Department of Defense

Using DLA in a more Effective Manner to Lower Operating Costs

The current theory is that the Defense Logistics Agency (DLA) provides a better value to the Department of Defense (DoD) through consolidation the purchasing and distribution functions.

 

The Services pay a pass-through fee of approximately 30% for most aviation items purchased through DLA. This pass-through is collected from the Services in the form of a surcharge assessed against all items which are acquired through DLA.

 

DLA should “earn” this surcharge. It should not be an additional cost to the DoD, as it is currently structured.

 

For example: Suppose that both DLA and the Services could purchase an item which costs $100 from a vendor. If DLA purchases this item it costs the DoD $130, $100 for the item itself, and $30 (approximately) to support redundant infrastructure within DLA.

 

If purchased by the Service, they would use existing infrastructure, already paid for. The total cost of the item is still $100.

 

But suppose now that DLA is able to use its leverage to negotiate a better price for the same item. Let’s say that due to volume across the Services, or some other factor, that DLA is now able to get a price of $70 for the item. The cost to the DoD is now $70 for the item, plus a 30% surcharge, for a total of $91 for the item. DLA has now saved the DoD $9 per item, and have “earned” their surcharge. In this case DLA is truly adding value to the supply chain from a standpoint of purchase price.

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Idea No. 12003