Defense Logistics Agency sees significant savings through reverse auctions

FORT BELVOIR, Va., Nov. 18, 2013 /PRNewswire-USNewswire/ -- The Defense Logistics Agency is using several methods to decrease material costs as part of its effort to shed $13.6 billion in expenditures by 2019.

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One area in which DLA expects to drive savings is reverse auctions. Unlike a typical auction where bidders seek to win with a high bid, in a reverse auction vendors lower their prices as they compete to win a contract. Reverse auctions have saved DLA more than $1.6 billion over the past 14 months, DLA Director Navy Vice Adm. Mark Harnitchek said at his Sept. 17 Director's Call with agency employees.

In reverse auctions, sellers bid online for contracts. These can be contracts for procurements for items needed to send directly to a customer or to be stored by DLA, or for long-term contracts for a term usually lasting five years, said Carmen Pillitteri, a business process analyst at DLA Land and Maritime in Columbus, Ohio.

By allowing sellers to view the lowest offer and bid against it, the process creates intense competition between firms, which drives prices down, he said.

"Since it's a competition-based event, we need to have at least two vendors that are quoting and that are competitive with each other," Pillitteri said. "When they log in, they see their own price, and they also see the current lowest price on the procurement. They don't know who their competitors are, and they don't know how many competitors they have in the auction, but they see the prices and have an opportunity to lower their price."

Auctions run for no longer than an hour, Pillitteri said.

"We set it up, give the sellers two days to prepare, run it for a half hour to an hour, and then it's done," he said. "If someone bids in the last few minutes, the time will be extended by five minutes, so every vendor has an opportunity to put in their best price. But it's a very definite and relatively short timeframe. That's one of the best parts about it."

DLA requires reverse auctions for procurements of $150,000 or greater, but reverse auctions can be used for procurements at any price, Pillitteri said. For instance, DLA Land and Maritime requires reverse auctions on procurements at the $25,000 threshold, providing a substantial increase in reverse auction opportunities. As a result, the organization conducted more than seven times as many reverse auctions in fiscal 2013 as it did the previous year, resulting in savings of $34 million. This sum far exceeded the DLA Land and Maritime target of $3.3 million in savings by the end of fiscal 2014, he said.

Held almost daily throughout the agency, reverse auctions have also worked well for other DLA field activities, including DLA Aviation in Richmond, Va., which has already exceeded its fiscal 2014 goal of $4 million in savings. From October 2012 to July 2013, DLA Aviation conducted 241 reverse auctions, 49 percent of which were successful and saved the organization $27.96 million, said LaKisha Andrews, DLA Aviation's reverse auction program manager.

In addition, DLA Energy achieved $400 million in savings in fiscal 2013 by using reverse auctions to get better prices and increase competition in awarding fuel contracts, said Anthony Thomas, policy chief of the Procurement Planning Branch in DLA Energy, at Fort Belvoir.

During fiscal 2013, DLA Troop Support's reverse auctions resulted in 159 awards, 91 of which were in the clothing and textile supply chain, including eight projected to save more than $1 million each. The largest award, estimated to save more than $24 million, is for a system of load-bearing equipment worn by service members, such as vests and rucksacks. With a goal to save $17.1 million by fiscal 2014, their efforts have resulted in $40.7 million in actual savings so far, said Tom Chenoweth, chief of the Programs Division in DLA Troop Support, in Philadelphia.  

As a Department of Defense combat support agency, DLA provides the Army, Navy, Air Force, Marine Corps, other federal agencies, and joint and allied forces with a variety of logistics, acquisition and technical services. The agency sources and provides nearly 100 percent of the consumable items America's military forces need to operate, from food, fuel and energy, to uniforms, medical supplies, and construction and barrier equipment. DLA also supplies more than 85 percent of the military's spare parts.

Headquartered at Fort Belvoir, Va., DLA has about 26,000 employees worldwide and supports more than 2,300 weapon systems. For more information about DLA, go to www.dla.mil, www.facebook.com/dla.mil or http://twitter.com/dlamil.

SOURCE Defense Logistics Agency