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MONTEREY CA 93943-5101 

Monterey, California 




Christopher S. Mosher 

June 1998 

Thesis Advisor: 
Associate Advisor: 

David A. Smith 
Mark E. Nissen 

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June 1998 


Master's Thesis 





Mosher, Christopher S. 

Naval Postgraduate School 
Monterey, CA ' 93943-5000 






The views expressed in this thesis are those of the author and do not reflect the official policy or position of the Department of 
Defense or the U.S. Government. 


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13. ABSTRACT (maximum 200 words) 

The Subsistence Prime Vendor (SPV) program represents a significant deviation from DoD's 
traditional subsistence inventory management system. The traditional subsistence distribution system 
involved storing food items in DoD owned depots and warehouses, and relied upon DoD transportation assets 
to make deliveries to the end users. This system was determined to be overly costly and inefficient as it did 
not take advantage of best business practices. The SPV system relies upon commercial distributors to deliver 
food items directly to end users, bypassing the DoD depots and warehouse facilities. The commercial 
distributors use just-in-time inventory management philosophy and other best business practices to procure 
and distribute subsistence items much more efficiently and effectively than DoD had done previous to SPV. 
A concern is the prime vendor program's ability to meet the surge and sustainment of full scale military 
mobilization. Recommendations to reduce the risk of the Navy's surge requirements, as well as other 
contractual and administrative remedies are presented in this thesis. Customer, administrator, and contractor 
feedback are also addressed. 


Subsistence Prime Vendor 











NSN 7540-01-280-5500 

Standard Form 298 (Rev. 2-89) 

Prescribed by ANSI Std. 



Approved for public release; distribution is unlimited 



Christopher S. Mosher 

Lieutenant Commander, United States Navy 

B.S., United States Naval Academy, 1988 

Submitted in partial fulfillment of the 
requirements for the degree of 






The Subsistence Prime Vendor (SPV) program represents a significant deviation 
from DoD's traditional subsistence inventory management system. The traditional 
subsistence distribution system involved storing food items in DoD owned depots and 
warehouses and relied upon DoD transportation assets to make deliveries to the end users. 
This system was determined to be overly costly and inefficient as it did not take 
advantage of best business practices. The SPV system relies upon commercial 
distributors to deliver food items directly to end users, bypassing the DoD depots and 
warehouse facilities. The commercial distributors use just-in-time inventory management 
philosophy and other best business practices to procure and distribute subsistence items 
much more efficiently and effectively than DoD had done previous to SPV. A concern is 
the prime vendor program's ability to meet the surge and sustainment of full scale 
military mobilization. Recommendations to reduce the risk of the Navy's surge 
requirements, as well as other contractual and administrative remedies are presented in 
this thesis. Customer, administrator, and contractor feedback are also addressed. 
















1. SPV Management Organization 28 

2 . SPV Contracts 3 

a. Source Selection Criteria 31 

b. Contract Requirements 33 





1 . Infrastructure 3 9 

2 . NAPA' s 41 

3 . Food Show Program 41 

4. Wholesale Inventory 42 

5. Projections 43 

6. Contract Administration 43 













1 . PYA/Monarch of Virginia Beach 66 

2 . R & R Group 67 

3 . Surge Exercise Summary 6 8 
















Beginning in the early 1990' s, the General Accounting 
Office (GAO) conducted a series of studies that were 
critical of the Department of Defense's (DoD) inventory 
management system. Driven in part by these studies and in 
an effort to improve their archaic inventory systems, the 
DoD gradually began transitioning their inventory management 
philosophy from that of " just -in- case" to that of w just- 
in-time" for selected items by implementing the Prime 
Vendor concept . 

Prime Vendor represents a fundamental shift in the DoD's 
inventory management philosophy. Rather than storing 
material in large Defense Logistics Agency (DLA) warehouses 
and issuing it to customers on demand, Prime Vendor 
contractors are instead called upon to deliver items 
directly to end users. These Prime Vendor contractors are 
largely distributors who get their material from various 
suppliers and immediately deliver it to the customers often 
without storing the material themselves. To date, DoD has 

instituted the Prime Vendor concept for medicinals, clothing 
and textiles, and is in the process of implementing the 
Subsistence Prime Vendor (SPV) Program in the continental 
United States (CONUS) . 

There has been resistance within DoD to adopt the Prime 
Vendor concept because it means lower " organic" (i.e., 
DoD-owned) inventories and greater reliance on the private 
sector. The impact that this will have on readiness is 
uncertain. DLA is faced with the issue of how to manage an 
effective SPV Program that not only can deliver millions of 
dollars of annual savings and cost avoidance, but can also 
meet DoD's most pressing surge and sustainment requirements. 
Defense Supply Center Philadelphia (DSCP) Contracting 
Officers who manage the SPV Program must develop 
solicitations, select contractors, award contracts, and 
administer SPV contracts effectively toward that end. 

This thesis analyzes the effect that the SPV Program will 
have on the quality and supportability of food service 
operations in the afloat Navy, and will provide 
recommendations regarding how to improve the program. This 
thesis also focuses on the program's ability to meet the 

surge and sustainment requirements of a short fused 
battlegroup deployment in support of an overseas crisis. 


The National Defense budget has decreased in real terms 
every year since 1985 (Doyle) , and with the lack of an 
emerging global threat there is reason to expect this trend 
to continue. Further, the growing concern over the Social 
Security system's ability to meet the demands of the 
retiring w baby boomers" has the Federal Government and 
Congress aggressively searching for ways to fund Social 
Security in the years ahead. For these reasons and also due 
to increased internal focus on doing things more 
efficiently, DoD has been challenged to find ways do to 
business cheaper while maintaining the ability to deter or 
conquer any threat to our democracy that might emerge . 

Privatization, downsizing, outsourcing, and base 
realignments, closures and consolidations have been common 
within DoD over the past several years. In their reports of 
the DoD's inventory management practices, GAO recommended 
the adoption of the w just-in-time" inventory practices 

that had been tried and tested in the commercial sector 
leading to substantial cost savings (GAO/NSIAD 93-110) . 

Prime Vendor addresses many of the problems that had been 
associated with the previous DLA depot system. For 
instance, brand names are now more readily available, 
ordering and shipping time has been significantly reduced in 
several cases, and millions of dollars of annual 
infrastructure costs have been eliminated. However, the 
long-term effect of the Prime Vendor program on 
wartime/crisis readiness has not been demonstrated and is a 
significant concern to many within DoD. 

The DLA initiated the Prime Vendor and Direct Vendor 
models for medical supplies in 1993. The program was called 
Medical Prime Vendor (MPV) and its goals were to achieve 
cost savings by reducing inventories, personnel and 
infrastructures, and to gain efficiencies by transferring 
these functions from the public sector to the more 
experienced, profit conscious private sector. The MPV 
program was hailed as a huge success, and DLA, through its 
DSCP (formally called Defense Personnel Support Center - 
DPSC) , began to adopt the Prime Vendor program for clothing 

and textile items. In 1993 Prime Vendor was adopted for 
subsistence items. As of March 1998, 90 percent of all 
pharmaceutical supplies are purchased though Prime Vendor 
contracts and 75 percent of CONUS subsistence for dining 
halls, both afloat and ashore, are purchased through Prime 
Vendor contracts (Hamre) . 

The Prime Vendor initiative is gaining popularity and it 
is being considered for an array of different types of 
materials. There is talk in some circles about acquiring 
hardware type consumables, aircraft bench spares, and 
avionics parts via Prime Vendor contracts. A recent 
Secretary of Defense memorandum states that by January 1, 
1999, Prime Vendor contracts for maintenance, repair, and 
operating materials will be available for every major 
installation in the United States. (Hamre) The DoD has 
several Prime Vendor related initiatives in process, all of 
which will lead to less DoD owned and managed inventories 
and greater reliance on the commercial sector. 


The research objective of this thesis is to determine the 
effect that the SPV program will have on the quality of food 
service operations in the afloat Navy, and to provide 
recommendations on how it might be improved. Using 
commercial suppliers has potential for significant cost 
savings, improved customer service, and other advantages. 
As SPV has been in place for over one year on the East and 
Gulf Coasts, data regarding the problems and inefficiencies 
of the process were gathered. Customer feedback indicates 
that improvements can be made. Also, the ability of these 
Prime Vendors to support DoD, and specifically the afloat 
Navy, during a crisis is a concern that needs to be 
addressed. Communication, planning, and training of both 
military and contractor personnel will be critical to the 
ability of the Subsistence Prime Vendor program to support 
ships during a short fused, high intensity evolution, such 
as a Battlegroup deployment to the Persian Gulf on 96 hour 
notice . 


The primary research question that this thesis addresses 


What impact will the Defense Logistics Agency's 
Subsistence Prime Vendor program have on Navy afloat food 
service operations? 

The secondary research questions are: 

1. What is the traditional DoD subsistence distribution 

2. What is the Subsistence Prime Vendor (SPV) program 
and how does it work? 

3 . What are the expected benefits of SPV? 

4. What are the expected risks and concerns of SPV? 

5. Given a likely surge scenario, what problems might 
SPV contractors encounter, and what risks do they 
present to the fleet? 

