Annex B

ANNUAL REPORT

of the

DEFENSE SUPPLY AGENCY

October 1, 1961, to June 30, 1962

Introduction

The Secretary of Defense on August 31,1961, announced his intention to establish the Defense Supply Agency (DSA) and on September 12 appointed Lt. Gen.

Andrew T. McNamara as first Director, with instructions to make DSA operational as soon as possible. General McNamara returned post-haste from Korea

and assumed control of a small planning staff on October 1961. DSA became

operational only 3 months later, on January 1,1962.

In the 6 months since it has become operational, the Defense Supply Agency

has taken a firm hold on the task assigned to it. This task, simply stated, is to

act as the wholesale supplier of selected common items and related services for

the entire Department of Defense (DOD). In performing it, the first objective

is to provide effective logistic support to the military Services, in peace and war ;

the second, to provide that support at the lowest possible cost.

The past fiscal year has been one of transition from single managerships within the military departments to a system of single control under DSA. Much

of the accomplishment has been in achieving this transition smoothly, without

loss of supply effectiveness. At the same time, DSA has been laying the foundations for more efficient supply to its customers at less cost to the taxpayers in

years to come. These accomplishments have been possible only through the

wholehearted cooperation of the military Services and the Office of the Secretary

of Defense.

Concept

The Defense Supply Agency is the product of a long evolution of the system

for handling common supplies and services within the Department of Defense.

The announced purpose of the Secretary of Defense in establishing DSA was

to bring the principal elements of this system under consolidated management

as part of a major action to increase supply efficiency.

By its charter, issued by the Secretary of Defense on November 6, 1961, DSA

was assigned responsibility for providing the most effective and economical support of common supplies and related services to the military departments and

other DOD components, and charged with the administration and supervision of

the Defense Coordinated Procurement Program, the Defense Standardization

Program, the Defense Materiel Utilization Program, the Defense Surplus Personal Property Disposal Program, and the Federal Catalog Program.

67
68 ANNUAL REPORT OF THE DEFENSE SUPPLY AGENCY

To carry out these responsibilities, DSA was given control of the following organizations :

—The eight existing commodity single manager agencies: Subsistence, clothing and textiles, general supplies, automotive supplies, and construction supplies previously assigned to the Army, and petroleum, medical

supplies, and industrial supplies previously assigned to the Navy.

—The Military Traffic Management Agency, previously assigned to the

Army.

—The Armed Forces Supply Support Center charged, under the supervision of the Secretary of Defense, with administration of the cataloging,

standardization, and materiel utilization programs, screening of excess

property, and conduct of studies of the supply systems of the military Services concerned with common items with a view to optimum integration in-the

interest of increased military effectiveness and economy. (The latter function was not transferred to DSA, except as the Secretary of Defense might

direct DSA to make such studies.)

—Thirty-four consolidated surplus sales offices in various parts of the

country operating under the three military departments.

—The Armed Forces Bidders Registration and Information Office operating under the Air Force in San Antonio, Tex.

Moreover, DSA was to establish, direct, and control a new integrated agency

for assigned electronics materiel and conduct analyses as directed by the Secretary of Defense of other areas in which integrated management techniques might

be applied.

Generally, for the items it manages, DSA will be responsible for that part of

the supply line closest to the producer and the military departments for that part

closest to the operating forces. Research and development, oversea supply systems, retail distribution of supplies in the continental United States, and, under

DOD criteria, the selection of items to be placed under integrated management

remain the responsibilities of the military Services. DSA does have an advisory

role in research and development for commodities over which it exercises control

and in resolution of conflicts in item coding. The Services retain responsibility

for determination of their requirements and the computation of special program

and mobilization requirements for items assigned to DSA. DSA is assigned

responsibility for the computation of wholesale replenishment requirements for

items under its management. DSA is also charged with review of mobilization

and special program requirements received from the military Services for these

items, and computation of these requirements when authorized by the Secretary

of the military department concerned. DSA is not authorized to engage in operations outside the United States except as specifically approved by the Secretary of Defense.

DSA is separately organized within the Department of Defense, outside the

military departments and the Office of the Secretary of Defense, and its Director

is responsible directly to the Secretary of Defense. The Defense Supply Council advises and assists the Secretary of Defense in his direction and control of

DSA.

Planning and Assumption of Control

Planning for the assumption of its operational responsibilities by DSA was

accomplished during a 3-month planning period, beginning on October 1, 1961,

by a planning staff composed of military and civilian personnel on loan from the
ANNUAL REPORT OF THE DEFENSE SUPPLY AGENCY 69

military departments and the Office of the Secretary of Defense and by personnel

of the Armed Forces Supply Support Center, which passed to the control of the

Director of DSA on October 1, 1961. The planning period was marked by the

full cooperation and generous support of the military departments.

