pace with rapid technological progress.
Technical data consist of engineering drawings, data sheets, test reports, tech-

cal manuals, specifications, standards, purchase descriptions, and similar docu-
mentation.| DSA must assure that technical data on the items it manages are
readily available in usable form if if is to function properly.

The Technical Data Study Team is developing a system to xatinfy DSA require-
ments in this area, Tt will entail the use of sophisticated automatic data-proc-
essing equipment for the storage. retrieval, and distribution of data, The study
phase of the project will be completed in the first half of cnlendar year of 196%
with the system to be placed in effect in calendar years 1965 and 1966. Coordi-
nation with the military departments is being effected to take advantage of data
already available there, but it will also entail acquisition of data by DSA from
other sources,

The advantages of uniform systems for management of common supplies and
related services can only be realized through efficient use of the most advanced
automatic data-processing equipment. During the past fixcal year, the primary
effort was directed toward augmenting equipment inherited from departmental
single managers us required to realign workload, centralize requisition proc-
essing, and improve reaction time to meet the requirements of the Military
Atandanl Requisitioning and Issue Procedure (MILSTRIP). Tn the next 2 fixeal
years, the major effort will shift toward development of greater uniformity of
data systems and equipment among the centers in phase with the development
of other uniform systems for handling DSA functions.

An important development of the year was the establishment of an active
program,. in accord with recent General Accounting Office recommendations, to
reduce the cost. of data processing through the purchave of selected equipment
in lieu of rental. .

Defense-Wide Services

DSA administers Defense-wide programs for cataloging, standardization, ma-
teriel utilization, surplus disposal, and coordinated procurement. It provides
traffic management in the continental United States. It monitors MILSTRIP

CAMS ?
\


76 ANNUAL REPORT OF THE DEFENSE SUPPLY AGENCY

to be studied In depth, After a review of this pilot study by fhe Defense Supply
Council in December 1962, the Secretary of Defense directed DSA to stady in
depth 11 Federal supply classes containing about 10,000 items with an inventory
yalue of about $5.1 billion, as part of the Aeronautical Materiel Management
Improvement Program sponsored by his office, The items under study represent
more than 60 percent of the dollar value of materiel divectly related to aireraft
support.

The study was initiated on January 9, 1968, and the fleld research phase was
completed on August 1. The study team is now analyzing the results of its
yesearch and the final report will be forwarded to the Secretary of Defense
for review in January 1964.

Organization, Direction, and Control

Some adjustments were made in DSA organization in fiscal year 1963. The
Commander of the Defense Traffic Management Service was given additional
duty in DSA headquarters as Executive Director for Transportation and the
number of major fleld activities rose from 11 to 14 as a result of expansion of
missions, The entire headquarters was assembled in its permanent home at
Cameron Station, Alexandria, Va., by early June 1963. The Defense Logistics
Services Center completed its move to Battle Creek, Mich., in January 1963.

DIPEC was one of the three additional major field activities, Two others—
the Tracy Defense Depot Command and the Mechanicsburg Defense Depot
Activity—were established as part of the DSA distribution system. Other depots
in the system are located at existing centers or remain under Army or Navy
control.

Below the level of major field activities, 19 industrial mobilization and pro-
curement support offices were consolidated into 8 procurement support offices.
The consolidation of the Army and Marine Corps clothing factories In Philadel-
phia was completed with a savings of $900,000 and 218 personnel. Consolidation
and consequent reduction of 84 surplus sales offices to 18 ix under way with a
prospective annual monetary savings of $1.2 million, and personnel savings in
excess of 200.

A new regulation has been promulgated providing for a standard organiza-
tional structure at each center for the performance of common functions to re-
place variant structures inherited from the military departments. This step is
expected to produce more clearly defined lines of responsibility, to facilitate com-
parative reporting and cost analysis, and to provide a base for expansion or
contraction without major reorganization.

For control of DSA’s extensive and geographically dispersed operations, the
Director's basic management concept continues to be that of centralized policy
control and decentralized operations. Goals and objectives are established with-
in a program system with a 3-year forward projection. To measure progress
against goals, the Director holds staff reviews and analyses quarterly and com-
mand reviews semiannually. Other selective devices provide monthly data on
progress in key areas.

To reduce the formal reporting lond while at the same time providing all DSA
management levels with the information they need for timely decisions, a com-
plete management information system, incorporating some 4 separate data
elements, has been designed and is being placed in effect. The system will be
progressively automated.