6. What contractual measures or other actions can be 
taken to mitigate problems that are being 
experienced with SPV? 


Publications, instructions, working papers from DSCP, 
DLA, and various other activities were reviewed for areas 
relating to the SPV Program. Ship SPV contracts were 
analyzed. A survey was conducted of afloat Supply Officers 
whom are supported by SPV. Interviews were conducted with 
SPV contractors, as well as DoD personnel involved with the 
program . 

General Accounting Office (GAO) reports which document 
problem and success areas of the DoD inventory management 
systems and Prime Vendor contracts were analyzed as were 
after action reports of recent Naval War College Logistics 
war games results. A close review of DSCP and its SPV 
management team was conducted. SPV contracts were analyzed, 
as were the source selection procedures for those contracts. 


The SPV contracts that are in the process of being 
implemented will support the entire U.S. Navy, afloat and 
ashore, CONUS and overseas. This research effort will only 
examine the CONUS afloat SPV contracts and the impact the 

SPV program as currently managed will have on the readiness 
of the ships that they are designed to support. 

Much of the actual SPV data used in this thesis have been 
drawn from ships homeported on the East Coast (Norfolk, 
Mayport, and Earle) and Gulf Coast (Pascagoula and 
Ingleside) , which have been supported by SPV contractors 
since early 1997. 


This thesis is divided into five parts. The first part 
provides an overview of the traditional food distribution 
system and discussion of the Subsistence Prime Vendor 
program. Then the traditional food distribution system and 
SPV are compared. Part two provides an analysis of the 
program's expected benefits. The third part presents the 
risks and concerns that have been raised regarding SPV. The 
fourth part presents survey and interview results. The 
fifth part provides conclusions of the research and 
recommendations of ways to improve the SPV program. 



This chapter examines the historical influences behind 
the SPV program. A description of the traditional DoD 
subsistence distribution system, as well as a description of 
the SPV food distribution system will be provided. The SPV 
management organization will be introduced. A description 
of the SPV contracting process, including source selection 
criteria and post -award contract administration functions, 
will be presented. Major aspects of the SPV contracts, such 
as the surge clauses, will also be presented. 


Since the beginning of the post -Cold War era, DoD has 
been focused on doing business smarter. Better, faster, 
cheaper have become popular buzz words within the logistics 
corridors in DoD. Acquisition reform initiatives such as 
commercial best practices, outsourcing, and commercial 
specifications have been widely endorsed and successfully 

The National budget deficit and National debt have also 
become much more of a concern over the past 10 years. As 


the President and Congress gain momentum in their effort to 
balance the budget and make the Social Security system 
solvent, the DoD budget continues to shrink. 

Concerned about the $60 billion increase in the value of 
DoD's inventories between 19 8 and 198 8, the Chairman, 
subcommittee on oversight of Government Management, Senate 
Committee on Governmental Affairs, asked GAO to conduct 
analysis comparing DoD's logistics practices with private 
sector practices. (GAO/NSIAD-93-110) 

In 1992, the GAO issued a report indicating that DoD had 
wasted billions of dollars in excess supplies. GAO concluded 
that the problem was a result of DoD's inherent cultural 
belief that it was better to overbuy than to manage just the 
amount of stock needed. GAO called for use of more 
effective inventory management and control techniques and 
modern commercial inventory management practices, which GAO 
believed would lead to lower inventory levels and less 
holding costs. (GAO/HR-97-5) 

In 1993, GAO issued another report, this one specifically 
targeted at DoD's food inventory system (GAO/NSIAD-93-110) . 
This report indicated that DoD's food inventory system was 


generally outmoded and inefficient. Its multiple layers of 
warehouses between producers and end-users had encouraged 
large inventories at all levels, which often sat on shelves 
for months or even years before reaching end-users. GAO 
felt that many of the costs that DoD incurred for holding, 
handling, and transporting large quantities of food were 
unnecessary because the existing network of private sector 
full-line distributors could supply food to DoD much more 

GAO theorized that because of the heavy competition 
within the industry, distributors would have the financial 
incentive to cut their costs, keep their prices low, and 
provide excellent customer service. Many large food service 
companies with many end-users, for example, Marriott 
Corporation, relied successfully on distributors to deliver 
food to their end-users. Two of the major Military Service 
Academies, Annapolis and West Point, had used distributors 
in the 1980 's to support their food service operations with 
great success. GAO recognized this and commented that DoD's 
limited use of distributors to meet certain food needs had 


demonstrated benefits, specifically lower costs and improved 
customer service. 

Many DoD officials were concerned about relying on 
commercial distributors despite the success that they had 
enjoyed from their limited use. Of particular concern was 
the perceived need for military specifications for food 
items and Government -unique contract clauses. (GAO/NSIAD- 
93-110) DoD felt these obstacles might hinder the ability 
to procure commercial items and institute commercial 
logistics practices. However, taking this step would be 
consistent with the goals of DoD's comprehensive inventory- 
reduction plan, issued in May 1990. The plan states that 
" where DoD requirements can be met through commercial 
distribution systems in a timely and cost effective fashion, 
no value is added by pushing items through the DoD 
warehousing systems." (GAO/NSIAD-93-110) 


Before presenting a description of the traditional and 
SPV food distribution programs, it is important for the 
reader to understand the status of the DLA food distribution 


system. As of this writing, all of the CONUS East Coast and 
Gulf Coast ships are being supported by the SPV program. 
All of the West Coast ships are being supported by the 
traditional Depot system. 

The SPV program was prototyped in the Norfolk, Virginia 
area. Mayport, Florida was the first major facility to be 
completely supported by SPV. SPV contracts to support the 
Puget Sound and San Diego based ships are scheduled to be 
awarded in the coming months with actual SPV deliveries 
commencing in the summer of 1998. 

To date, semi -perishable food items (canned) and 
perishable meats (frozen) are on SPV contracts. Fresh 
fruits and vegetables (FFV) , breads and pastries, and dairy 
products are in most cases not included on SPV contracts. 
Customers supported by SPV are generally still required to 
order their FFV, dairy, and bread requirements from other 
contractors . 


DSCP is the component of DLA responsible for purchasing 
more than 90 percent of the food supplied to military end- 


users, i.e. dining halls, hospitals, ships, and other 
activities that feed sailors, soldiers, airmen, and marines. 
DSCP spent over $1.1 billion in fiscal year 1997 to feed 
U.S. troops worldwide. (Bland) Through their volume buying, 
they are able to obtain price discounts from producers. 
DSCP purchases items from a variety of suppliers including 
manufacturers, growers, packers, and processors. 

Under the traditional depot system, semi -perishable 
items, such as canned goods, are stored in four DLA depots. 
Perishable items, including FFV and meats, are stored in 
contractor operated Defense Subsistence Offices (DSOs) . 
These warehouse facilities are located across the United 
States. Figure 2.1 shows the locations of the DSOs as of 

Upon receiving requisitions for food, DLA transports the 
items from its warehouses to the Military Service 
installations. At each installation, a base warehouse 
facility stores the food until it receives orders from its 
end-users. The food is then delivered to the end-user 


Subsistence DSO Network 
Circa 1992 

Defense Subsistence Ofc 
Purchasing Offices Export Site 

Figure 2.1. CONUS DSO LOCATIONS IN 1992 (Bland) 

(e.g., ship). End-users order their subsistence directly 
from the base warehouse facility. A surface ship stationed 
in San Diego, for instance, orders their subsistence from 
Fleet and Industrial Supply Center (FISC) San Diego. FISC 
fills the order from the on-hand inventory in its warehouse, 
and orders the items that they do not carry, like bread, 
dairy, and FFV off of delivery order contracts that are in 
place. FISC then reorders from the DSO/Depot to replenish 
the on-hand stock in their warehouse. Any ordered items 


that are not-carried or not-in-stock at FISC should be open- 
purchased for the customer. 

Subsistence Prime Vendor 

The Old Way 

10 days 


VENDORS^ 75 days ? 

by item 







A 2 - J0 \ 






A {Supporting America 's Fighting Forcesi 


The cost of doing business via the traditional method is 
quite expensive. Although DoD does not actually know the 
full costs of supplying food to end-users, it became obvious 
that the they were spending too much money to do it . 
(GAO/NSIAD-93-110) To illustrate the magnitude of the 


savings available, the cost to operate the 25 DSOs and DLA 
warehouses was estimated to be almost $64 million for fiscal 
year 1993. Annual operating expenses for the Air Force's 75 
base warehouse activities in-CONUS averaged $133 million 
each, for a total of roughly $10 billion dollars. There are 
4 9 Army and 42 Navy and Marine Corps base warehouse 
activities in CONUS, many of which were larger than the Air 
Force base warehouse activities (GAO/NSIAD-93-110) . 

DoD had built up enormous inventories of food at its 
depots, DSOs, and base warehouse activities, and items often 
remained at these facilities for long periods of time before 
they were moved to end users or were destroyed due to 
spoilage. The large inventories and slow turnover were the 
result of several factors including: changing customer 
preferences; dynamic operational schedules; long lead times 
required for orders; and most importantly, DoD's multi- 
layered supply system, which is considered inefficient. 