On January 1, 1962, DSA assumed control of all the other organizations assigned under its charter, save the Industrial and Automotive Centers, where further adjustments were required. The former was placed under the Director’s

command on April 1, 1962, and the latter on July 1. Meanwhile, plans

for the new Electronics Center were developed by a special inter-Service group

and that center was also activated on July 1. Thus, by the end of the first 6

months of operation, the structure of field commands consisted of nine Defense

Supply Centers, the Defense Traffic Management Service (formerly Military

Traffic Management Agency), and the Defense Logistics Service Center (as the

Armed Forces Supply Center was renamed).

Meanwhile, certain additional related activities and functions were assigned.

In February 1962, DSA was made responsible for management of Civil Defense

stockpiles, other than medical, and for procurement of supplies for the Fallout Shelter Program, other than radiation detection and monitoring equipment. On April 20, the Electronic Production Resources Agency was disestablished and responsibility for advising on electronics production capabilities assigned to DSA. Effective May 1, the Army and Marine Corps clothing factories in

Philadelphia were transferred to the Defense Clothing and Textile Supply

Center.

In assuming control, DSA’s task was not solely one of consolidating management of existing activities but also of planning the future development of

several agencies that had not yet assumed the full responsibilities of single

management of their areas. Of the Supply Centers, only the four older ones

(Subsistence, Clothing and Textile, Medical, and Petroleum) were fully operational on January 1, 1962. Of these, the Petroleum Center was in process of

assuming a new function of ownership and consolidated management of packaged petroleum stocks. While the General Supply Center was operational

in most respects, the Construction and Industrial Supply Centers were still

in process of taking control of the items assigned them for management. The

Automotive and Electronics Centers were in the planning stages.

The industrial, construction, automotive, and electronics supply categories

all involve items far more technical in character and more closely related to

Service-managed end items than those contained in the original single manager assignments.

Phased schedules were drawn up for the progressive assumption of management responsibilities by the centers concerned with these commodities; The

Petroleum Center assumed ownership of packaged petroleum stocks on October 1, 1962. The Defense Construction Supply Center will become fully operational on November 1, 1962, and the Industrial Center on June 1, 1963. The

Automotive Supply Center began operations by assuming central management

of its first commodity increment on October 1, 1962, and will become fully operational on July 1, 1963. The newly established Electronics Center will assume

control of assigned items in 15 increments beginning on November 15, 1962,

and become fully operational on September 1,1964.

Figure 1 provides some measure of the status of the Supply Centers at the

end of fiscal year 1962 and planned progress in fiscal year 1963:
70 ANNUAL REPORT OF THE DEFENSE SUPPLY AGENCY

ITEMS MANAGED AND INVENTORIES

SUPPLY CENTERS

Commodity center

Items centrally managed

(in thousands)

Inventory value

(millions of dollars)

June 30,

1962

June 30,

1963

June 30,

1962

June 30,

1963

(actual) (projected) (actual) (projected)

Defense Automotive Supply Center

Defense Clothing and Textile Supply

1 84. 0 94. 7

Center

Defense Construction Supply Center

Defense Electronics Supply Center

Defense General Supply Center

Defense Industrial Supply Center

Defense Medical Supply Center

Defense Petroleum Supply Center (Packaged Only)

Defense Subsistence Supply Center

24. 6

12. 0

48. 1

115. 6

8. 5

0. 8

25. 0

80. 0

2

429. 0

48. 0

364. 0

9. 0

1. 0

1.0

1, 145. 4

7. 6

124. 5

132. 1

221. 0

116. 0

Total. 209. 6 1, 041. 0 1, 746. 6

993. 1

102'. 9

402. 4

110. 2

213. 6

174. 5

7. 7

102. 4

201. 5

1 DASC expected to centrally manage 149,000 items when fully operational, July 1,1963.

2 DESC expected to centrally manage 618,000 items when fully operational, September 1, 1964.

Figure 1.

The assumption of control by DSA of single manager operating agencies formerly lodged in the military departments has required careful adjustments of

functions, responsibilities, and control of installations in each case. Certain installations at which DSA became the predominant user were, by permit from

the owning department, transferred to DSA for operational control. In other

instances, DSA activities became tenants at installations under control of the

military departments. Pure service functions formerly performed by the centers have been separated, but as far as possible, in order to avoid duplication,

they have been co-located to permit performance on an integrated basis under

inter-Service support agreements. The most fundamental adjustments of this

sort were required in the cases of the Automotive and Construction Centers,

where original Army plans provided for integrating single manager agencies into

existing Army organizations.

