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Proprietary packaged petroleum: a growing logistics concern: the use of proprietary petroleum products by the Government continues despite directives to curtail their procurement. (Commentary).

The ability of the U.S. military to control and reduce its use of proprietary petroleum products could play an important role in the Army's transformation to the Objective Force. "Proprietary petroleum products" are those packaged petroleum, oils, and lubricants that are procured for the military services by the Defense Supply Center Richmond (DSCR), Virginia; by local procurements; or by credit card purchases. These proprietary products are not described by a performance specification, Federal specification, commercial item description, industry standard, or military or commercial drawings. Instead, they are defined merely by a company, supplier, or manufacturer item number or company brand name.

National stock numbers (NSNs) identify petroleum products according to their unit size (quart, gallon, 5-gallon can, or drum). They are used by all installations and activities when submitting requisitions for packaged petroleum products. NSNs continue to be assigned to proprietary packaged petroleum products, even though the requirement to limit their number has been imposed or implied in publications such as--

* Army Regulation 70-12, Fuels and Lubricants Standardization Policy for Equipment Design, Operation, and Logistic Support, chapter 2-2, paragraph k.

* Military Handbook (MIL-HDBK)-113C, Guide for the Selection of Lubricants, Functional Fluids, Preservatives, and Specialty Products for Use in Ground Equipment Systems, paragraph 5.1.

* MIL-HDBK-838C, Lubrication of Military Equipment, paragraph 5.1.2.

Evaluating the Problem

In an attempt to measure the extent to which the military uses proprietary petroleum products, I compared two listings of NSNs for all packaged petroleum under Federal supply class (FSC) 9150, which includes cutting, lubricating, and hydraulic oils and greases. It is important to note that the total number of NSNs for both standard and proprietary petroleum products includes separate numbers for different unit quantities of the same product. In other words, one product could have three different NSNs because it is available in three different container sizes, whereas another product could have only one NSN because it is only available in one container size. This makes the total number of actual products in each category somewhat less because individual product entries could have more than one NSN because of the variety in packaging.

The two listings were provided by Ernest Jeniolionis of DSCR. The first was generated in the November-December 1998 timeframe, and the second was dated 21 April 2000. In discussions with other DSCR personnel about the NSN list, I was advised that some of the NSNs listed should be considered "inactive." They stated that the listings should be viewed only as marketing tools to familiarize potential suppliers and customers with the full line of packaged petroleum products available from DSCR rather than as the basis for any statistical analysis. However, I believe that, because the lists are available to both customers and suppliers, there is a valid basis for their use in a statistical context. Based on that belief, I proceeded to determine the approximate distribution of standard versus nonstandard, or proprietary, NSNs.

The earlier listing revealed a total of 895 NSNs. Of those, 453, or 50.6 percent, were identified with standard products, and 442, or 49.4 percent, were identified with proprietary products. The 21 April 2000 list showed a total of 967 NSNs; 480 of those, or 49.6 percent, were linked to standard products. The remaining 487 NSNs, or 50.4 percent, were identified with proprietary products.

This comparative review of both listings revealed that, within a period of approximately 1 to 1 1/2 years, there had been a 1-percent decrease in the number of standard products and a 1-percent increase in the number of proprietary products. Stated another way, standard products represented only 37.5 percent of the 72 newly established NSNs, whereas proprietary products represented 62.5 percent.

A further illustration of this proliferation can be seen in recently posted Requests for Quotation (RFQ) and awarded contracts. Using the DSCR Procurement Gateway Web site (http://progate.daps.mil/home), I searched for all RFQs for commodities under FSC 9150. The 12 December 2002 search revealed 33 RFQs. Of these, 19, or 58 percent of that single sampling, identified scheduled procurements for proprietary products. Two days later, I conducted a parallel search for all contracts that have been awarded for FSC 9150 product commodities. Because of the cumulative nature of these searches and the large number of contracts awarded, I reviewed only the first 50 contract awards. Of these 50 awards, 22, or 44 percent, were for proprietary products. Although these two searches represent only snapshots, they illustrate the continuing demand for and use of proprietary products.

Why the Increase?

Several factors contribute to the proliferation of proprietary petroleum products. First, enforcement of the regulations designed to limit the number of proprietary products entering the inventory appears to have waned. This can occur when program managers or other responsible personnel place a greater reliance on the contractor or subcontractor to recommend packaged petroleum products for a particular materiel system. In many instances, a threat by the manufacturer or contractor to withdraw the equipment warranty unless those recommended proprietary products are used influences the military's decision to use them.

Second, the changes in military specifications directed in the Secretary of Defense's June 1994 memorandum, "Specifications and Standards--A New Way of Doing Business," generated a new push for greater use of commercial products by the military. This includes proprietary products as well as those defined by standards set by the American Society for Testing and Materials, the Society of Automotive Engineers, the American Gear Manufacturers Association, and others. Two of the directives in that memorandum were to change existing military specifications to reflect existing commercial practices and, when those specifications already reflect commercial practices, to accept the voluntary standards set by industry. Unfortunately, some packaged petroleum products defined by commercial standards do not perform as required when subjected to the environments and conditions under which military systems typically operate. This has forced the incorporation of military-unique requirements into all Government specifications for packaged petroleum products that are developed.

