Best Practices:

DOD Can Help Suppliers Contribute More to Weapon System Programs

NSIAD-98-87: Published: Mar 17, 1998. Publicly Released: Mar 17, 1998.

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Pursuant to a congressional request, GAO reported on whether best supplier practices can benefit Department of Defense (DOD) weapons systems programs, focusing on: (1) best commercial practices for establishing, managing, and sustaining excellent supplier relationships; and (2) a comparison of these practices with those of DOD, selected prime contractors, and the supplier teams on two weapon system programs.

GAO noted that: (1) best commercial practices, when analyzed in the aggregate, can be seen as the four traits that operate in a system that is self-sustaining because it provides mutual benefits to both the firm responsible for the final product and its suppliers: (a) the leading commercial firms embrace effective supplier relationships as a core business strategy and build organizational structures with skilled people to carry out the strategy; (b) leading companies use a rigorous supplier selection process to create a strong supplier base that they could more effectively manage; (c) they establish effective communications and feedback systems with their suppliers to continually assess and improve both their own and supplier performance; and (d) the firms foster an environment in which suppliers realized that more significant contributions were matched with significant rewards; (2) DOD and prime contractors were aware of such benefits and were implementing some of these practices; (3) however, experience on the Brilliant Anti-Armor Submunition program showed that it could be difficult to translate the desire for better supplier relations into tangible differences in the actual relationships among suppliers, prime contractors, and DOD; (4) in the program, the four traits did not comprise as powerful a system as was formed by the best commercial practices; (5) consequently, their performance was strictly limited to compliance with contract requirements; (6) in the Joint Direct Attack Munitions (JDAM) program, a more rewarding environment was created for suppliers even though improved supplier relations was not an explicit program objective; (7) nonetheless, the action taken by DOD on the program bolstered the support for supplier relationships and encouraged the suppliers to play a greater role; (8) DOD shares responsibility with the prime contractors for shaping the suppliers' environment; (9) thus, the role it plays on individual programs has a direct bearing on the sophistication of supplier relationships and the success of best supplier practices; (10) the supplier relationships on the Brilliant Anti-Armor Submunition program reflect DOD's traditional role of distancing itself from suppliers; (11) on the JDAM program, DOD was much more proactive and involved with the suppliers; (12) its pilot program mandate supported the program office's involvement in seeing that best supplier practices were used; (13) the ultimate success of this approach in producing a weapon that will perform as required remains to be seen; and (14) suppliers praised the approach for the relationships it fostered.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DOD believes that some prior DOD efforts have already helped eliminate some of the difficulties in supporting supplier relationships, but an explicit policy has not yet been developed. The new Deputy Undersecretary for Logistics is responsible for policy in this area, and work is under way. An exact estimate for when the supplier policy would be completed is not available.

    Recommendation: Actions to improve supplier relations are needed at both the Department level and the individual program level in DOD. Accordingly, the Secretary of Defense should develop a policy that promotes productive supplier relationships and emphasizes the importance of suppliers in improving program outcomes. In its absence, concerns about privity may dominate and minimize the contribution of suppliers.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: An "Integrating Commercial Practices into Government" course developed by the National Contract Managers Association (NCMA) and the National Association of Procurement Managers (NAPM) began to be offered in 1999 to the DOD workforce. Up to 24 hours of web-based instruction focuses on supplier relationships and supply chains, and heavily references GAO's report. The JDAM case study has been completed, and according to the Defense Systems Management College (DSMC), it will be available two ways; as a 4-hour segment in the DSMC Advanced Management class, and as a 3-day workshop to be taken directly to program offices. Although these actions address the training implications of the recommendation, DOD must first develop a supplier policy (as noted in the first recommendation) before it can communicate it to the acquisition workforce.

    Recommendation: Actions to improve supplier relationships are needed at both the Department level and the individual program level in DOD. Accordingly, the Secretary of Defense should communicate this policy throughout the acquisition workforce and the defense industry through training and other means. Training could include tools that effectively promote best supplier practices for both new and ongoing programs. Practices used in the JDAM program would be one good source of identifying such tools.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: DOD believes that its Total Ownership Cost (TOC) initiative, in which PMs take responsibility for weapon system life cycles, not just procurement, will provide incentives for PMs to incorporate supplier considerations. The services have identified pilots that would demonstrate a TOC approach, including the role of suppliers. DOD believes that this action, along with the policy being developed, will serve to clearly communicate to PMs the value of optimizing supplier relations on their programs. Disposition of this recommendation will depend on the creation of the referenced policy and the extent to which the TOC initiative helps program managers devise acquisition strategies that create incentives for optimizing supplier relationships.

    Recommendation: The Secretary of Defense should ensure that weapon system program managers provide leadership and incentives for optimizing supplier relations on their programs by establishing acquisition strategies that support good supplier relationships. The conduciveness to supplier relations may be affected by: (1) how program priorities, such as performance requirements, are set; (2) how enabling practices, such as design flexibility, cost-performance tradeoffs, and teaming responsibilities will be used; and (3) what tools for recognizing and incentivizing prime contractor performance, such as source selection factors and contracting arrangements, are made available.

    Agency Affected: Department of Defense

  4. Status: Closed - Implemented

    Comments: DOD believes that the limitations in ensuring long-term funding make this a difficult recommendation. While GAO understands that funding uncertainties may deny a program manager the use of incentives or rewards, such as the offer of long-term, stable business relationships. The quality of the supplier relations is also affected by actions of the program manager who in turn should be encouraged to take actions independent of a program's funding stability. These include active interfaces with suppliers through teaming or other vehicles, providing technical assistance, and evaluating the prime contractors' success in fostering best supplier practices.

    Recommendation: The Secretary of Defense should ensure that weapon system program managers provide leadership and incentives for optimizing supplier relations on their programs by supporting the strategies with action. This can involve active interfaces with suppliers, through teaming or other vehicles, providing technical assistance, evaluating the prime contractors' success in fostering best supplier practices, and following through on promised rewards and corrective measures.

    Agency Affected: Department of Defense

 

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