The responsibilities of the former Armed Forces Supply Support Center, now

the Defense Logistics Services Center (DLSC), for planning materiel interservicing, standardization, and conducting analyses of supply systems (as directed by the Secretary of Defense) have been assumed by Headquarters, DSA.

The DLSC retains responsibility for administration of the Federal Catalog

System and for detailed management of the materiel utilization program and

has been assigned the additional responsibility for operational management of

the surplus personal property disposal program. DSA is carrying out a physical

consolidation of the Bidders Registration and Information Office in San Antonio,

Tex., with the older functional divisions remaining in DLSC by moving the

entire organization to a new location in Battle Creek, Mich.
ANNUAL REPORT OF THE DEFENSE SUPPLY AGENCY 71

Organization

The organization of DSA is shown in figure 2. This organization has been

shaped on the principle that the broadest feasible operating authority should

be vested in field commanders subject to firm central direction and control of

the organization as a whole. While the Director has assigned the center commanders maximum responsibility within their respective spheres and expects

to look to them for prompt decisions and results, he will run DSA as one agency,

not as a loose federation of semiautonomous activities.

The headquarters organization provides a mission staff along functional lines

composed of an Assistant Director for Plans, Programs, and Systems, three

Executive Directors, and a specialist and support staff. The Executive Directorates are assigned responsibility for supervision of performance of all missions within their designated areas of interest. The Assistant Director, Plans,

Programs, and Systems exercises supervision over all other staff elements in

developing broad objectives and policy, designing systems, and establishing

and reviewing programs for their fulfillment.

Cameron Station, Alexandria, Va., is the permanent site of DSA Headquarters.

Warehouse space at this site is currently being converted to office space and

the consolidation of the headquarters, presently scattered in various locations

in the Washington area, will be completed during fiscal year 1963.

Budget and Funding

In accordance with its charter, DSA uses appropriated funds to pay operating

costs, except military personnel costs, and a stock fund to finance inventories.

Since no appropriations were made to DSA for fiscal year 1962, funds identified in Service budgets covering DSA functions were transferred—$36.8 million

from the Army, $6 million from the Navy, and $4 million from the Air Force.

Actual obligations in. the January-July period amounted to about $53.5 million,

including additional funds received as reimbursements. The breakdown of

operating costs by activity was as follows:

OPERATING COSTS

January-July 1962

(Thousands of Dollars of O&M Obligations)

DASC 1

DCTSC

DCSC

DESC .

DGSC -

DISC _

DMSC

DPSG _

10,178

6,497

937

9,554

2,786

1,926

684

DSSC 7, 228

DLSC 6,104

DTMS 4,796

Administrative

Support Group 49

Hq, DSA 2,785

Total 53,524

1 DSA assumed command of DASC on July 1, 1962.

Budget estimates for fiscal year 1963 were submitted to the Congress under

separate new Defense agencies appropriation titles. The initial DSA estimate

for operating costs of $177.7 million was some $27.7 million less than estimates

submitted independently by the military departments covering performance of

the same functions. Since Congress cut $2.7 million from this operating budget,
DEFENSE SUPPLY AGENCY M

INSPECTOR

GENERAL

DIRECTOR

DEPUTY DIRECTOR

EXECUTIVE OFFICE SPECIAL

ASSISTANTS

THE ASS'T DIRECTOR

PLANS, PROGRAMS

l SYSTEMS

OFFICE OF

ADMINISTRATION

OFFICE OF

PERSONNEL

A TRAINING

EXECUTIVE

DIRECTORATE,

PROCUREMENT

AND PRODUCTION

OFFICE OF

COMPTROLLER

X

EXECUTIVE

DIRECTORATE,

SUPPLY

OPERATIONS

MAJOR FIELD ACTIVITIES

DEFENSE

ELECTRONICS

SUPPLY CENTER

DEFENSE

SUBSISTENCE

SUPPLY CENTER

DEFENSE

MEDICAL

SUPPLY CENTER

DEFENSE

PETROLEUM

SUPPLY CENTER

DEFENSE

CLOTHING

AND TEXTILE

SUPPLY CENTER

DEFENSE

AUTOMOTIVE

SUPPLY CENTER

DEFENSE

GENERAL

SUPPLY CENTER

DEFENSE

INDUSTRIAL

SUPPLY CENTER

OFFICE OF

COUNSEL

EXECUTIVE

DIRECTORATE,

LOGISTICS

SERVICES

DEFENSE

TRAFFIC

MANAGEMENT

SERVICE

DEFENSE

LOGISTICS

SERVICES

CENTER

DEFENSE

CONSTRUCTION

SUPPLY CENTER

me'Yi^nnoAou

A. T. MCNAMARA

Lieutenant General, USA

Director

15 Auguat 1962

Figure 2.