According to a GAO report, as of the end of 1992, depots 
had enough semi -perishable food items on hand to supply base 
warehouses for approximately 82 days. DLA' s total 
inventories of troop issue foods items at that time were 


valued at $159 million - $82 million in semi -perishable 
items and $77 million in perishable items. Base warehouse 
activities also held large inventories, worth approximately 
$200 million as of September 30, 1991 (GAO/NSIAD-93-110) . 
Many end-users were also maintaining substantial 
inventories. For example, Navy shore -based end users 
maintained an average inventory level of 32 days and ships 
were maintaining 75 to 90 day inventories on most items. 

DoD's multi-layered supply system is the key factor 
contributing to the large inventories and slow turnover of 
food products. (GAO/NSIAD-93-110) Under this system, base 
warehouse activities have traditionally depended on DLA to 
meet their food needs. Although the activities may go 
outside the system for items when it is in their best 
interest in terms of quality, timeliness, and cost, this has 
mainly been done only for those items out of stock or not 
stocked by DLA. Thus, DLA has had few incentives to 
maintain an efficient operation by keeping inventory levels 
low, and moving products quickly to base warehouse 
activities. Managers at the base activities and at the end- 


user locations also maintained large inventory levels, 
because they felt the supply system was unreliable and they 
were not confident that they could get what they needed when 
they needed it from DLA. (Young) 

Another related factor was DSCP's practice of procuring 
food from producers using long-range forecasts based on past 
orders from base warehouse activities, rather than short- 
term needs of end-users. DSCP used long-range forecasts 
because it took an average of 12 to 2 05 days from the time 
a need for an item was identified until the item was 
received in a depot. This delay was primarily due to 
procurement time. Additionally, these installation 
warehouse activities developed their orders, in part, on 
end-users' estimates of future needs, which can be as much 
as 6 days ahead of actual need. 

Often the demand for an item declines after DSCP procures 
the item or after base activities submit their requisitions. 
When this happens, the depots, DSOs, or base warehouse 
activities receive food in excess of their actual need, and 
their inventories will increase. Managers at base 
activities and end-users often have difficulty accurately 


forecasting their needs more than a few days ahead of the 
actual need, due to reasons such as unexpected mobilization 
or military exercises, menu changes, and changing consumer 
preference. Options to reduce excess inventories are 
limited and costly. 

A FISC subsistence manager, responsible for managing food 
inventory under the Depot system to support a squadron of 
Mine Sweeping ships, communicated the inefficiencies 
inherent in the warehousing system: " I couldn't accurately 
forecast what was going on with the Fleet. I often had to 
guess what the ships were going to need over the next 
several months, and all too often I was wrong. The question 
became, how much spoilage are we willing to pay for in order 
to maintain an on hand inventory which was able to allow our 
ships to go to war?" (Young) 


The Subsistence Prime Vendor (SPV) program is designed to 
use commercial practices for food distribution. It is an 
attempt by DoD to tap into private sector logistics 
approaches. Specifically it is designed to: (1) use ™ just- 


in-time" business practices that shift responsibilities for 
storing and managing inventory to suppliers; (2) shift 
responsibility for managing items to suppliers through the 
use of long-term agreements with only a few key suppliers; 
(3) use direct delivery practices that bypass the need for 
intermediate handling and storage; and (4) eliminate 
paperwork and speed up ordering by using electronic ordering 
systems and bar coding. Adopting the commercial 
distribution practices was intended to help DoD reduce 
inventory infrastructure, inventory levels, and handling 
costs. (GAO/HR-97-5) SPV utilizes indefinite quantity, 
indefinite delivery (IDIQ) type contracts with commercial 
food distributors to deliver subsistence products directly 
to the end-user, bypassing the depots and base warehouse 
activities . 


Subsistence Prime Vendor 

The Prime Vendor Way 



Supporting America's Fighting Forces 

Figure 2.3. THE SPV PROCESS (Bland) 

The SPV contractors who are supporting ships and base 
dining facilities are, by and large, the same contractors 
who provide food products to the major commercial users, 
e.g., schools, restaurants, hospitals, and hotels. The SPV 
program was designed so that end-users could order directly 
from contractors who will deliver the product directly to 
the end-user. Base warehouse facilities are to be bypassed, 
except for situations in which the end-user is not able to 


take immediate delivery, for example, if a ship is at sea 
during a scheduled delivery. In this case, the contractor 
could arrange to drop the items at the base warehouse 
facility, who would deliver the order to the ship upon its 
arrival in port . 

Ideally, ships will order directly from the contractor 
electronically. At the same time, a copy of the requisition 
would be transmitted to DSCP. Upon delivery, the ship would 
receive the material and sign a paper receipt annotating 
actual quantities received. The receipt would then be 
electronically reported by the ship to DSCP, with a copy to 
the contractor. 

In reality, ships are not ordering electronically. They 
are using the Food Service Management (FSM) System to 
prepare their orders that are then put onto floppy diskette. 
The disc is then either sent via Streamlined Automated 
Logistics Transmission System (SALTS) , or hand carried over 
to the local FISC 1 who processes the order on the 
Subsistence Prime Vendor Interpreter (SPVI) . SPVI sends the 

1 There are eight order entry points that the ships can use 
to place their orders 


electronic order to the contractor and simultaneously sends 
a copy of the order to DSCP. 

SPVI is the automation backbone of the Prime Vendor 
concept . Currently, each Service has unique methods for 
processing requisitions from dining facilities to DSCP. 
These methods include varying degrees of automation and 
paper input, and vary with each Service. The automation 
systems, such as the Navy's FSM, that are currently used by 
the Services cannot currently communicate information 
directly with the vendor systems. SPVI is intended to 
provide a uniform DoD interface between distributors and 
each Service. The uniform interface will allow the 
replacement of Service-specific forms and automation systems 
with a standard electronic transaction. (Bland) 

In essence, SPVI translates a Service's dining facilities 
order, which on a ship would be created on the FSM System, 
into a form that is understandable to the Prime Vendor's 
systems. The Prime Vendor requisition processing cycle with 
SPVI is outlined in Figure 2.4 below: 



Dining Facility 

• Hardccyy ]tsting{s) 

• Survi alone 

• Sneaker-Net to SPVI 


r n- 

2} Hricvpy Pare Cstii>g 
6) Hdkrpy Rict^t 

// * 

5) Delivery : 


• FlaiFjIe 

• Stuiagonen: Repcris 
- Corpora:* infccicatton 


7) SIC 


Fleet Industrial Supply Center 

Reenter iiia nar.ually 

Catalog diti. rjjt shared 


■ Remote lecatior. 
• LVJqoe Tenr-3»I ID 
1 Transaction als are not 30>O 






1) 832- Price Catalog 

2) Hardccpy Price Catalog 

3) Hardccpy Order 

4) 850 - Order 
5} Food Delivery 

6) Hardccpy Recerj* 

7) 810 -Invoice 

8) Electronic payraeni froic S7 

9) Notification of S'V payeiett 
J 0) ReiM bursenier.t la S/F 

S) Kot6c«:anof SF payine 

Prime Vendor »«*««**«■«**««» 

• ■» - 50 COMJS Veneers 

* Direct DeUvery 


10} (UonbnnemeiB 10 &7 

■ Contract Admiristritica 

> Pays biLls with Stock Fund (S>T) 

■ Stocks DcD Urcs.'Je items 

• Charge fee for servicingorsJers 
■Seme reconciliation 


• RcieiHtfscs SvV 
with SIK funds 

Figure 2.4. SPVI ORDERING PROCESS (Bailey) 

The SPV system is designed to use an electronic catalog 
that lists all the items available for the customers to 
order. Each customer type, e.g., small ships, large ships, 
CLF ships, and base galleys have a separate and unique 
tailored catalog to order from. When completely 
implemented, the SPV program will have a closed loop 
electronic commerce system. The system will include catalog 
updates, requisitions, purchase orders, acknowledgments and 


receipts. Information will be transmitted electronically 
between the customer, supporting FISC, DSCP, and the SPV 
contractor. Currently, some of the smaller ships, like 
minesweepers, do not use an electronic catalog. Instead, 
they use paper catalogs provided by the SPV contractor. 

The SPV receipt process is slightly more involved than 
under the traditional system. Under SPV, the contractor 
delivers the order to the ship on the pier, and a ship's 
representative signs the receipt annotating any 
discrepancies on the receipt document . The contractor then 
brings the hard copy document to the FISC SPV representative 
who reports receipt via SPVI . Before doing so, FISC sends a 
receipt confirmation document to the ship via SALTS to 
ensure that the ship has actually received the material. If 
the ship has a problem with the receipt, they need to 
respond to the SALTs indicating the discrepancy, otherwise 
no further action is required on the ship's part. (Dysick) 

1. SPV Management Organization 

DLA is the organization that is chartered with the 
responsibility of procuring subsistence items for the DoD. 
Their subsidiary organization, DSCP, is the organization 


chartered to award and administer subsistence contracts 
The Director of Subsistence at DSCP is the officer 
responsible for implementation and management of SPV. 

Prime Vendor Regions 


The SPV management team is broken down by region as show 
in Figure 2.5 above. Each region has a Supervisory 
Contracting Officer and a team of contract specialists, 
account managers, supply technicians, business specialists, 
and procurement technicians. 