Third, because of increasing costs for acquisition of hardware systems, the military services do not have the necessary funding or manpower to demonstrate the suitability or equivalence of existing standardized products to proposed proprietary products or, in some instances, to develop new products. As a result, new NSNs have been established for those proposed proprietary products.

Of all the services, the Army seems to be impacted the most because of the nature of the supply and distribution systems used in ground-force operations. The proliferation of proprietary products tends to be greater within the Army because its packaged petroleum for automotive and ground systems is less standardized; there is no meaningful, core-funded program to address packaged petroleum requirements fully; and the Army cannot demonstrate equivalency and substitutability of existing military products with the proposed proprietary products because of funding constraints.

Future Concerns

The trend toward increasing numbers of proprietary products entering the military supply system will have a negative effect on the Army's Objective Force doctrine. The principal objectives of the Objective Force are responsiveness, deployability, agility, versatility, lethality, survivability, and sustainability. Two of these objectives could be affected directly by the trend toward usage of more proprietary products. Deployability demands focused and flexible logistics, whereas sustainability requires that both the logistics footprint and replenishment demands be reduced. Obviously, the greater the numbers of packaged petroleum products needed to support and sustain operational units, the more difficult they will be to obtain and distribute.

Another factor adding to the proprietary products dilemma is the recent trend within the automotive industry to move toward special original equipment manufacturer (OEM)-approved lubricants and fluids. Some OEM-approved products provide extended drain capabilities and other high-performance qualities. Because many of these products offer extended equipment warranties that mandate their use, the military tends to use them instead of products already in the military supply system. This tendency likely will lead to more NSNs. It is not unrealistic to envision a scenario in which vehicles and equipment in the same operating units will require specialized products based on who manufactured the particular hardware systems.

Increasingly, the Government procures hardware systems from foreign manufacturers. Although typical contract language stipulates that the systems must be capable of operating on standard U.S. lubricants and fluids, some exceptions occur, and problems have surfaced as a result. For example, the Swedish manufacturer of the Army's heavy dry support bridge requires that a proprietary hydraulic fluid (Bio Max NX 16) manufactured in Sweden be used to operate the bridge instead of the standard fluids already in use by the military services. Likewise, a German manufacturer of the Army's improved ribbon bridge also requires that a proprietary German fluid be used instead of the standard fluids available in the U.S. military supply system.

Different procurement costs also create problems. In procuring standard products, a certain degree of competition always exists among manufacturers and suppliers, which results in competitive pricing for the eventual purchase of those products by DSCR. A review of contracts awarded in fiscal years 2000 and 2001 for eight different types of engine oil revealed that the unit cost of proprietary products averaged $116 more than the unit cost of standard products. Some cost as much as $500 more per unit. However, proprietary products often can become costly items because there is essentially no competition when a product is made by only one manufacturer. With procurement from a single manufacturer, the potential exists for a no-response bid if the supplier undergoes a merger, encounters financial problems, elects to stop manufacturing the particular product, or goes out of business. A serious supply problem could occur quickly if no immediate alternative manufacturer or supplier is available to fulfill that procurement requirement.

Product interchangeability within North Atlantic Treaty Organization (NATO) countries is important because units from different nations sometimes need to share consumable products with each other during conflicts, peacekeeping operations, or training exercises. Annex C of NATO Standardization Agreement 1135, Interchangeability of Fuels, Lubricants, and Associated Products Used by the Armed Forces of the North Atlantic Treaty Nations, lists the petroleum products that are interchangeable among NATO forces. With standard products, it has been relatively easy to determine which products can be interchanged safely with those of other nations. However, determining any degree of interchangeability among proprietary products becomes difficult, if not impossible, because of their proprietary nature.

The problems associated with increased use of proprietary products by the military could interfere with achieving the goals of the Army's Objective Force. Several steps should be taken by the military to prevent the further escalation of proprietary product use and the problems that could result--

* First, establish a process to monitor and question the assignment of NSNs to any proprietary packaged petroleum product.

* Second, adopt a mechanism for curtailing the assignment of NSNs to proprietary petroleum products. More rigid enforcement of the existing regulations is needed.

* Third, and most importantly, make greater efforts to encourage product consolidation as a means of reducing redundancy in NSNs and promoting the multiple uses of existing products. The need to consolidate products has been recognized recently within industry as part of a three-pronged initiative to reduce overall maintenance costs, extend equipment life, and simplify the lubricant purchasing process.

Following these three steps will go a long way toward alleviating the supply and distribution difficulties associated with proprietary products and will significantly help the Army in achieving its ultimate goals for the Objective Force.

Maurice E. Le Pera is a consultant for Le Pera and Associates of Harrisonburg, Virginia. He is a graduate of the University of Delaware and has 36 years of Government service. He is a member of the Society of Automotive Engineers, the Society of Tribologists and Lubrication Engineers, and the American Society for Testing and Materials.
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Author:Le Pera, Maurice E.
Publication:Army Logistician
Date:Mar 1, 2003
Words:1956
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