ANNUAL REPORT OF THE DEFENSE SUPPLY AGENCY
ANNUAL REPORT OF THE DEFENSE SUPPLY AGENCY 73

the cost reductions directly attributable to the establishment of DSA may well

be as high as $30.4 million.

DSA is a single procurement and stocking agency with a multiple cost

distribution to the appropriations of the military departments, which have to be

charged with the cost of material DSA issues. The essential mechanism for

this purpose is the Defense Stock Fund, established on November 6, 1961.

Initial working capital was created by cash transfer of $45 million from the

Army Stock Fund and $5 million from the Navy Stock Fund. Meanwhile,

inventories of the former single managers are being progressively capitalized

in the Defense Stock Fund. Data on stock fund operations during the last

6 months of fiscal year 1962 and projected for fiscal year 1963 are shown in

figure 3.

STOCK FUND DATA

(Millions of. Dollars)

Center

January 1-June 30,1962

(actual)

Obligations

Sales

Inventory

capitalization

Fiscal year 1963 (projected)

Obligations

Sales

Inventory

capitalization

Total

inv.

capital.

DASC»

DCTSC

DCSC 12(2 Mo.)

DESC3

DGSC

DISC 4(3 M.o.)

DMSC

DPSC 5 6(Packaged

POL Only)

DSSC

123. 7

0. 2

173. 0

0. 5

113. 6

8. 0

65. 7

21. 2

76. 7

67. 0

25'. 0

49. 2

11& 7

154. 1

237. 4

413. 4 424. 9 122. 0

5. 8

278. 2.

73. 6

80. 0

120. 0

108. 0

91. 5

17. 2

826. 0

19. 3

392. 4

71. 0

100. 0

135. 0

124. 0

117. 0

17. 2

856. 8

113. 0

132. 9

461. 5

121. 0

11. 0

113. 0

1, 113. 6

140. 9

461. 5

118. 7

275. 1

237. 4

11. 0

122. 0

Total. 700. 9 739. 6 1, 753. 8 1, 600. 3 1, 832. 7 839. 4 «2, 593. 2

1 DSA Command July 1,1962; initial capitalization, October 1,1962.

2 DSA Command January 1, 1962; initial capitalization, May 1, 1962.

3 DSA Command July 1, 1962; initial capitalization, November 16, 1962.

* DSA Command April 1, 1962; initial capitalization, April 1, 1962.

5 DSA Command January 1, 1962; initial capitalization of packaged POL stock, October 1,1962. DPSC

also handles contract awards for bulk petroleum totaling approximately $1.2 billion annually carried in

military department accounts.

6 Difference between projected inventory value shown in earlier table ($2,201.5 million) and capitalization

figure explained by anticipated gross inventory reduction of $391.7 million during first 18 months of DSA

operations by sales of materiel without replacement ($271.1 million), free issues to MAP and HEW ($66.5

million), excess materiel purged from inventory ($38.9 million), and other miscellaneous inventory reductions ($15.2 million).

Figure 8.

As figure 3 shows, net obligations for procurement in fiscal year 1963 are

estimated at $1,600.3 and sales at $1,832.7 million, representing a prospective

economy through inventory drawdown in excess of the goal of $229 million

established when DSA was founded.
74 ANNUAL REPORT OF THE DEFENSE SUPPLY AGENCY

Personnel

The over-all DSA staffing plan provides for a total of around 23,600 personnel

in headquarters and field activities by the end of fiscal year 1963, of whom about

95 percent will be civilian employees. This represents a reduction of about

3,700 in the estimates made independently by the military Services of personnel

requirements to carry out the same functions, and is the principal factor in the

prospective annual reduction in operating costs. Summary statistics relating

to the end fiscal year 1962 and prospective fiscal year 1963 staffing of various DSA

activities are shown in figure 4.

