Memorandum on Cost Reduction in Procurement, Supply, and Property Management

Memorandum to the Heads of Executive Departments and Agencies

The Federal Government spends more than $40 billion per year for procurement of supplies, materials, and equipment. More than three-fourths of this property is used by the Department of Defense, most of which is military equipment and supplies. In addition, the Government spends more than $25 billion for procurement of services and there are substantial expenditures for purposes directly related to procurement, such as for transportation, warehousing, and distribution of property.

I know that progress is being made in your efforts to reduce costs in this area as in others. But we can do better.

For example, last year the Government declared excess property which cost $4.6 billion. The average volume of excess property generated during the last five years was $4.4 billion per year. Some of this property was redistributed for further use within the Government but most of it was sold and the average selling price was slightly more than 6 percent of the amount we paid for it. Much of this property had never been used. Costs can be reduced by eliminating unnecessary purchases which cause these excesses. When excesses cannot be avoided, costs can be reduced by redistributing them to avoid procurement.

I want a special sustained Government-wide effort started immediately to improve the procurement and management of property. Each of you is requested to--

--Establish effective controls over proposed procurement actions to prevent purchases of items that are not actually required. Eliminate procurement of excessive quantities or of items being requested only to satisfy a desire for latest styles or designs. The entire organization must be instilled with a "make do" attitude.

--Review pending procurement orders which have not been delivered. If delivery will result in inventory levels higher than necessary, take action to cancel orders or reduce quantities where this can be done without incurring penalty charges.

--Review inventory levels of all supplies and equipment on hand in your agency. Whenever the quantity of an item is larger than necessary, take action to correct the condition by (1) stopping procurement until inventories are brought down to the proper level, or (2) transferring a portion of the inventory to an office or agency which needs it and can use it effectively, or (3) returning a portion to the wholesale manager, or (4) reporting it excess.

--Eliminate slow-moving items from your supply inventories which can be obtained readily when needed from the wholesale supply activities of the Department of Defense or the General Services Administration, or from commercial sources.

--Initiate a review of equipment which has been assigned to individuals or to organizations within your agency. If any items are not being used effectively, require that they be returned to stock or placed in pools from which they can be assigned as needed. If this "housecleaning" effort results in an accumulation of items which are not needed, transfer them to a place in your organization where they will be used effectively or report them excess.

--Review the handling of excess property lists in your agency to assure that (1) such lists are carefully examined and excess or rehabilitated property is used in lieu of new procurement whenever possible, and (2) property is not claimed from excess lists unless it actually is needed for known programs.

--Review the procurement and property management programs of your contractors which purchase supplies and equipment for which the Government must pay or which have Government-owned supplies and equipment in their custody. Such contractors should observe the same policies prescribed for Government agencies for avoiding unnecessary procurement, eliminating frills, curtailing inventories, using excess property, and insisting upon full utilization of assigned equipment.

In furtherance of this effort, the Secretary of Defense and the Administrator of General Services will--

--Develop an effective system for redistributing Government property to the places where it is needed most. I am aware of the excellent work along this line which has been accomplished through use of electronic data processing systems at the Defense Logistics Supply Center in Battle Creek, Michigan. This work should be accelerated and should provide a means not only for redistributing excess property but also for improved utilization of inventories which have not been reported excess and which should not be disposed of as surplus.

--Accelerate actions which are currently underway to eliminate avoidable duplication and overlapping in management of supplies among inventory managers.

--Initiate effective procurement and inventory reporting systems which will enable the military services and civilian agencies to identify problems and to take corrective actions more promptly. Unneeded or unduly burdensome reporting requirements should be avoided but it is necessary to have reliable information concerning inventories, procurement volume, usage rates and expected requirements if property is to be managed economically.

--Accelerate efforts to reduce the number of items in the Government's supply systems by (1) establishing effective controls to prevent new items from entering the supply system unless they are essential, and (2) by developing standards and requiring that standard items be used and that items which have unnecessary nonstandard features are eliminated from the system.

--Develop a system which will assure that components and spare parts are adequately identified to assure maximum competition on subsequent replacement procurements and that such components and spare parts are provided to prime end item contractors when available from inventory.

--Reexamine existing replacement standards for equipment and make any necessary adjustments to avoid procurement of replacements unless they are necessary to avoid safety hazards or avoid excessive maintenance and operating costs.

--Report results of these efforts to me on February 1, 1967, and from time to time thereafter, as appropriate. The reports should cover procurement and supply management in the Department of Defense and the civilian agencies and should include facts concerning progress in (1) reduction of inventories, (2) utilization of excess property and redistribution of other stocks in lieu of new procurement, (3) reduction in the number of items in supply systems, (4) changes in equipment replacement standards, (5) recovery or pooling of any assigned equipment found to be inadequately utilized, (6) improvement in property management by Government contractors, and (7) any other pertinent information.

LYNDON B. JOHNSON