2 . SPV Contracts 

Each SPV contract is slightly different due to use of a 
tailored approach in the formation of SPV contracts. 
However, there are some basic similarities, e.g., all SPV 
contracts are Firm Fixed-Price, Best value, indefinite 
delivery contracts. The contracts are typically for one 
year, with four one-year options. DSCP encourages customer 
and other stakeholder involvement in the requirements 
development and technical evaluation stages of the 
contracting process. For afloat contracts, DPSC has gotten 
ship Supply Officers and Type Commanders to be involved with 
the pre-award process. These customer representatives 
joined the Contracting Officer and other Integrated Product 
Team (IPT) members during site visits to each potential 
contractor's facility. 

The move to long term, Prime Vendor contracts has been 
a gradual shift. The DoD previously awarded subsistence 
contracts using sealed bidding, and awarded contracts to the 
lowest bidder. (Bland) No consideration was given to other 
than price factors, for example, quality, past performance, 
or Socioeconomic plans. In some cases, winning contractors 


had minimum standards of responsibility, often had marginal 
past performance, poor product quality, and late delivery. 
This led to customer dissatisfaction. 

Later DoD started using negotiations but evaluating 
price only. This resulted in a better price, but did not 
improve performance, delivery, or quality. The Best Value 
process was then adopted for subsistence contracting and has 
been used on all SPV contract awards. Regulatory authority 
for Best Value contracting is provided in the Federal 
Acquisition Regulation Part 15. Best Value source selection 
allows the Contracting Officer to review all factors that 
are relevant to source selection, and to make an integrated 
assessment of those factors to form the basis for award. 

a) Source Selection Criteria. 

DSCP's source selection plan calls for each 
offeror to submit two different proposals. The first 
proposal addresses their technical plan, and the second 
proposal addresses their business plan. DSCP then analyzes 
these two plans separate from one another. The technical 
proposal is weighted significantly more heavily than the 
business proposal, and addresses the following areas: 


• Distribution Process, Delivery System . Includes a 
site visit. Addresses product availability, 
ordering system, proximity to customer, 
surge/mobilization plan, and sourcing plan. 

• Corporate Experience . Addresses past performance, 
organization support. 

• Quality of Program . Quality Assurance, Sanitation 
Plans, etc. 

• Socioeconomic . Review program for Small Business 
and Small Disadvantaged Business. Reviews 
subcontracting plan. 

• Pricing Plans . Rebate/discount process. 

• DLA Mentoring Agreements . Emphasis on helping small 
business. Ability to develop working relationships 
with small companies evaluated. 

• Management Plan. 

• EDI Capability . 

The business proposals are evaluated by the buyers 
and contracting officers and address the pricing plans. As 
stated before, these two proposals are looked at 
individually; then, an overall score is assigned to that 


offer by the DSCP Contracting Officer which is based on best 
value to the Government . Technical and past performance are 
considered much more important than price. (Bland) The goal 
of this integrated best value approach is to select the 
offeror with the greatest probability of successful 
performance at a fair and reasonable price to the 
Government . 

The source selection process involves developing a 
partnership between DSCP, the customers, and other 
stakeholders . For the Mayport ship SPV contract for 
example, DSCP developed an integrated product team which had 
representatives from several Mayport based ships, the Type 
Commander, and Supporting FISC. These team members 
generated contract requirements, reviewed proposals, and 
conducted plant visits. 

b) Contract Requirements 

Surge Clauses : 

Each SPV contract includes surge clauses which 

require that the contractor have the capability to manage: 
(1) large increases in quantities demanded, for short 
periods of time; and (2) meet the requirements on short 


notice. A typical SPV contract states that the Services may 
encounter the unscheduled departure of ships, with only a 
few days advance notice. The order requirements could more 
than double their normal usage on any given day and the 
timing of these types of surges will be virtually impossible 
to anticipate. All SPV contracts currently state that 
pricing arrangements for items furnished during surge 
periods shall be the same as for those routine, non- surge 
orders. (Ford) 

The contractors must also provide the ability to 
handle food distribution in support of a full-scale military 
mobilization or national emergency, wherein consumption 
could easily double or triple at any site for a protracted 
period. The contractor is required to develop a formal 
readiness plan which outlines means to meet this increased 
workload. The plan should address use of additional 
suppliers, subcontractors, trucking companies, etc., and 
should detail how the sustained increase in demand will be 

In order to help them develop their readiness 
plan, the contractors are advised to plan to support a 


Battle Group at the time of national emergency or 
mobilization. The contract specifies that the Navy's Battle 
Group consists of one Aircraft carrier, six " small boys" 
(Cruisers or Destroyers) , one large Amphibious aviation 
platform (LHA or LHD) , two other smaller Amphibious class 
ships (LPD or LSD) , and one replenishment ship (AOE) . (Ford) 

In order to ensure that the Prime Vendor's Surge 
and Mobilization capability is maintained, DSCP will require 
the Prime Vendor to demonstrate their ability to perform by 
participating in a paper surge exercise annually. 

Emergency orders : 

The contract specifies that the contractor shall 

provide same day emergency service to the FISC. Expeditious 
fulfillment of these emergency requirements is considered 
imperative and the contract states that orders may need to 
be delivered on Saturdays or Sundays. 

Pricing Agreement : 

The contract specifies the terms of the pricing 

arrangement. The following definitions/descriptions apply: 


- Unit Price is the total price charged to DSCP per unit for 
a product delivered to the Government consisting of two 
components: w delivered price" and " distribution price" . 

- Delivered price is the actual invoice of the product paid 
to the manufacturer/supplier, delivered to the Prime 
Vendor's facility (sometimes referred to as the landed 
cost) . The delivered price for each item is influenced by 
commercial market forces, such as supply and demand, and 
competition among suppliers, and may, therefore, fluctuate. 
Accordingly, each unit price shall be increased or decreased 
when appropriate on a pre-established day of the week 
referred to as the authorized adjustment day. 

- Distribution Price is the firm fixed-price, offered as a 
dollar amount, which represents all the elements of the 
contract price other than the delivered price. This 
distribution price will consist of the Prime Vendor's 
projected general and administrative overhead, profit, 
packaging costs, transportation costs and any other 
expenses . 

The Government is authorized to perform price 
verification analysis throughout the term of the contract. 


The Prime Vendor is required to obtain products from 
suppliers who can provide the best value to the Government 
in terms of price, delivery, and quality. 


The SPV contracts also require the contractors to 

have sufficient Electronic Data Interchange capability to 
support ordering, acknowledgements, receipt processing, and 
catalog updates electronically. They are required to 
maintain the SPV catalogs and to update them weekly with 
item availability (range) and price changes. 

In some situations, contractors are required to 
obtain items from specific suppliers. For example the Navy 
has identified 22 items as " military unique" , formally 
referred to as Military Unique Subsistence Item Coordination 
(MUSIC) items. DPSC has contracted with Advocacy and 
Resources Corporation to maintain a supply of these items to 
be provided to the Prime Vendor supplying Naval Ships 
afloat. In the event that the contract is not re-awarded, 
the Prime Vendor contractor would be responsible for these 
items . 


The SPV contract is fairly liberal in terms of 
case sizes and packaging requirements except in the case of 
Consolidated Afloat Replenishment Guide Overseas (CARGO) 
items, which must have the exact size, weight, packaging and 
cube as cited on the CARGO list. 


This chapter provided a description of the traditional 
DoD subsistence distribution system, as well as a 
description of the Subsistence Prime Vendor distribution 
system. The SPV contracting process and major elements of 
the SPV contracts were also presented. 



This chapter examines the many benefits of the SPV 
program. A breakdown of the factors contributing to cost 
savings is presented. These factors include infrastructure 
reduction, pricing agreements, wholesale inventory 
reductions, and reductions in contract administration costs. 
Other benefits of SPV, which include availability of 
commercial products, increased efficiency, reduced order and 
shipping time, lower end-user inventories, and potential for 
one-stop shopping, will also be discussed. 


1. Infrastructure: 

Studies conducted by the DSCP Internal Review Office of 
2 7 individual CONUS bases documented an infrastructure 
savings of approximately $7.9 million, and a one time cost 
avoidance of about $24 million attributable to SPV at these 
27 sites alone. (DLA Fact Sheet 02FEB98) These sites were 
chosen by the study because Prime Vendor contracts had been 
in place for at least nine months. These savings and cost 
avoidance related to reduced need for inventory, warehouse 


space, personnel, and in some cases the cancellation of 
warehousing Military Construction appropriations. Many- 
individual customers, such as Mayport Naval Station, could 
document over $1 million in savings and cost avoidance. Due 
in large part to SPV, DLA has reduced the number of DSOs 
from 22 in 1992, to four in 1998 as detailed in figure 3.1: 


I JacksonvSte 

Terminal Mkt Operation Export Site 

Figure 3.1. CONUS DSO LOCATIONS IN 1998 (Bland) 


2. National Allowance Pricing Agreements (NAPAs) 

The SPV program achieves some of its cost reductions 
through special contractual arrangements known as National 
Allowance Pricing Agreements (NAPAs) . DSCP enters into 
these agreements with food manufacturers of items with very- 
high volume sales. The manufacturers offer discounts in the 
form of " off invoice" pricing. The prices DSCP negotiates 
are lower than those available to the individual Prime 
Vendors for selected items. These agreements maximize the 
leverage of DSCP's consolidated buying power to lower the 
overall delivered price. As of March 1st, 1998, there were 
78 NAPAs in place. DSCP expects to double the number of 
agreements by the end of 1998. (Ford) NAPA savings for the 
period from August 15, 1996 through December 1, 1997, a 
period of just over 15 months, exceeded $2.5 million. (DLA 
Fact Sheet 12FEB98) 

3 . Food Show Program 

Another support mechanism for SPV is the Food Show 
program. The Food Show program also affords price 
reductions through rebates to customers attending these 
events. Coordinated by DSCP, manufacturers at these shows 


allow discounts for various items purchased over a 
subsequent time period. Total savings to customers were 
approximately $400,000 from February to October 1997. (DLA 
Fact Sheet 12FEB98) The Food show is an ongoing program. 
There are twenty- four Food Shows scheduled for SPV customers 
during the period of February through August, 19 98. 