STATUS OF DSA PERSONNEL

Organization

June 30, 1962 (actual on board)

Total Civilian Military

June 30,1963 (projected)

Total Civilian Military

DASC»

DCTSC

DCSC

DESC

DGSC

DISC

DMSC

DPSC

DSSC

DLSC

DTMSAdministrative Support

Center (Field)

Industrial Mobilization

(Field)

Hq DSA

4, 606

1, 860

433

2, 878

1, 532

487

188

1, 665

1, 228

1,006

80

4, 496

1,830

2

415

2, 753

1, 491

451

168

1, 535

1,210

928

59

110

30

18

125

41

36

20

130

18

78

21

535 435 100

964

686

663

534

840

. 253

487

230

1, 714

1, 264

1, 012

192

77

737

940

4, 591

2, 630

4, 432

2, 740

2, 200

450

208

1, 585

1,257

929

141

77

628

Total. 16, 498 15, 771 727 23, 653 22, 808

24

95

33

102

100

53

37

22

129

7

83

51

109

845

• DSA assumed control of DASC July 1,1962; 123 civilians and 12 military personnel on board at this time.

2 An additional 4,035 civilian personnel at DESC on DSA rolls but still paid from Air Force funds and

charged against Air Force manpower spaces.

Figure

In staffing its headquarters and field activities, DSA has either taken over

existing personnel in place or secured them largely by transfer from activities

within the military departments performing similar functions. A primary concern has been to see that while DSA is staffed on the leanest and most economical

basis possible, it secures the most competent military and civilian personnel. At

the same time, in the phasedown of civilian spaces in the military departments

and the corresponding buildup of DSA, transfer rights are being universally

honored.

The military staffs of the departmental single manager agencies consisted

predominantly of members of the managing Service. DSA has developed a plan

that will significantly improve the balance in joint staffing over a 3-year period.

Meanwhile, such a balance is being established in the staffing of DSA Head-
ANNUAL REPORT OF THE DEFENSE SUPPLY AGENCY 75

quarters. DSA is also taking measures, in conjunction with the military departments, to identify reserve personnel with mobilization designations to

activities assigned DSA and to develop a joint reserve officer mobilization

designee program with a proper balance among the Services.

Commodity Area Studies

In accordance with instructions from the Secretary of Defense, DSA, in conjunction with the military Services, is currently conducting studies of three

additional commodity areas—industrial production equipment, chemical supplies, and aeronautical spares—to determine to what extent integrated management concepts may be advantageously applied. The industrial production

equipment study involves an inventory of some 400,000 items of machine tooling

and other equipment with an acquisition cost of around $4 billion, the chemical

study, 13 FSC classes containing 10,000 items with present wholesale inventories

valued at about $95 million, and the aeronautical spares area, about 750,000

items of supply with inventories in 21 FSC classes valued at roughly $12 billion.

The industrial production equipment and chemical supply studies have been completed and the results are under consideration by the Secretary of Defense and

the military departments. The aeronautical spares study is presently confined

to a pilot study aimed at defining more precisely the range of items-and areas

to be studied in depth.

ImpFevements Through Consolidated Management

DSA is striving to make the most of the unparalleled opportunity to achieve

greater efficiency and economy in supply operations afforded by the consolidation

of the single managers under its control. One advantage is already apparent.

Formerly, heads of the single manager operating agencies reported through

multiple departmental chains of command and management levels. At least one

and, in some cases, as many as three levels of review have been eliminated by

the establishment of a single command headquarters responsible to the Secretary of Defense.

Actions taken and studies under way to reap the benefits of consolidated management in other ways are too numerous to mention individually in all cases,

DSA has drawn up a master development plan, covering the priority projects

that need to be accomplished in order to enable it to assume its assigned responsibilities. These projects have been individually assigned to staff and command elements, or to teams, and a perpetual check is maintained on their

progress.

A headquarters task force is developing a management information system

which will efficiently provide information needed to make timely decisions.

Another task force, made up of representatives of the centers, is reviewing

the organization of the Supply Centers to determine the degree to which uniform organization can be attained. The staff has begun to design a comprehensive and fully integrated Materiel Management System which will encompass,

within a single framework, all facets of materiel management for all nine

major categories of DSA-assigned materiel. A centrally controlled program

system will be in effect early in fiscal year 1963, identifying DSA goals and

objectives over a 3-year period and providing for periodic review and analysis.

DSA is also actively pursuing the goal of consolidating facilities and functions where different field activities perform parallel functions in close proximity

to each other. Where consolidation is not practicable, DSA will at least pro681943 O—63 6
76 ANNUAL REPORT OF THE DEFENSE SUPPLY AGENCY

vide common administrative support. For instance, consolidation of the Army

and Marine Corps clothing factories in Philadelphia, Pa., was begun in May

1962 and completed ahead of schedule in August, with a resultant reduction

of 218 personnel and prospective annual savings of over $1.5 million.

