Attention Pentagon Shoppers
With its $640 toilet seats, vast armies of auditors, and reams of detailed specifications for bombs and devil's food cake, the Pentagon has never been labeled a smart shopper. Indeed, for a quarter-century, blue-ribbon panels have tried and failed to reform the Defense Dept.'s labyrinthine procurement process. The result: billions in extra costs for taxpayers and a bureaucratic tangle for companies that do business with the military. In one infamous case, government rules made it impossible for Motorola Inc. to supply two-way radios for Operation Desert Storm. Instead, it had to sell them to a Japanese agency, which then donated them to the U.S. military.
So when William J. Perry, now Defense Secretary, made procurement reform a centerpiece of Pentagon policy, "frankly, I was skeptical," says R. Noel Longuemare Jr., principal deputy under secretary for acquisition and technology. But several Defense directives and two key pieces of legislation later, results of the two-year-old effort are almost visible. Current pilots will save the Pentagon billions over the next few years and, Perry predicts, tens of billions in the future. Even cynical industry executives are impressed. "The changes are enormous," says Matt Brislawn, vice-president for contracts at Boeing Co.'s Defense & Space Group. "I've seen more progress in the past two years than my previous 32."
Take the Pentagon's plan to transform thousands of dumb bombs into smart missiles. Technocrats figured that adding fins and navigation sensors would cost $40,000 per bomb, using the traditional approach of specifying the design and requiring military parts and production lines. This time "they did some wild and crazy things," says a McDonnell Douglas Corp. official. The Defense Dept. waived the detailed specifications, giving companies the freedom to design the system, use less costly off-the-shelf parts, and build the weapon more like a commercial product. The final cost: $14,000. With more than 100,000 bombs, the "savings alone amount to $3 billion--enough to get even the Defense Dept.'s attention," declares Perry.
In other cases, savings flow from the long overdue use of common sense. Until recently, purchasing a part for one of the military's many Boeing aircraft was as convoluted as the plot of a Gilbert & Sullivan operetta. The Defense Dept. had to put out a request for proposals, wait for an offer from Boeing, and then negotiate a contract. Then Boeing had to pluck the part from its warehouse and repackage it to meet military shipping rules. The whole process took more than two months, requiring the Pentagon to maintain an expensive inventory of airplane parts.
TAKE A NUMBER. But in a new contract, signed in March, the Pentagon agreed to act just like an ordinary commercial buyer. "If they need landing gear for a 747, they can call up and order out of our warehouse," says Boeing's Brislawn. So instead of taking two months, the part can be on its way in two hours.
Similarly, Defense is dropping voluminous requirements for production jobs like soldering and quality control, allowing companies to substitute commercial practices. In a pilot project, TRW Inc. is preparing to build avionics modules for F-22 fighters and other military aircraft on its automotive-electronics production lines using commercial parts. Besides yielding cost savings of 35%, the commercial parts are longer-lived than their military counterparts.
Why has the Pentagon become a smarter buyer? "Tremendous budgetary pressures," says consultant Stan Z. Soloway. Perry has a vision for a superhigh-tech military, in which troops have so much information and smart weaponry that U.S. forces can whip far more numerous foes. But with today's modernization budget of $40 billion--only a third the level in fiscal 1986--expected to grow slowly at best, "acquisition reform is the only way to get the technology that will give us the decisive edge on the battlefield," explains Perry. "We need to do business more like commercial industry--and do more business with commercial industry."
HAMSTRUNG. But while the Defense Dept. is winning plenty of kudos from industry, there have also been "failures and missteps," says AT&T Vice-President Alan L. Chvotkin. For instance, the telecommunications giant is miffed that the Pentagon is trying to build its own phone network, instead of giving the job to commercial companies, which AT&T estimates would cost roughly $1.5 billion less. "Here's an example of Defense not walking the talk," complains Chvotkin. Citing an ongoing probe by government investigators, the Pentagon won't comment.
Pentagon reformers are still hamstrung by scores of existing federal laws, such as Buy America provisions and rules to ship cargo only on American vessels. At Motorola, many business units don't want the extra hassle of selling to the government, says James H. Goldstein, director for government acquisition policy at Motorola's Government & Space Technology Group.
Since buying more off-the-shelf products is critical to cost savings, such reluctance will put a crimp in Perry's ambitious procurement plans, industry experts say. What's more, they add, another major chunk of savings won't come until military managers stop requiring detailed cost-accounting data for research and development on major programs, which often takes eight times as long as private R&D efforts. "When you look at the big picture on a scale of 1 to 10, the Pentagon is at 3 or 4, so they have a long way to go," says consultant Soloway.
Perhaps most difficult--if more intangible--real reform "requires a culture change on the part of both government and industry," says LeRoy Haugh, vice-president for procurement and finance at the Aerospace Industries Assn. Yet doing all of this is about as easy as "trying to change the direction of an aircraft carrier with an oar," quips Brislawn.
Still, with Perry and his reformers straining at the tiller, Defense already seems to be changing course. And if they can keep at it, someday they may be able to buy that oar itself at a Kmart shoppers' price.