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Engineering Savings 

 The federal government is one savvy shopper – minus the coupon clipping. Just like consumers shopping for the lowest price in day-to-day life, the government uses value management, a term generally used interchangeably with value engineering, to shop around, comparing prices on materials and services to find the best value. DLA value-management experts say the goal is to find better performance at a lower cost.

As described in a program brochure, the VM program is designed to save the government money by analyzing the requirements of all systems, equipment, facilities, procedures and supplies for the lowest total cost. These cost-saving initiatives include lower acquisition or logistics costs, resulting in improved reliability and maintainability, a reduction in production lead times, and improved supply availability. Other benefits include easy-to-obtain repairs and replacements, the elimination of unnecessary materials and the reusing of materials.

Developed more than 50 years ago, VM was tailored to address savings with weapons systems or items defined by military specifications. Today, VM encompasses more than just that.

“Value engineering considers changes in the design and function to ensure the product we’re providing gives us the lowest life cycle costs for our customer,” said Ralph Newlon, chief of DLA Aviation’s Engineering and Technology Division. “Let’s say you have a part that you put on an airplane. Value engineering would say: ‘If I make that part last three times as long, we don’t have to buy it as often and there’s less repair and maintenance involved.’ The key is to not reduce functionality and quality in the process. It then frees up more labor dollars to apply toward equipment.”

For DLA in general, value management goes beyond engineering, Newlon said, adding that the cost savings can be substantial.

“We’re procuring those items, whether they’re repair parts or end items,” he said, noting that DLA Aviation tends to “focus on value management, on lowering the acquisition costs, not necessarily changing the design or function of the item.”

And the government isn’t the only one cutting costs, said Dan Krist, chief of DLA Land and Maritime’s Pricing and Sourcing Office.

“We can buy more items with the dollars we have,” he said. “We try to reduce the actual cost to the customer because their budgets are cut, too.”

A drop in price on an individual part can make a big difference in the government’s overall budget, Newlon said.

“One of our projects involved a pressure switch for [an air-cushioned landing craft]. We found in our procurement history that the company supplying us the part was not the manufacturer. We contacted the actual manufacturer directly and worked with them to supply directly to us. We ended up saving over $611,000 on our last order alone,” he said.

Finding out what parts are eligible to participate in value engineering takes a team of experts.

“We typically look at sole-source items, because when we develop competition we save 30-40 percent of the cost of the item,” Krist said. “We’re buying it from the original equipment manufacturer so the higher the quantity we buy, the better business case it gives us to put resources into it to save money.”

One method to combat overpricing is known as “replenishment parts purchase or borrow,” through which contractors can reverse engineer items, a long-term process that can be time consuming but valuable, Newlon said.

“Prospective contractors can come in and see the part or they can go on our virtual site and buy an example of the part from us and reverse engineer it,” Newlon said. “They will disassemble the item, take all the critical measurements and create a drawing based on the sample part. We review it, then get approval to procure the part. Then once we have two or more sources for that item, it drives the price down.”

When reverse engineering isn’t an option but a new source is still needed, DLA Aviation has an alternative process it can use to drive down prices.

“When we see those items not getting any interest from contractors, maybe because it’s too expensive to reverse engineer the item, we use the Value Engineering and Sourcing Support Tool, called VESST,” Newlon said. “We have a standing contract where we pay the research cost. The lowest bidder will get that award. That contractor then becomes an approved source. What was originally a sole source situation then becomes a competition and again drives the price down.”

Although reverse engineering parts may work for some divisions within DLA, the remanufacturing of parts doesn’t lend itself well to DLA Troop Support supply chains, said Neil Kovnat, director of the Command Support Office and also DLA Troop Support’s value management program manager.

“We rely on commercial items, which is different than other supply chains,” he said. “Reverse engineering doesn’t embrace the nature of our supply chains. We need something more applicable to commercial items. Now with the broader acceptance of value management, it allows the cross savings.  It helps that we buy in bulk. To us, it’s more than end-item improvements; it’s increasing competition, using reverse auctions and making process improvements from which savings are complementary.”

Competition is the government’s best friend, Kovnat said. Once sole-sourced items are available from more than one company, savings are instant.

“Our construction and equipment staff worked with Northrup Grumman on the sourcing of air duct cooling coils used in F-16s,” he said. “During contract discussions, we discovered some of the subcomponents could be competed instead of going to one supplier. Once we moved to compete the items, the contract price went from $10 million to $7 million and we saved over $3 million.”

 Still, value engineering is not without its hurdles, as time is a major opponent, Newlon said.

“Our biggest obstacle can be the amount of time it takes to complete projects,” he said. “Almost always, those trying to procure the items just can’t wait. We’ve done a lot of work to speed up our processes, but it can still take months, even a year, especially with reverse engineering, to create a new source.”

Cost-savings to the government, part of DLA Director Navy Vice Adm. Mark Harnitchek’s “Big Ideas” initiative, have been in the millions and continue to grow. In fiscal 2011, DLA achieved savings of more than $237 million, with DLA Land and Maritime saving $76.4 million, DLA Troop Support saving $52.7 million and DLA Aviation saving $107 million. And many big projects within the past five years are still garnering savings, Krist said. Among DLA Land and Maritime’s VE projects, changes in purchasing a sole-sourced Humvee antenna have saved $45 million so far.

With further opportunities in VM and VE within the divisions, there’s plenty of untapped opportunity in the indirect supply chain savings, said Renee Magill, VE division chief at DLA Land and Maritime.

“Through education, we can track it better, and we can increase our indirect saving dollars,” she said. “The whole enterprise is into using more VM techniques to save money. We’re really driving partnering with our service program managers and engineering support activities to all be working on the same initiatives to get that return on investment. At DLA Land and Maritime, we’re removing those obstacles and partnering up front proactively instead of getting them to buy into something later down the road.”

Krist agreed, adding that DLA is part of the bigger picture.

“We’re really in the limelight now because of all the cost-cutting measures going on,” he said. “VE is going to be a bigger part of how the government operates by getting us involved early and making sure we’re looking at all our options before we go and buy materials.”

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