Defense Logistics Agency (Nov. 8, 2006): "Customer Pay" paid off for DLA's military customers.

Some military maintenance depots got parts and supplies faster and cheaper, and America's military services got refurbished equipment returned sooner thanks to a pilot program called Customer Pay.

The program demonstrated early wins supporting the rebuilding of the Army's High-Mobility Multipurpose Wheeled Vehicle, commonly known as the Humvee.

Customer Pay, a partnership between Department of Defense elements and a defense contractor, pays contractors and suppliers at the point of delivery. That reduces the need for millions of dollars of Army inventory and lowers prices for spare parts. Additionally, supply chain costs are reduced since management at the production line minimizes handling by government personnel.

The concept was developed in a pilot program involving the Army Tank-automotive and Armaments Command; the Defense Logistics Agency and its field activity, the Defense Supply Center Columbus; the AM General Corp.; two Army maintenance depots; and the Maine Military Authority. Results from the pilot show dramatically increased performance support and greatly reduced costs to rebuild Humvees.

"Customer Pay is a vivid glimpse of our future. [It] will be seen as a pioneer in DLA's support to the Services' industrial sites by leveraging the relative strengths of our industry, Service, and DLA partners. It has brought new efficiency and effectiveness to our logistics solutions," said James McClaugherty, DSCC deputy commander.

Customer Pay required DSCC personnel to adjust their thinking, according to Eric Tranter, chief of DSCC's Tactical Vehicles Support Division.

"To best understand the challenges of Customer Pay, you have to think retail support, not the usual DLA wholesale approach," he said. "This equates to constantly working with the people at the various depots and maintenance sites ... providing responses within hours and actual support in a few days. All of our people have done a great job making this happen because they applied a retail focus to their work with urgency and flexibility. If you take a business-as-usual approach to anything such as Customer Pay, it won't work."

The contractor, AM General, took over tasks formerly managed by government employees: requirements forecasting, supply chain and inventory management, parts requisition from the DoD supply system, parts distribution to maintenance lines, identification of quality issues, and more. The maintenance depots--Letterkenny Army Depot in Chambersburg, Pa., Red River Army Depot in Texarkana, Texas, and Maine Military Authority, in Lime-stone, Maine--were able to focus on the actual rebuilding of the vehicles instead of inventory needs.

DSCC is the DLA program manager for the process, awards and administers the contract, and is the parts integrator and source of supply to the contractor and the maintenance depots. TACOM is the Customer Pay program manager, the source of supply to AM General, the initial production test lead, the weapons system and rebuilding manager, the centralized e-business manager, and a funding source.

The changes allow DoD to use the most cost-effective sources in the supply chain for spare parts and then provide a back-up supply chain in case of support problems. This safety net creates a significant reduction of inventory while improving supply support performance.

AM General is required to maintain a 30- to 60-day supply of the 1,241 parts included in the pilot project. Results show that supply level seemed to work. The rate of incomplete vehicles dropped by 83 percent at Red River Army Depot and by 100 percent at Letterkenny Army Depot. The dual supply chains prevented parts outages on the line and addressed the challenge posed by a change in 45 percent of the items used to support each depot.

Thanks to Customer Pay, almost $820,000 was saved in reduced depot supply chain manpower expenses in just over three months last winter. Spare parts costs were reduced by leveraging the two supply chains, and the total cost of refurbishing the vehicle was reduced.

"The value of Customer Pay is that it allows DLA and the Army depots to move past just coordinating parts support for a Humvee production line to being interdependent partners," said Army Col. Scott D. Fabozzi, director of DSCC's Land Customer Operations.

The contract was awarded Nov. 1, 2005, and implemented just 78 days later at Letterkenny and Red River. During the pilot, AM General provided 4.1 million parts to the production lines from the 1,200-plus national stock numbers managed under Customer Pay. The depots produced more than 6,029 vehicles under the program, with only 179 coded as incomplete, or G-coded, early in the program at Red River.

Before Customer Pay, both depots had vehicles that were G-coded on a daily basis. At one point that backlog exceeded more than 1,300 incomplete vehicles. Under Customer Pay's best business practices approach, the Army's G-coded problems with its Humvee RECAP lines have been significantly reduced and, in many cases, eliminated.

The Customer Pay partnership helped Letterkenny earn the Shingo Prize for excellence in manufacturing in the public sector. That prize is named for the Japanese industrial engineer who helped create the Toyota Production System. Customer Pay has also been nominated for the President's Quality Award and the DLA Top 10 Award.

DSCC serves more than 24,000 military and civilian customers and 10,000 contractors as one of the largest suppliers of weapon systems parts in the world. DSCC buys materiel, monitors inventory levels, maintains technical data, and assures quality conformance of spare parts, which vary from such common items as vehicle parts and accessories to complex mechanical and electronic repair parts for weapon systems.

DLA provides supply support and technical and logistics services to the U.S. military services and several federal civilian agencies. Headquartered at Fort Belvoir, Va., the agency is the one source for nearly every consumable item, whether for combat readiness, emergency preparedness, or day-to-day operations. More information about DLA and DSCC is available at <http://www.dla.mil>.