4. Wholesale Inventory 

The SPV program has also allowed for reduction in DLA 
wholesale inventory as well. Subsistence wholesale non-war 
reserve inventory was reduced by $211 million (91%) between 
FY 91 and FY 98, due largely to the advent of commercial 
business practices. A minimum of $81 million of this total 
is directly attributable to the SPV program, with a 
potential for another $20 million within the next 12 to 18 
months. (Bland) When the SPV program is totally 
implemented world-wide, virtually the only wholesale 
subsistence inventory that will be stocked by DLA will be 
war reserve items such as Meals, Ready to Eat (MRE) . 

MREs are used by the Services to sustain individuals 
during military operations that preclude organized food 
service facilities. They are the primary individual soldier 


combat ration. MREs have flexible packaging, a shelf life 
of three years at 80 degrees Fahrenheit, and consist of 
thermoprocessed entrees which include crackers, a spread, 
dessert/snack, beverages, accessory packet, plastic 
utensils, and a flameless ration heater. MREs are capable 
of being air dropped, and withstanding extremely cold 
temperatures. Due to their unique nature and mission, MREs 
are not managed by the Prime Vendor program as of this 
writing. Inventories of MREs are still maintained as part 
of DoD's war reserve. 

5. Projections 

Savings to DSCP customers over the five year period of 
1997 through 2001 was originally estimated at: 1) over $500 
million in operating and maintenance costs for warehousing 
operations; 2) over $250 million in inventory reductions; 
and 3) over $325 million in operating and maintenance cost 
avoidance associated with construction of new facilities and 
refurbishing existing facilities. (DLA Fact Sheet JAN97) 

6 . Contract Administration 

The cost to administer a Prime Vendor contract is also 
significantly less than what it had been costing the DoD in 


terms of a surcharge to manage their Depots. The surcharge 
on average had been approximately 15% of the price of a 
given line item that was managed by the Depots (GAO/NSIAD 
93-110) . In financial terms, the cost to DoD to administer 
a Prime Vendor contract is approximately 1.5% of the sales 
of a regional Prime Vendor. This rate was based on analysis 
conducted on medical Prime Vendor contracts, but is 
consistent with costs for subsistence contracts as well. 


According to the survey that the thesis researcher 
conducted, the single most commented on and important 
benefit of SPV to the end-users is the availability of 
commercial brand name products that it provides. The Prime 
Vendor contractors have a variety of commercial suppliers 
supporting them who have the ability to provide virtually 
every imaginable brand name product. This gives the Prime 
Vendor the ability to provide ships with the same products 
that are being provided to the hotels and restaurants that 
are under a commercial Prime Vendor contract . 


The vendors are required to update the Prime Vendor 
catalogs on a weekly basis, which usually happens every 
Monday. These updates reflect additions and deletions to 
the catalog as well as price changes. Most of the 
contractors take the catalog updates very seriously and try 
to provide the customers with the latest products that 
become available on the market. The Prime Vendor that 
supports the Ingleside, Texas, area holds a quarterly 
demonstration at the local FISC to show all of their 
customers in that area what their new products are. (Young) 
The vendor actually prepares a theme oriented buffet where 
the customers can see and taste all of the new products. 

Every afloat Supply Officer surveyed commented on how 
pleased their crew was with the full line of commercial 
products that were now available to them at the dinner 
table. Sailors love the fact that products like Hunts 
ketchup, Skippy peanut butter, Kikkoman's soy sauce, and 
even Starbucks coffee grounds are now common place on Navy 
ships that are supported by SPV. Representative comments 
from afloat Supply Officers whom were surveyed include: 


" We were able to significantly improve our menu 

quality and ease of preparation." (USS ARDENT) 

" Certainly the quality of the food stores has 

increased dramatically, which enables my MS's to put 

out a better finished product to the crew" . (USS 


" We get superior quality. We can now get everything a 

restaurant can get" . (USS TICONDEROGA) 

" The selection of products is greater and the food 

quality is far superior to what was available before 

Prime Vendor." (USS SCOUT) 

"We successfully loaded out for our deployment with our 

selected Prime Vendor items and have enjoyed a constant 

variety of different menus because of the selection 

available through Prime Vendor". (USS SOUTH CAROLINA) 

Variety and quality of product availability has improved 
significantly over the old Depot system. In most cases, 
product availability (range) has more than doubled. Also, 
because of the just -in- time inventory methodology employed 
by SPV, products are generally much fresher than in the 


past. The Depot system had a constant problem with shelf - 
life expiration of semi-perishable items, primarily- 
attributable to their inventory philosophy of issuing their 
oldest inventory to the customer first when filling orders. 
Because they often used these first-in-first-out (FIFO) 
inventory procedures, customers often received items that 
had already passed their shelf-life and had to be extended 
by the Army Veterinarians, or surveyed and thrown 
away. (GAO/NSIAD 93-110) 


The ability to not only select over a wide range of 
product brand-names, but also product prices, affords Food 
Service Officers more financial management flexibility. 
Now, not only do they have more products to choose from, but 
they can also factor product price into their decision 
because most food items are offered by several different 
brand name suppliers at different prices. This price 
selection affords Food Service Officers the management 
ability that they need to stay within their Basic Daily Food 
Allowance. (Bartels) 



Electronic ordering through SPVI replaces manual forms 
preparation, thereby increasing efficiency in dining 
facilities. The decreased use of manual forms drastically 
reduces the overall administrative burden throughout DoD. 
Also, the ability to prepare an order using an updated 
catalog that has the most recent product and price changes 
is a welcome tool to the customer. Ships can now completely 
prepare their orders electronically, although their local 
FISC still has to electronically submit the order for them. 
(Dysick) In the past, ships had to handscribe their orders, 
or manually type out Navy messages which, on a ship, needed 
to be signed by the ship's Executive Officer and brought to 
radio central for transmission. This often caused delays of 
up to two days or more . 


Because of the effective inventory and distribution 
system that the Prime Vendors use, they are able to fill 
orders more quickly than the Depot system was able to. The 
SPV contracts require vendors to provide 48 hour response 


time to all customers. That success rate varies by region. 
The customer survey that the author conducted found that 
vendors are able to make deliveries within 48 hours to shore 
installations with excellent success. Ship deliveries 
generally take longer due to the fact the ships cannot 
currently order directly from the Prime Vendor (they need to 
go through FISC) , and because of the coordination required 
to deliver orders to the piers at which the ships are based. 
Vendors are able to make 48 hour deliveries to ships if 
absolutely necessary, but they prefer to have four to five 
days to prepare the orders and make the deliveries. 

Order and shipping time is further reduced under SPV 
because the vendors deliver directly to the end user, 
bypassing the base warehouse facility. The ability of the 
Prime Vendor contractors to make deliveries more frequently 
than was done in the past is another benefit of SPV which 
leads to lower on hand inventory levels. 


By adopting the just-in-time inventory methodology which 
SPV provides, DoD is now able to manage smaller end-user 


inventories. In the past, shore installations carried an 
average of 32 days' worth of provisions, and ships carried 
even more. This was because order and shipping time was so 
long and because of a lack of confidence that end-users had 
in DLA' s ability to provide what had been ordered. 

As users become more confident in the Prime Vendor's 
ability to deliver what they want and when they want it, the 
trend has been that end-users have started to hold less 
inventory on hand. (Welsh) Maintaining lower inventory 
levels has several positive aspects. First, less money is 
tied up in retail level (end-user) inventories throughout 
DoD. Second, because there are less items in the storeroom, 
inventories can be conducted more quickly. Also, it becomes 
easier to do daily food item breakouts and breakbacks to and 
from the storerooms which leads to increased accountability. 
Third, fewer food items are damaged during heavy seas, and 
because items are fresher, there is less spoilage due to 
shelf -life expiration. Therefore, fewer formal surveys (DD 
Form 250) need to be completed which saves administrative 
man hours. (Bartels) 



SPV has made acquiring products easier for afloat units, 
and the SPV program has the potential to allow end-user 
customers the ability to order all of their subsistence 
items from one source. Currently, SPV contracts do not 
require vendors to provide FFV, bread or dairy products, and 
end-users acquire these items from elsewhere. However, most 
vendors could provide these items upon request. (Ford) 

The SPV vendors, all of which support numerous commercial 
companies, are already in the business of providing FFV, 
dairy and bread to their commercial companies. Labatt's 
Distribution Company, which is the vendor on contract in 
Ingleside, Texas, claims to be ready and able to start 
supplying FFV to the ships they are supporting. (McCormack) 


This chapter detailed several of the benefits of the SPV 
program. It explained the various ways that cost savings 
are realized through SPV. It also explained how SPV has 
positively impacted the Fleet. 