DSA’s management capabilities depend in no small measure on automatic

data-processing systems. DSA expects to achieve increased supply efficiency

by assuring that all of its major field activities are automated with compatible

equipment. On an immediate basis, DSA is providing digital computers to

those centers, without them and is replacing obsolete or inadequate equipment

with the much more flexible current generation equipment. The long-range

goal is to develop a completely integrated system embracing all centers by 1965.

In the procurement area, a single Defense Supply Procurement Regulation

has been issued, prescribing procedures under the Armed Services Procurement

Regulation for DSA centers, to replace some seven different Service regulations governing these activities. DSA is also, giving special attention to quality

control, value engineerings improvement in procurement practices, and industrial mobilization.

The commodity areas under DSA management lend themselves particularly

well to competitive procurement and encouragement of small business enterprise. DSA has established broad gauged programs aimed at surpassing even

the fine record previously established by the single managers in these fields.

During the first 6 months of its existence, 93.1 percent of DSA contracts were

awarded on the basis of competition, 40.4 percent pursuant to formal advertising.

Awards to small business in the same period amounted to $464.6 million or

46.2 percent of the total available. On awards of $10,000 or above, a total of

$262.2 million was awarded in labor surplus areas.

One of the most promising areas for improvements through consolidation lies

in the system for wholesale distribution of commodities under DSA management. A comprehensive study of the distribution system, completed in April

and approved in principle by the Secretary of Defense in August, provides for

a drastic reduction in the more than 32 major installations currently in use

and for the storage of all DSA commodities in a smaller number strategically

located in reference to demand and tailored to military Service requirements.

This will be combined with a centralized concept for inventory control for each

commodity and establishment of a network of routing centers in close proximity

to customers to receive all requisitions and route them via high-speed communication lines to the proper inventory managers-. Present plans provide that

the new distribution system will be implemented gradually as stocks are issued

from installations no longer to be used for DSA stocks.

The ultimate purpose of the distribution system is to provide the military

Services with what they want, when and where they want it. To assure that

DSA is capable of doing this under all circumstances, an Emergency Supply

Operations Center has been established in DSA Headquarters. The center will

provide a single focal point for receipt and prompt resolution of operational

supply support problems of an urgent or immediate nature, ranging from

disaster relief ta support of military operations. The center has already proved

its effectiveness during the Peruvian earthquake and in meeting the supply

demands posed by the activation of two new active Army divisions.

Defense-Wide Services

The Defense-wide programs for inter-Service support, materiel utilization,

standardization, cataloging, and coordinated procurement are all aimed at the
ANNUAL REPORT OF THE DEFENSE SUPPLY AGENCY 77

common objective of achieving economy through elimination of duplication in

the Defense procurement and supply systems. Consolidation of these various

programs under one agency offers many advantages which DSA is preparing

to exploit. In these areas, new regulations have been drafted, some bringing

together in one package all present procedures. Further studies are under wsy

to determine the best methods through which greater economy and efficiency

can be effected.

Redistribution of materiel excess to local needs or in long supply is a most

practical means of avoiding the need for new procurement or satisfying requirements which would otherwise remain unfunded. DSA is pursuing an aggressive

program in this field. A system of continuous cyclical match of assets in long

supply against inventory control point requirements has been developed. Projects

already under way designed to improve item identification data for crossservicing, such as Project SHAKEDOWN at the San Antonio Air Materiel

Area, have been continued and extended under DSA monitorship.

Materiel is disposed of as surplus only after it has been thoroughly screened

to determine that there is no need for it in the Department of Defense or other

Government agencies. The acquisition value of materiel sold as surplus in fiscal

year 1962 amounted to $1,236.2 million as compared to $1,771.3 million in fiscal

year 1961. The decrease resulted from increased utilization attendant to expansion of the military establishment. Proceeds of $86.7 million realized from

these fiscal year 1962 sales of usable property represented a return of 7 percent,

1 percent higher than the return for the previous fiscal year. In addition, $52.3

million was received from the sale of various types of scrap, waste, and other

products, including ships sold as scrap. •

DSA has a dual responsibility for cataloging. It administers the Federal

Catalog Program for the entire Federal Government and its commodity centers

are the responsible agencies for identification and cataloging of items coded to

them for supply management. At the end of fiscal year 1962, DSA Centers had

cataloging responsibility for about 16 percent of the total number of items in the

DOD Catalog. This percentage is expected to increase as the centers assume

complete control of their commodity areas.

