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DOD Seeks Efficiencies in Sustainment, Logistics

By Claudette Roulo
American Forces Press Service

WASHINGTON, April 15, 2014 – When the Defense Department is looking to save money, it turns to sustainment and logistics, the undersecretary of defense for acquisitions, logistics and technology said today.

“If you want to really address the issues that DOD has with efficiency and affordability, you definitely have to look at the sustainment [and] logistics side of the house, because that is … where the money is,” Frank Kendall said at the 2014 National Defense Industrial Association logistics forum.

The existing budget environment probably is one of the worst he’s ever seen, the undersecretary said. Kendall served in the Army during the 1970s -- the era of the hollow force, he said -- but "2013 will go down in my memory as one of the most unpleasant years I've gone through."

Furloughs, sequestration, the government shutdown, budget uncertainties, readiness problems and difficulty sustaining the pace of production and development programs served to make it a “nightmare year,” Kendall said.

"Sometime last summer, somebody said to me, 'Well, Frank, at least you were here for the good years.' … I think back on it now, [and] 2010-2011 seem like pretty damn good years, comparatively," he said.

With the Bipartisan Budget Act of 2013, stability returned to the defense budget -- at least for the short term, Kendall said. "But we're still sitting here with the Sword of Damocles hanging over our heads," he added.

Sequestration will return in fiscal year 2016 if Congress doesn’t act, the undersecretary said, noting that it was never actually intended to happen in the first place.

“The idea of sequestration was that it would be so horrible that this [congressional] committee would feel compelled to come out with an agreement,” Kendall said.

Sequestration generally was expected to be in place for two to three months, he said. "It was not intended to be a budget-cutting mechanism," the undersecretary noted.

"There's a perception that the department cried wolf about sequestration,” Kendall said. “I was very vocal in my confirmation hearing for undersecretary. I said some strong things about the implications of sequestration. I believe they were accurate.”

But, he said, “the cuts of sequestration were so widely distributed that there were no dramatic, immediate events that got everybody's attention.”

Instead, it became death by a thousand cuts, the undersecretary said. “The biggest single impact was probably on readiness -- on the readiness of our forces, on their training, on their ability to maintain their equipment, on the logistics side of our business, basically.

“That was not highly visible,” he continued. “The fact that people couldn't go out and do training, the fact that people did not have parts … was not highly visible.”

And now sequestration is grimly accepted as the status quo, Kendall said, reiterating that it never was intended to be that way.

The Defense Department has looked at what it will be like if sequestration were to continue, he said. "It's pretty unpleasant,” the undersecretary told the conference audience, adding that it puts the department at a level of funding that will not allow it to execute the president’s defense strategy.

"We're trying to figure out how to manage our way through this,” Kendall said. “One of the greatest problems with the sequestration mechanism and the uncertainty we face is … we can't plan."

The department has tried to act as if the uncertainty will go away, he said, but the problem with that is sequestration is a 10-year law.

“It doesn't go away unless Congress does something to take it away, and I don't see any political prospect of that any time soon,” he said. “Whatever happens in the election coming up, I think we're going to be in the same position. … Meanwhile, we have to live our lives and do our jobs in this environment."

So, he said, the department has to learn to manage its way through the uncertainty, probably for an indefinite period of time. But recognizing this fact allows the department to plan for the risk of receiving a lower budget than it requested, the undersecretary said.

Kendall said several things in the current fiscal environment worry him:

-- The potential for creating a hollow force by underfunding training and maintenance;

-- Cuts to funding for modernization and research and development;

-- The health of the civilian workforce; and

-- The health of the industrial base -- from top to bottom, products to services.

To mitigate these risks, the initiatives outlined in Better Buying Power 2.0 are where the department can look to save the most money, Kendall said.

“Should-cost” is a fundamental initiative, he said, "and it's tightly coupled to the desire to change our culture a little bit."

The existing culture is one focused on spending all of the money in a project budget, Kendall said. "We're trying to change that to where it's a culture of cost control, where your job is to control your costs … to get as much as you can for the money you've been given -- improve your productivity, in other words."

Going hand in hand with controlling costs is avoiding spending money when it doesn't need to be spent, the undersecretary said. "There are always higher-priority needs, so if you have funds that have been appropriated that we can use for something that's a higher priority, that's a good thing," he said.

Should-cost is about actively driving costs down, Kendall added. "It's about the idea that you don't just stay within your budget, because you understand your costs -- understand them deeply, look for opportunities to reduce your costs, and then act on that."

A second initiative is aimed at eliminating redundancy, he said. One way to do that is through commonality of parts, the undersecretary said. "We need to do a better job at that," he acknowledged.

Performance-based logistics will help to define performance in a way that's relevant to the operational community and then reward people for doing a better job, Kendall said. In part, he added, this can be done by using contract types that are appropriate to the project and properly written.

"Industry is very simple. It will respond to the incentives," the undersecretary said.

The need to remove layers of bureaucracy transcends the logistics community, Kendall said. "Bureaucracies tend to grow," he said. "In a bureaucracy, people tend to generate work for each other that may or may not have real value."

Effective competition across the board is absolutely the best way for the department to reduce costs, the undersecretary said.

While reduced budgets mean the department is doing fewer "new things," he continued, contractors shouldn't be complacent or comfortable that they've got the business forever. "We're not going to get the kind of leanness and efficiency that we need if people have that attitude," he said.

The immediate future isn't going to be any less stressful, Kendall said.

"I don't predict an easy time,” he said. I think this is a temporary situation, however." He noted that defense budgets are cyclical.

"We're in a downturn right now,” he said. “It'll end, and we'll go back up."

(Follow Claudette Roulo on Twitter @rouloafps)

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Frank Kendall

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Special Report: Fiscal Year 2015 Budget Proposal

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