Budget and Funding

Generally, DSA uses appropriated Operations and Maintenance (O&M) funds
to pay operating costs, except military personnel costs, and a stock fund to

A


APPENDIX

355

Table 35

DEFENSE-WIDE TRANSPORTATION SERVICES
Mititary Air | Military Sea} Defense ‘Traifie
Transport. | “Transportation | Management

Service ! Service ? Service *

PASSENGERS CARRIED

1, 171, 000 440, 000 4, 198, 000
1, 360, 000 412, 000 4,260, 000

Fiscal Year 1962-
Fiseal Year 1963 -

182, 000 | 25, 810, 000 24, 001, 000

Fiscal Year 1962-
184, 000 | 25, 613, 000 422, 904, 000

Fiscal Year 1963 -
Dry Cargo Tonnage

Fiscal Year 1962----

Fiscal Year 1963 - ---

182, 000 | 5 6, 667, 000 9, 338, 000
184, 000 | + 6, 608, 000 49, 268, 000

Petroleum Tonnage
Fiscal Year 1962. -
Fiscal Year 1963 - -

EXPENSES (In Millions of Dollars)

6 19,143,000 14, 663, 000
© 19,005,000 13, 636, 000

Fiscal Year 1962. - 389 425 7 582

Fiscal Year 1163 - 412 444 7* 598
Payments for Commercial Services i .

Fiseal Year 1962. = 185 331 574

Fiscal Year 1963. 212 341 * 590

fe

| Responsible to the Single Manager for Airlift Service, the Becretary of the Air Foree.

+ Reaponalile to the Single Manager for Ocean Transportation, the Secretary of the Navy.

3 Retutished in 1086 as the Military ‘Traffic Management Agency (M'TM A) responsible to the Single
Manager for Traffic Management within the United States, the Secretary ofthe Army. Responsibility for
this function was assigned to the Director, efense Supply Agency, 0% ‘August 31, 1961, and was assumed
on January 1, 1062, on which date MTMA was redesignated the Defense ‘Traflic Management Service
(DTM).

‘Excludes 137,300 tons of unrated household goods moved o1
destinations from the continental United States. .

Reported by MSTS in measurement tons—12,607,000 M.’T. In. 1962 and 12,555,000 M., in 1983—and
converted to short tons on an estimated rutio of 1.9 to 1.

7 Reported hy M8'TS in long tons—17,082,000 in 1012 and 16,060,000 in 1963—and converted to short tons
on a ratio of 1 to 1.12, :

Includes payments made by the military Services to commercta
administrative costs of DM'TS.

+ Excludes costs of $04 million for unrated hcusehold goo
oversea destinations from the continental United States.

n Government bills of lading to oversea

1 carriers far, transportation and the

fae
ls moved on Government pills of lading to


358 ANNUAL REPORT OF THE SECRETARY
Table 38
EXCESS AND SURPLUS PROPERTY *

(In Millions of Dollurs)

OF OEFENSE

Fiscal year | Fiscal year
1962 1063
GROSS REUTILIZATION AND DISPOSALS ?
REUTILIZATION WITHIN DEPARTMENT OF
DEFENSE 1, 112 1, 137
Wholesale Inter-Service Supply Support -.. 353 420.
Intra-Service 637 626
Inter-Service 122 Wi
OTHER REUTILIZATION AND DISPOSALS -- ---- 4, 061
Military Assistance Program 68
Reutilization by Other Federal Agencies 203
Donations = 7 258
Sold as Usable Property --- e 1, 286
Designated for Sale as Scrap - 2, 233
Other Dispositions. ---- . 13
Destroyed or Abandoned 50
CASH PROCEEDS REALIZED 135 99

+ Data have heen adjusted to conform with new reporting fequirements that were preserlbed on May ¢,
1093, and with audit reports prepared for the Cost Reduction Program. ‘The principal effect of these
adjustinents was to eliminate intra-Service transfers of property by property officers, amounting to about

$1.1 billion per year in fiscal years 1962 and 1063.

2'[)o¢s not irfelude disposition of surplus combatant ships—#145 million and $193 million, respectively,

for fiscal years 1962 and 1963.


ANNUAL REPORT OF THE DEFENSE SUPPLY AGENCY 75

The new system replaces the variety of distribution systems operated ty the
departmental single managers and inherited by DSA, Tf) prevides fer an in-
tegrated network of distribution faci
ed under uniform procedures, Requisitioning and supply contrat fiructions:
are centralized in the DSA supply centers. Phe depot storage pattern positions
stock in selected depots close to concentrations of amilifary posts aed ocean
transport terminals in the United States.