There has been no change in the composition or functional coverage of the

Federal Catalog system since its assignment to DSA. Since, however, the Federal Catalog is the primary basis on which coding, screening, disposal, procurement arid management assignments, and materiel utilization are based, DSA

control of the catalog is an indispensable adjunct to all its other operations.

The number of items in the Federal Catalog continues to grow, reflecting the

immense complexity of the modern technological environment. On June 30,

1962, the Federal Catalog totaled 4,159,519 item identifications of which DOD

activities accounted for 3,966,214. DSA and the military departments are continuing and extending the effort to delete older items for which a requirement

no longer exists and to control the entry of new items. The standardization program is one method of achieving these ends. DSA responsibility for standardization is also dual. The agency is charged with administration of the Defense

Standardization Program and, like the military departments, it has standardization responsibility for items it manages and those similar to them.

Initially, DSA has placed primary emphasis on identification and elimination

of unnecessary items among those assigned to it for supply management. The

decision process has been accelerated by virtue of the authority vested in the

Director to make standardization decisions for these assigned items, subject to

appeal by the military departments to the Secretary of Defense. The Director

has not hestitated to use this authority in low-risk areas such as clothing and
78 ANNUAL REPORT OF THE DEFENSE SUPPLY AGENCY

general supplies, where the penalty of error would not be operationally serious.

In the more technical areas, such as automotive and electronics supplies, where

a wrong decision could have grave military consequences, DSA must rely heavily

on the advice and cooperation of the military Services.

DSA is also developing, in conjunction with the military Services, plans and

programs for improvement in the over-all administration of the Defense-wide

Standardization Program.

DSA has made 6,087 deletions of assigned items during the first 6 months of

its existence and hopes to make 27,000 more in the next fiscal year. Many of

these actions have produced identifiable savings, as for instance the standardization on one grade of aviation gasoline instead of the four formerly in use.

There has been no significant change in the DOD Coordinated Procurement

Program since its assignment to DSA. DSA has been engaged in compiling a

complete list of items under single department procurement and preparing the

necessary procedures to enable it to exercise its assigned function of review and

evaluation. Preliminary action has been taken to revise pertinent DOD instructions on the program and to explore with the military Services changes in exception criteria, to blanket single purchase assignments.

Similarly, in the exercise of the traffic management function, there has been

no change in the mission and functions of the Military Traffic Management

Agency in its transformation, to Defense Traffic Management Service. During

fiscal year 1962, MTMA and DTMS maintained traffic management responsibility

and technical guidance over the movement of approximately 24,001,000 short tons

of freight within the continental United States at a cost of $451,200,000 and of

4,198,000 passengers at a cost of $122,900,000. Some 560,200 short tons of household goods were shipped under their direction within the continental United

States for DOD sponsored personnel, and an additional 98,000 on through bills

of lading to and from oversea destinations. Transportation economies effected

by DTMS totaled an estimated $44,300,000.

Pursuant to the President’s message to the Congress on transportation on

April 4, 1962, DTMS has set up a special task force to explore every practicable

means of simplifying the staggeringly complex rate structure in transportation.

The incorporation of DTMS into the DSA structure facilitates the integration

of transportation implications into DSA’s studies of distribution of commodities

under its control. DTMS’s detailed record and knowledge of transportation rate

structure, traffic patterns, and routing aided immeasurably in the development

of the DSA distribution system.

DSA is playing a vital role in the area of standardized systems.- On January 1, 1962, the agency was assigned responsibility for coordinating the Defensewide installation of the Military Standard Requisitioning and Issue Procedures

(MILSTRIP), a uniform coded system utilizing a single punched card to replace

a variety of requisition forms formerly in use. Actions were immediately taken

to insure full implementation by all participating elements on the target date,

July 1, 1962. DSA is now monitoring and evaluating MILSTRIP with a view

toward increased standardization and proficiency. Moreover, MILSTRIP has

been recognized as the forerunner of related standard systems and D$A is

actively participating in their development.

Requirements and Provisioning

DSA is assuming its functions of calculating replenishment requirements for

the items it manages on a phased basis. The Medical and General Supply Centers were already computing them when DSA assumed control, and the Sub-
ANNUAL REPORT OF THE DEFENSE SUPPLY AGENCY 79

sistence Center assumed the function on July 1, 1962. The rest of the centers

are progressively moving into this area concurrent with the development of

supply management responsibility and acquisition of the necessary data-processing systems.

