Financial Impacts of Defense Logistics Agency Electronic Catalog and Office Supplies Initiatives on Retail Level Purchasing

Introduction. This report is the first in a series of reports on retail level purchasing practices. In response to DoD efforts to reduce inventories and increase the use of commercial distribution systems, the Defense Logistics Agency (DLA) has implemented best commercial inventory initiatives for the acquisition and distribution of military requirements. DLA expects the initiatives to transform its methods of procuring materiel into advanced private sector business practices. Among other benefits, the transformation should provide retail level organizations lower pricing as a result of the DLA leveraged buying power. DLA initiatives included an electronic catalog ordering system (April 1997) and a blanket purchase agreement for office supplies (October 1998) issued against a General Services Administration Federal supply schedule. Retail organizations procuring material through those initiatives paid DLA a cost recovery rate (percentage of the price of materiel ordered) for administering the initiatives. The FY 1999 rate for the electronic catalog and blanket purchase agreement for office supplies was 7 percent and 4.8 percent, respectively. Orders for the electronic catalog products from April 1997 through January 20,1999, were $553,000, and FY 1999 sales for office supplies are projected to be 2.9 million. Objective. The overall audit objective was to determine whether retail level organizations in DoD were using the most economical and efficient source of supply when purchasing commercial brand name items through centralized Federal procurement programs. The specific objective of this report was to evaluate the financial impact of the electronic catalog and office supplies initiatives on retail organizations for materiel ordered through those initiatives. We also included a review of the management control program as it applied to the specific audit objective.