Seven principal depots stock a wide range of DSA commodities, Four spec fal-
ized support depots have simikir functions but the scope of support for cus:
tomers and the type of material stored is more limited in range aud depth. In
addition, selected DSA. stor ave being positioned ata muuber of direst supply
Support points (DSSPs) within the military Services, ‘Phe points selected for
this purpo: wre Service fac sat which the volume of demand is sufficiently
high and predictable to permit direct shipment of replenishment supplies from
manufacturing sources to the user. Eighteen Navy DSSDs already operat-
ing for one commodity and other commodities are being considered for support.
The number of activit will va by commodity and be expanded whenever
it is determined that more effective support or reduced costs can be expected,

The transition to complete centralized requisition proc zoand accounting
systems at Defense supply centers was accomplished on Duly 1. 1446: Relocation
of stocks from other military Service installations to the depots in the DSA
system and stock attrition at those sites was begun during the last half of fiscal
year 1963 and will continue over an approximate 2-year period, Savings of
an estimated $11.5 million in annual operating costs will be realized when the
system is fully in effect.

x for all DSA cammodities ta he oper-

Industrial Plant Equipment

On December 7, 16:
studies, the Se
Spor

as an outgrowth of the second of DSA's commodity area
retary of Defense assigned the agency certain management re-
sibilities for the multibillion dollar DOD inventory of industrial plant equip-
went—that is machine tools, metalworking machinery, test equipment, and the
like. ‘To carry out these management functions, DSA established the Defense
Industrial Plant Equipment Center (DIPEC) at Memphis, Tenn. on April 1,
1963. Permanent staffing began on July 1, 1968, and the center is scheduled
to. attain full operational status by the end of fiseal year 1964.

DIPEC will furnish common jnventory management services to the military
departments for the idle portion of the Defense inventory and maintain a master
inventory of all such equipment, idle and in use, thronghout the Department
of Defense. It will operate central storage sites for idle inventory, assure mnxi-
mum utilization in liew of new purchases. procure general purpose plant equip-
ment as agreed upon by the mili departments, and perform other functions,
The mili departments Will continue to determine their requirements in both
type and quantity, manage equipment in use, and buy special and general pure
pose equipment not approved for central purchase.

The establishment of DIPEC will result in better utilization of existing plant
equipment assets, in reduction of the possibility of concurrent buying and selling,
in better service to contractors eligible to use this equipment, in more economical
movement, repair, and rebuild at central storage sites, and in more efficient
determination and subsequent disposal of surplus,

a Aeronautical Materiel Study

Acronauticnl materiol was the third and largest commodity avea designated
for stifdy by DSA to determine the optimum method of management. Initially
a pilot-study was conducted to define more precixely the range of tems and nreas

“T7064 O—6 1-——6


74 ANNUAL REPORT OF THE DEFENSE SUPPLY AGENCY

an ouferowth of one of the three commodity area stadies (he
Secretary of Defense ned DSA on ifs establishment, the azeney was ¢
ened management of some 6000 ifems in 12 classes of chemical suppties ny No-
vember 1962, The Petrolenm Center assimed management of 10 of these
clas: ss Claho-
rator

Meanwhile, 4

si

es (chemicals aud solid fuels: apd the Medical Center of 2 ela
apart and equipment) on duly 1 1
Thus, DSA starts fiser] 1964 with nine sipnly centers fully ope

ened class

tional in all

nu ex of supply except for electrical /electronic simulies.  Tewever,

search for management improvements, the Secretary of De-
Lreview, that a consolidation ef certiin fune-
tious of Army and DSA inventory control points handling antometive and con-
struction supplies world produce savings inv minel, overhead, aid antomatic
data-processing facilities, Asa result, the Defense Automotive Supply Ceuter
in Detroit, Mich. will be phesed ont by January 1, 1904. ‘The Arm
Automotive Center in that city las been designated DOD Integrated Supply
Manager for combat and tactical vehicles of Army design, with its 1
sibilities brondened (o include snmply sunpert to the other military
all parts peculiar thereto, Tt will assmme management of all combat and tac-
tical vehicle peculiar parts now managed by the Automotive Center, The rest
of the items centrally managed by the Automotive Center will be transferred to
the Defense Construction Supply Center in Columbus, Ohio, Simultaneously,
the Army's Mobility Support Center in Columbus will also be phased out and
the Construction Center will assume part of its item management responsibilities,
The remainder will be transferred to Army installations clsewhere,

in the continuing
fense decided, following an ove:

ITEMS MANAGED AND INVENTORIES
SUPPLY CENTERS

| ae
Items centrally managed (in Inventory value Quillions of
thousands) dollars )

' June 30, ; June 30, | June 30,
1 yes | 1964 1962

* June 30, | Tune 30,
196 | © 1983 1964
{| (actualy (actual) — (projected) | (actual) |
|

(actual), (projected)

Automotive 20.2.2. .1e22..22.) 103,58.
Clothing and: O01 26

Construetion — 2.0 1218}
Hlectronie: 3S

General 1
Indu 444.0) 1 306.7 |
Medical _._ S99) 120 207,
Petroleum —_ 20
Subsistence. 1.0

79, 0

Total_.--..---- 208.0 |" 029. 0

Figure 1
DSA Distribution System

Another long step toward full realization of (he benefits of integrated manage-
ment has been the fulfillment of DSA's charter responsibility for “a wholesale
distribution system for assigned supplies.” A DSA distribution system, based
upon a high priority study, wax approved by the Secretary of Defense in De-
cember 1962, after coordination with the nilitary depaurtnents.

a


ANNUAL REPORT OF THE DEFENSE SUPPLY AGENCY 85

“heen transferred to Service vecounts to meet 0 Hitary personnel cont a0 snil-

lion hax been returned (o the Naty Stock Fund.

Cost reduction goals for fiscal years 1964 and 191% have been set at SC sanil-
lion and $128 million, respectively. These expanded gouls reflect anticipated
increases in operating expense savings as the DSA Distritmtion Systent becomes
fully effective, and such ofher management improvements wx a enhanced effort
‘in reducing xeconduty item requirements nd promotion of vate engineering and
competitive procurement. New goals have also been ndded in the wrens of jack-
aging and preserving and controlling the entry of new iene.

Conclusion

DSA has achieved substantial sound progress: in the integrated management.
of assigned supplies and services in fiscal yeu 1963. ‘The initial obstacles that
confront any new organization have now been largely overcome. The agency
is moving forward to establish Chose uniform, efficient systems for handling its
responsibilities, the lack of which was a primary reson for its establishment,

The future holds many challenges. Some parts of the DSA structure are yet
to be completed, Difficult adjustments, like those involved in the rearrangements
for handling automotive and construction supplies, hand tools and paint, will
have to be made, Supply effectiveness: rates in some areas MUSE be improved,
Better ways must he found to necelerate standardization, and control the entry
of new items into the supply system, New missions may be assigned. DSA moves
forward to meet its future challenges, confident that it is building on sound
foundations established during the initial phase of its operations, and that its
objectives will be met:

—First, and foremost, to provide effective logistic support Lo the operat

ing forces of all the military Services in war, peace, and emergency,
—Sevond, to provide that support at the lowest possible cost (0 the tax-

payer.

A. T. McNAMARA,
Lieutenant General, USAS
Director, Defense Suppl Agency.

\/ \


356 ANNUAL REPORT OF THE SECRETARY OF DEFENSE

Table 36

FEDERAL CATALOG
Number of Items at Beginning of
Year.

Number of Items Added __-
Number of Items Deleted -
Net Increase. ..-.---------

Number of Items at End of Year.

Defense

Department — of

FEDERAL CATALOG SYSTEM

Fisenl year S62

3, 914, 120

638, 542
398, 143
245, 399

1 689, 652
626, 647
63, 005

4, 159, 519

4, 222, 524

3, 966, 214

3, 942, 218

Other Agency Items_ 193, 305 280, 306
June 30, 1962 June 30, 1963
Number _| Percent Number —_| Percent
INTER-SERVICE USE en
Army
Items in Use.-_.---------- 1, 038, 895 |_----- 1, 081, 828 |.-----

Items Also Used by other
Services

Navy
Items in Use.._.----------
Items Also Used by Other
Services. ._..-----------

Marine Corps,
Ttems‘in: Use....<~-----+
Items Also Used by Other

Services. zm

Air Force
Items in Use.
Items Also Used by Other
Bervicts coos concn oun

426, 846 | 41.1

378, 231 35.0

1, 240, 276

1, 367, 067

283, 919 | 22.9 347,758 | 25.4
278, 362 |..---- 274, 909 |-.----
179, 863 | 64.6 182,073 | 66.2
2, 130, 843 |... -- 1, 866, 785 |-.----
445, 378 | 20.9 387, 246 | 20.7

1 Includes 45,850 items added to total through correction and improvement of reporting procdures.