Replenishment requirements are or will be computed or forecasted in the

various centers on the basis of experience data on demand and issues and program data furnished by the military Services, i.e. their forecasted troop strength,

deployments, organization, etc., and the respective tables that provide the basis

of issue. DSA plans to standardize requirements activities at the various centers

to the extent feasible and desirable. In addition, a careful review will be made

of data needed for requirements calculations to assure valid forecasts.

The DSA charter also provides that the agency will “participate as a supporting inventory manager in the provisioning processes of the military departments.” Provisioning involves spares, repair parts, special tools, and test and

support equipment required for end items of material such as trucks, tanks,

planes, and missiles. While provisioning requirements must continue to be

calculated by the Services that control the end items, DSA, working with these

Services, will seek to meet these requirements with standard items procured by

the centers to the maximum extent possible. The DSA role in this field will expand gradually as the agency moves further into the construction, automotive,

and electronics supply areas. During the transition period the effort has been

largely confined to an attempt to carefully define this role and make necessary

arrangements with the military departments.

Civil Defense Supplies

DSA has assumed a substantial additional management assignment for civil

defense supplies. Under the Office of Civil Defense Stockpile Program, the

agency has accepted responsibility for and management of the engineering,

chemical, biological, and radiological stockpile material formerly under the control of OCD at Battle Creek, Mich. DSA’s responsibilities for the Fallout Shelter

Program involve the purchase of materials for an estimated 128,000 facilities

containing stackable shelters throughout the United States and direction of

distribution of these supplies from vendors and assembly points to wholesale

storage locations.

Stock management for stockpile materiel was assigned to the Defense General Supply Center on February 28, 1962, and for fallout shelter provisioning on

June 5, 1962. Procurement will be divided among the Medical, Subsistence, and

General Supply Centers. These programs were well under way by the end of

fiscal year 1962, but the major impact will fall into the ensuing fiscal year.

Relations With GSA

DSA provides a new focal point within the Department of Defense for relations with the General Services Administration (GSA) in the many areas in

which cooperative arrangements have been worked out over the years, including

cataloging, utilization and disposal, standardization, and procurement of common

items. Close liaison has been established at both the headquarters and field

levels. Under the policy of the Secretary of Defense that GSA procurement

facilities should be used to the maximum extent compatible with military supply

efficiency, the centers are intensively screening assigned items to determine those

that can be furnished by GSA. Some 92,300 items had been offered GSA by the

end of June 1962 (allowing for 49,000 later withdrawn for reconsideration), and
80 ANNUAL REPORT OF THE DEFENSE SUPPLY AGENCY

many thousands more may be offered as the electronics and automotive categories come under integrated management. In fiscal year 1962, the military

Services purchased supplies valued at about $683 million from GSA.

DSA has, since October 1, 1961, made substantial progress toward its goals of

providing more effective common supply and service support to the military Services at less cost. An entirely new agency has been created and it has assumed

effective command over a large and dispersed organization. In the process, review levels have been reduced, decision-making speeded, procurement regulations

simplified, and paperwork cut all along the line. A new electronics center has

been added to the structure, and a streamlined distribution system designed.

The Army and Marine Corps clothing factories have been consolidated, and other

consolidations are in prospect with attendant monetary savings.

This whole transition has been carried out without loss of effectiveness in meeting the demands of DSA’s customers, the Army, Navy, Air Force, and Marine

CorpsDuring the planning period and the first 6 months, DSA has been primarily

engaged in working out basic organization, policies, procedures, and goals in the

various areas assigned to it. The results, in terms of increased supply effectiveness at less cost, will follow as the centers progressively become fully operational- Economies of at least $30.4 million annually in the operating budget and

a one-time savings of at least $229 million in the next fiscal year through inventory drawdown are definitely in prospect. Cost reductions in other areas

through streamlined distribution, accelerated standardization, increased use of

long supply stocks, value engineering, more competitive procurement, and disposal of surplus at better advantage to the Government will make further contributions to realization of the goals of the Defense Cost Reduction Program.

The search for economy must, nevertheless, always be subordinate to the higher

priority goal of providing effective support to our fighting men.

DSA has many problems remaining and undoubtedly will always have them.

As it moves into the more technical areas of supply, the challenge to integrated

management increases in magnitude. The Director feels sure that with the

dedication to performance of their mission which the personnel in both the

headquarters and field commands have demonstrated during the difficult initial

period, DSA can successfully meet this challenge and achieve the goals established for it.

Conclusion

A. T. MCNAMARA,

Lieutenant General, USA,

Director, Defense Supply Agency.