This chapter examines some of the risks and concerns 
associated with the SPV program. The chapter examines the 
risks of outsourcing DoD's inventory management functions, 
and discusses the concerns addressed during the Naval 
Logistics Wargame 2007. This chapter also presents the 
results of the only Navy afloat SPV test that has been 
accomplished to date. 


DoD is challenged to live within the boundaries of their 
funding constraints while maintaining the operational 
readiness of United States combat forces at the highest 
possible level. Meeting this challenge will require the 
innovative use of information and technology. 

Warfighting and support of the warfighter have become 
increasingly complex as we near the 21st century. The job 
of the logistician has become increasingly more difficult, 
with ever more sophisticated hardware to support and fewer 
dollars available to maintain that support. These 
unparalleled challenges are recognized in Joint Vision 2010, 


the Chairman of the Joint Chiefs of Staff's outline for 
success in meeting our country's future military 
commitments. That document promotes a concept called 
w Focused Logistics," which emphasizes logistics precision 
in support of the battlefield. It stresses the need to 
manage logistics support to ensure that the customer gets 
the right part, at the right place, in the minimum possible 
time. These goals aren't new. What is new is the full- 
fledged commitment of the military to achieve them with 
exactitude, avoiding unnecessary expenditures in time as 
well as inventory and transportation costs. (Stewart) 

As discussed in Chapter II, SPV essentially outsources 
DoD's subsistence inventory management to the private 
sector. With the exception of certain base warehousing 
facilities which will be maintained, the majority of DoD's 
assets used to manage subsistence inventory will be 
eliminated in favor of transferring the function over to 
commercial contractors. 

The commercial sector has proven that they can manage 
inventory more effectively and more efficiently than can 
DoD. Given today's austere budget climate, global threat 


level, and acquisition reform environment, DoD must 
therefore embrace the commercial practices for subsistence 
inventory and distribution. This comes with an associated 
risk level which must be managed. 

The primary challenge to industry will be how best to 
deal with the surge in demand for supplies during times of 
military mobilization. Demand forecasting will become an 
even more important issue. The Deputy Director of 
Procurement at DLA puts it this way, " We have to be able to 
rapidly respond to needs, and in years past we did that by 
holding inventory. Because holding inventory is too costly, 
we have to prove we can tap into the commercial distribution 
channel and support the warfighter with equal and better 
sustainment . " (Jenkins) 

The sections that follow will discuss ways to validate 
the contractors' ability to provide surge and sustainment 
support, and will address ways that DoD can mitigate the 
risk that is associated with outsourcing inventory 
management functions. 



DoD concerns of SPV were officially voiced during the 
Naval Logistics Wargame 2007 (NLWG-2007) which was held on 
6-10 October 1997 at the U.S. Naval War College, Newport, 
Rhode Island. This fourth biennial wargame provided a 
structured environment in which senior logisticians from 
DoD, Federal agencies, and industry met to evaluate the 
capability of Naval Logistics to support operational forces 
over a spectrum of levels of conflict. This spectrum 
included peacetime forward presence, humanitarian 
assistance, crisis response, and regional contingencies. 
NLWG-2007 analyzed the doctrine, organization, and execution 
of Naval and selected joint logistics capabilities in 
support of operating forces and defined the risks associated 
with capability shortfalls. The objectives for NLWG-2007 
were to: 

1. Stress Naval Logistics capabilities through a range of 
scenarios from a multiple Lesser Regional Contingency 
(LRC) to a single Major Theater Warfare (MTW) wargame 

2. Assess the integration of operations in the littorals 


and expeditionary sea-based logistics ,- 

3. Evaluate the wargame scenario's impact on logistics 
support with regard to force structure, operational 
logistics, human resources, and future technology; 

4. Develop solutions to identified shortfalls emphasizing 
innovative thinking, rather than resource intensive 
answers ; and 

5. Assess the integration of Naval Logistics with Joint 
Vision 2010. 

Analysis of the wargame scenario and development of 
related support issues were conducted within all areas of 
logistics support. An assessment was conducted to determine 
if each logistics function could fully support operations 
defined by the wargame scenario in the areas of Naval 
Logistics Capabilities, Expeditionary and Sea-based 
Logistics, and Joint Vision 2010 Focused Logistics. 

NLWG 2007 highlighted several issues of concern. Each 
concern was characterized as being either a major issue, 
minor issue, or an emerging issue. A major issue is 
characterized as something that severely impacts the 


capabilities to provide the logistics support that is needed 
to meet the operational requirements of the scenario. The 
following issues, which relate to SPV were raised. 

a. Ability of Prime Vendors to support contingency- 
requirements has not been substantiated. 

This was considered a major issue. The logisticians 
who conducted NLWG 2 007 felt that Prime Vendor contracts 
could have a negative logistics impact. They reported that 
relying only on the Prime Vendor process to support 
contingencies may result in the lack of supplies after an 
initial surge to support a deployment . Services may have to 
compete with each other and with private industry for 
suppliers and supplies. Industry efficiency will be lowered 
when competing demands are received and not coordinated, and 
readiness and mission sustainment may be adversely affected. 
(Stewart) The NLWG logisticians are not concerned about the 
Prime Vendor's ability to meet the initial surge 
requirements involved with a large scale loadout (like a 
battlegroup loadout) , but they are concerned about the Prime 
Vendor's ability to sustain support for a large scale 


The NLWG 2007 recommended the following: 

• The Services jointly validate the ability of Prime 
Vendors to support an acceptable level of surge and 
re -supply. 

The Navy has tested the Prime Vendor's ability to 
support a deploying carrier battlegroup on 96-hour notice, 
the results of which will be discussed later, but a joint 
test has not been conducted. There are several situations 
in which the Services might be competing for the same 
resources within a geographic area, making it difficult for 
the vendor's to satisfy all requirements simultaneously. 
Their ability to do so should be evaluated in a Joint 
exercise conducted by DLA. 

• Validate and retain the war reserve inventory to 
cover jointly identified shortfalls of critical 

DoD needs to be careful with the war reserve 
inventories. Care must be taken to avoid spending dollars 
unnecessarily on war reserve items. War reserve items 
should be limited to only the most critical items, and only 


items that vendor's cannot be relied on to provide in time 
of crisis. Combat rations are one example. 

• Jointly prioritize and time the flow of requisitions 
to the acguisitioning activities. 

This is an important recommendation which the Services 
need to give consideration. For the case of the Navy- 
afloat, an organization needs to be designated as the 
activity which will prioritize requisitions that are given 
to the Prime Vendor. The author recommends the Operational 
Fleet Commander be that activity. The Operational Commander 
will assume command of the ships from the Type Commanders 
once the ships are certified and designated to deploy. The 
Operational Commander can best provide guidance to the Prime 
Vendor in terms of which ships are the most critical and 
will be in the best position to facilitate an effective 
loadout process. 

b. The industrial base surge planning and trigger 

process for troop support items (food, clothing, 
etc) , spares, and critical munitions is reactive 
vice proactive. 

This was considered a minor issue that had the 
following logistics impact: The inability of industry to 


supply or replace troop support items, spares, and critical 
munitions when needed degrades readiness and negatively 
affects mission completion. Attrition rates could increase. 
Inter-Service competition will exist among available 
supplier capabilities for certain critical items, unless a 
Joint coordinated surge planning and trigger process is 
developed. The lack of a process for considering 
overlapping Service requirements will inhibit industry from 
responding in a timely, efficient, and cost effective 
manner . 

NLWG-2007 recommended the following: 

• The Services fund, and DLA manage, inventory levels 
high enough to cover the first 30-60 days of 
requirements . 

The author does not concur with this recommendation as 
it applies to subsistence items. This is exactly the type 
of mentality that DoD has been trying to get away from. DoD 
cannot afford to spend money maintaining inventories of that 
magnitude. Instead, contractual relationships with 
commercial industry are the answer. 


• Acquisition activities should use surge option 
clauses where required. 

Surge option clauses are required in SPV contracts. 
Care needs to be taken to craft these clauses in such a 
manner that the contractors are forced to comply with the 
Navy's most pressing possible surge requirements. As of 
this writing, the DLA Contracts Management directorate is in 
the process of writing the surge clause which they plan to 
include in future SPV contracts. Currently there are no 
actual surge clauses in the contracts. The contracts merely 
state that the vendors are required to have a formalized 
surge plan and that they should be prepared to support surge 
requirements . 

c. There is a need for Commercial Asset Visibility. 

This was considered an emerging issue with the 
following logistics impact: The ability to accurately 
assess industry capability is limited by the lack of 
supplier asset information that is provided to DoD. The 
ability to gauge readiness is degraded when information 
regarding supplier asset availability to support critical 
readiness and sustainment capability is not made available 


to DoD. 

NLWG-2007 recommended that: 

• DoD develop agreements with commercial suppliers 
for electronic access to production, manufacturing, 
and distribution information for planning purposes. 

To give DoD visibility of the Prime Vendor's assets 
would be an exceptional tool for gauging readiness. 
Logistics planners would have real time access to Prime 
Vendor inventories which would give DoD a clear sense of the 
vendor's abilities to meet possible upcoming surge 
requirements. This tool would help to mitigate the risk 
associated with vendor managed inventories. 

• Where appropriate, make DoD inventory visible to 
suppliers . 

Given the current information technology that is in 
place on the waterfront, it is possible for ships to 
electronically report their inventories. Making shipboard 
inventories available to the suppliers who support them can 
only help that supplier be better prepared to do so. The 
author recommends the Navy develop a reporting requirement 


which requires ships who are available to support surge 
requirements (i.e. ships that are not in the shipyard) to 
electronically pass their inventories to their Prime 
Vendors. This could best be done via a third party, such as 
the Type Commander or local FISC. 

The NLWG 2 007 provided some valuable insight which 
officials involved with administering SPV contracts should 
consider. These recommendations can help improve readiness 
and minimize risk. 


The initial Navy Surge Exercise test of SPV was conducted 
October 27 through 30, 1997. The exercise was conducted 
partly in response to the NLWG-2007 after action report. 
The exercise was administered by DSCP in the Virginia Beach 
area. PYA/Monarch of Virginia Beach, R&R Group, and DSO 
Tidewater were the three activities involved with providing 
subsistence during the exercise. The exercise was designed 
to test the logistics capabilities for short fused battle 
group subsistence load-out requirements. This was a 
" paper" exercise, as no actual provisions were handled. 


The system was tested under extreme compression of time and 
place . 

The exercise used the following scenario: 

a) Unexpected military intervention required an operational 
surge to the Middle East. 

b) A Carrier Group and Amphibious Ready Group were required 
to deploy within 96 hours. The Battle Group consisted of 
one aircraft carrier (CVN) , two guided missile cruisers 
(CG) , one guided missile frigate (FFG) , one guided 

missile destroyer (DDG) , one destroyer (DD) , two 
amphibious assault ships (LHD) and (LPH) , two dock 
landing ships (LSD) , and one fast combat support ship 
(AOE) . 

c) All elements of the Battle Group, except for the AOE were 
loaded and embarked .from the Norfolk area. The AOE was 
loaded at the Naval Weapons Station, Earle, New Jersey. 

d) All elements of the Battle Group had an initial load of 
21-3 days onboard and required a 60 day loadout within 
96 hours. 


e) The AOE was empty and required a full dry, freeze, and 
chill loadlist. For purposes of this exercise the AOE 
was not loaded with end use (their own) requirements. 

f) Fresh fruit and vegetables were supplied by the Defense 
Subsistence Office, Tidewater. 

g) Market ready items were not tested. 

1 . PYA/Monarch of Virginia Beach 

PYA/Monarch is the SPV contractor for all of the 

surface ships in the Norfolk area with the exception of the 
Combat Logistics Force ships. PYA/Monarch is a large, full 
service food distributor whom has been in the distribution 
business for several years . They were responsible for the 
loadout of all ships involved in the exercise except for the 
CARGO loadout of the AOE. They provided or sourced all 
product requested within 4 8 hours, except for three items, 
which they provided in partial quantities. The DSCP account 
manager contacted adjacent Prime Vendors to source these 
three items, which they did successfully. (Bland) 

Two problems were randomly injected into the scenario 
to further test the Prime Vendor's ability to react to 
unanticipated events or occurrences. Some products were 


rejected for defect, and PYA/Monarch was required to locate 
a second source, which they did effectively. (Bland) 

Accelerated delivery of product to one ship was 
requested. PYA demonstrated their ability to respond, based 
upon 24 -hour availability of transportation assets and 
personnel. A total of 35 trailer loads would be required to 
deliver product to the ships. PYA/Monarch has 15 
refrigerated trailers and eight tractors exclusively 
assigned to support the Navy on any given day, and an 
additional 74 refrigerated trailers and 62 tractors 
available to assist from their commercial operations. 

2 . R&R Group 

R&R Group is another large, well-established food 
distributor, who has the Combat Logistics Force contract in 
the Norfolk area. They provided or sourced all product 
requested for the CARGO loadout of the AOE within 4 8 hours. 
All chill and freeze items were filled in their entirety as 
ordered with no substitutions. All dry items were filled, 
however, 14 lines were substituted. All substitutions 
involved unit pack substitutions, not product substitutions. 


R&R. was asked to demonstrate their ability to deliver 
product to Earle Naval Weapon Station in New Jersey by the 
required delivery dates. R&R indicated 12 trailers of dry 
product would be scheduled for delivery on the third day of 
the exercise, and 16 trailers of freeze and chill items were 
scheduled for delivery on the fourth day of the exercise. 
Using assets from alternative sources, R&R made available 
sufficient tractors and drivers, and proved that they could 
load out the trucks and make deliveries within the allotted 
time frames. (Bland) 

3 . Surge Exercise Summary 

DSCP gathered the following lessons learned as a result 
of this surge exercise: 

• Further refine the range and depth of subsistence 
requirements . 

• Substitution items require special receipt 

• PYA/Monarch needs to provide written 
surge/mobilization procedures. 

• Ship prioritization may enhance results. (Bland) 


Overall, the results of the test were outstanding. 
PYA, R&R, and DSO performed exceptionally well in meeting 
exercise demands, as 100% of requirements were satisfied for 
all ships in the allotted 96 hours. It should be pointed 
out that this was not a joint exercise, as the other 
Services were not involved. A more realistic scenario would 
be a joint test involving all major activities in a given 
geographic area. A joint test should be conducted in order 
to determine if the Prime Vendors can support the same short 
fused surge requirements when competing with other Services 
for resources. These resources is some cases may be 
provided by the same suppliers . 

Although the Prime Vendors did demonstrate their 
ability to source the provisions, and to make available the 
appropriate amount of drivers and transportation assets, 
there are inadequacies 'of a " paper" surge test. By not 
actually delivering the subsistence to the ships, the 
vendors showed that they could source the product and make 
available the transportation assets, did not prove that they 
could make deliveries to the ships on the piers during the 
confusion of a real surge scenario. 


During a real surge exercise, the base security level 
would be heightened, requiring drivers to have valid 
security clearances, and possibly subjecting their vehicles 
to searches at the gates. The piers will be very hectic, 
with other vendors making deliveries, various repair 
activities at work, ammunition onloads in progress, Marine 
Corps detachments embarking the Amphibious ships, and more. 
Material handling equipment, including forklifts and cranes, 
will be at a premium which will make off loads from the 
vendor trucks and onloads to the ships challenging. 

Although a test involving actual deliveries to ships 
under a realistic surge scenario would be costly and 
difficult to administer, it is one way to find out for sure 
if the Prime Vendors will be able to satisfy a likely surge 
scenario (i.e. a battlegroup loadout on 96 hour notice) . 


This chapter discussed the important concerns and risks 
that are associated with SPV. It also presented the results 
of the only afloat SPV test that the Navy has conducted to 


date. The chapter also summarized and provided comment on 
the NLWG 2007 recommendations as they relate to SPV. 




This chapter presents a summary of the survey that the 
researcher conducted which details the effectiveness of the 
current SPV process. It also details the lessons learned by 
the staff of Commander, Naval Surface Forces, U.S. Atlantic 
Fleet regarding SPV. 


The data presented in this study were gathered through a 
random survey of 17 Supply Officers who are customers of SPV 
contractors, interviews with six DoD officials who are 
involved with administration of SPV contracts, and 
interviews with two contractor representatives. The survey 
was designed to determine the effectiveness of the SPV 
program in satisfying customer requirements, and to 
determine the areas that needed improvement . 

The afloat Supply Officer survey consisted of ten core 
questions. The interviewees were encouraged to elaborate on 
any response, and to comment on the benefits and problems of 
SPV, as well as provide their recommendations for 
improvement. This survey was intended to collect opinions 


from the experts in the fleet who have experience working 
with SPV. A copy of the survey instrument is included in 
Appendix B . 


1. Question one: 

Is there effective communication between the afloat 
customers and the SPV contractor? 

Yes: 2 No: 10 Unsure: 5 

Ten of 17 Supply Officers indicated that there was not 
effective communication. The ships are not permitted to 
order directly from the contractor; instead they must place 
their order through their local FISC. There is no 
established line of communication between the ships and the 
contractors who support them. 

The Supply Officers based in Ingleside, Texas and 
Pascagoula, Mississippi pointed out the fact that their 
contractors are based significant distances from where the 
ships are located. The ships located in Ingleside receive 
their deliveries from a contractor who is located in San 
Antonio, which is over 100 miles away. The ships homeported 


in Pascagoula receive their deliveries from a contractor 
located in northern Alabama, which is over 200 miles away. 

Ships in Norfolk and Mayport are supported by contractors 
who are located across town. This geographic dispersion 
seems to create an out of sight, out of mind mentality which 
impacts communications between the two parties. 

Four Supply Officers mentioned that they would like to 
have a designated sales representative with whom they could 
discuss products and concerns. By having a sales 
representative to talk to who is familiar with the full 
range of products that his/her company can provide, Food 
Service Officers could use their help to develop menus that 
take advantage of all the products that the vendors have to 
offer. These Supply Officers were of the opinion that if 
they were able to speak with the vendor directly, they could 
benefit by explaining their needs and desires to the 
contractors, thereby enabling the contractors to better 
support the fleet . 

Regarding customer service policy, the SPV contract as 
written states: w The Prime Vendor shall treat each of the 
ships covered under the contract as one of their best 


customers. Therefore, any treatment and/or customer service 
policy given to other essential accounts shall also be given 
to the customers covered under the contract." (Contract, p. 
21) The contract also states: w The contractor shall 
provide customer service representatives and specific points 
of contact for customer service assistance, especially in 
respect to emergency service requirements, product quality 
complaints, shipping discrepancies, and damage. Toll free 
telephone service will be set up for customers to contact 
the customer service representative." (Contract, p. 71) 

The researcher recommends that this provision be 
rewritten such that vendors are contractually obligated to 
provide a customer service representative who is required to 
visit the ships regularly to provide clarification and 
assistance. Discussion with contractor representatives 
indicated that most Prime Vendors provided that type of 
service to their best commercial customers. 

2. Question two: 

Are the contractors making deliveries to the ships as 



Yes: 2 No: 10 Unsure: 5 

Stores delivery issues were the single biggest problem 
addressed during the survey. Ten of 17 Supply Officers 
complained that they often do not receive their deliveries 
as scheduled. In several cases, it was reported that 
deliveries did not occur on the correct day they were 
scheduled for. More often stores would be delivered on the 
correct day, but at the wrong time. Often this meant 
receiving a delivery in the afternoon that had been 
scheduled for the morning. 

Supply Officers reported that this significantly impacted 
the crew's ability to execute the ship's plan of the day. 
Often ships would have ammunition onloads, or major 
maintenance that required pier cranes, or working parties 
scheduled for other functions. To coordinate all that needs 
to be done in a given day, ships require the ability to plan 
major events, such as stores onloads, for a specific time. 
The afloat Supply Officers indicated that they want to be 
able to specify the date and time of their stores 
deliveries, and emphasized the importance of deliveries 
occurring as scheduled. 


The ship SPV contracts as currently written do not 
provide clear guidance regarding delivery time requirements. 
The contract states that the vendor must provide delivery 
within 4 8 hours after order placement unless otherwise 
required by the ordering officer. The contract states all 
deliveries will be coordinated and verified by the FISC. 
(Contract, p. 2) The contract does not provide incentives to 
the vendors for timely deliveries, nor does it penalize them 
for failing to deliver as scheduled. 

The researcher recommends that FISCs get more involved in 
the coordination of Prime Vendor deliveries to help ensure 
that deliveries occur as scheduled. A FISC representative 
who accompanies the vendors delivery vehicles to the piers 
and serves as a liaison with ships' force and Public Works 
personnel could provided substantial assistance in this 

3. Question three: 

What problems, if any, are you having with the 



In addition to deliveries not occurring as scheduled, 
Supply Officers reported the following: 

Drivers not waiting for all items to be inspected 

and counted before leaving. 

Pallets stacked too high. 

Like products not stacked together. 
Regarding drivers not waiting for all items to be 
inspected and counted, the contract states: " All food 
items must be inspected for count, condition and quantity 
and approved by the receiving ship's authorized personnel 
before acceptance can be made." (Contract, p. 3) Ship's 
forces personnel and FISC representatives need to ensure 
that vendors do not leave the pier until all items have been 
counted and inspected. It is incumbent upon ship's force 
personnel to meet the vendor's delivery vehicle upon 
arrival. Deliveries being made as scheduled will facilitate 
this. Problems should be reported to the DSCP contracting 

Regarding pallet height the contract states: " If using a 
standard commercial pallet the maximum height should not 
exceed 54 inches including the pallet." (Contract, p. 61) 


Ship's force and FISC personnel need to police the vendors 
to ensure compliance, reporting discrepancies to the 
contracting officer. 

4. Question four: 

Do you find that the SPV catalog is accurate and user 

Yes : 6 No : 6 Unsure : 5 

Six Supply Officers responded that the catalog was not 
complete in terms of listing all of the items that the 
contractor could provide. Also, it was pointed out there 
were several items listed in the catalog that the 
contractors could not provide. 

Three survey responses indicated that the ships did not 
receive weekly catalog updates until late on Monday or on 
Tuesday, which caused them a delay in putting together their 

Two Supply Officers commented that the catalogs listed 
some consumable items like paper products and serving 
utensils which, when ordered, were listed on the same 


receipt as the food items. This makes the records keeping 
process difficult. 

The contract states only that the contractor shall 
provide a catalog order guide, with descriptions and pack 
sizes to each of the customers serviced under the contract. 
(Contract, p. 71) The researcher recommends that the 
contracts be modified to include a statement which requires 
the contractor to provide a separate receipt document for 
any non-subsistence items ordered from the catalog. This 
will facilitate the process of recording receipts. 

5. Question five: 

How well has SPV supported you while on deployment? 

None of the Supply Officers surveyed had actually 
completed a deployment whereby they were supported by SPV, 
although four were planning for an upcoming deployment . 
These Supply Officers were concerned that the CLF ship that 
supported their battle group would be loaded out with 
different items which did not support their menu. Because 
the CLF ships are supported by a different contractor and 


have storage limitations, this proved to be a pressing 

Contracting Officers should ensure that the core item 
list for the CLF ship contracts is the same as the core item 
list for the surface ship contracts. Some discrepancies 
were detected in the Norfolk solicitations. 

6. Question six: 

Does SPV satisfy your short fused (one hour to 24 hour) 
delivery requirements effectively? 

Yes: 13 No: 2 Unsure: 2 

Of the responses, 13 of 17 reported that the Prime 
Vendors did an excellent job satisfying short fused 
requirements by making deliveries within 24 hours when 
requested. The contract specifies that: " The contractor 
shall provide same day emergency service to the FISC." 
(Contract, p. 66) The contractors are required to make two 
such emergency orders per month, per ship, at no additional 
charge. Any emergency order (s) above and beyond this 
minimum may be charged at a to-be-determined rate as 
negotiated with DSCP. 


Survey responses indicated that ships have a difficult 
time getting requisitions done for items that they need 
within one to three hours of getting underway. Now that 
FISCs are out of the business of stocking subsistence, and 
in many cases the supporting SPV contractor is over 100 
miles away (Ingleside and Pascagoula) , ships can no longer 
walk through requisitions themselves. This makes it 
difficult for ships to get items within the hour as they 
could when the FISCs were stocking subsistence. 

A solution would be to allow the afloat Supply Officers 
to use their Government credit cards to purchase subsistence 
items in this situation. The researcher recommends that DLA 
working in conjunction with the Type Commanders develop a 
procedure whereby ships can use their credit cards to 
satisfy emergency subsistence procurements. 

7. Question seven: 

Has SPV had any negative impact on your menu? 
Yes: No: 17 Unsure: 

Every Supply Officer response (17 of 17) indicated that 
their menu has improved substantially with SPV. The ability 


to use recognized name brand items has measurably improved 
the quality of afloat food service operations. 

8. Question eight: 

What impact has SPV had on your records keeping 

Supply Officers recognized that having electronic 
catalogs allowed the records keepers to prepare their orders 
more quickly and easily, and receiving electronic receipts 
made the process of posting receipts less time consuming 
than it had been prior to SPV. 

The survey responses also indicated that the SPV records 
keeping process did present some new challenges. Because of 
the variety of brand name items available, and the different 
case sizes, receipt processing requires close scrutiny. The 
FSM system will create a temporary food item code, known as 
an w X" code, to an item which has been received for the 
first time, even though it may be very similar to another 
item. For instance, if a ship had received sugar, food item 
code H23 in 5-10 pound bags, and then the ship were to 
receive a subsequent order of sugar in 4-10 pound bags, FSM 


would create an " X" code for the new sugar. This would 
cause the ship to have sugar on inventory under two 
different food item codes which can create inventory- 
problems . 

Because the Prime Vendor program provides multiple 
choices of brand names products for the same items, another 
records keeping challenge is created. For example, 14 ounce 
ketchup bottles are available from Heinz, Hunts, and 
Delmonte. Each of these different brand name ketchup 
bottles require a unique navy stock number (NSN) . The Food 
Service Management (FSM) system assigns a different food 
item code (FIC) to each NSN. Using the ketchup bottle 
example, this results in separate inventory line items for 
each type of ketchup. This is a problem which creates 
inventory difficulties for afloat food service operations. 

The author's recommendation is to upgrade the FSM system 
so that it has the ability to group multiple NSN's under one 
FIC. DLA or NAVSUP should fund the development and 
distribution of this FSM update. 

SPV training should be emphasized at Navy training 
schools such as the Navy Supply Corps School and Mess 


Specialist w C" schools. Type Commander training teams and 
Navy Food Management Teams should provide SPV training to 
shipboard personnel during scheduled training visits and 
upon request . 

Frequent product price changes cause Food Service 
Officers to conduct menu financial reviews more frequently 
than in the past. More attention to detail is required by 
ship's force personnel when placing orders and processing 
receipts to ensure that the ship's cycle menu remains 
affordable . 

9. Question nine: 

Are you able to stay within Basic Daily Food Allowance 
(BDFA) limits? 

Yes: 14 No: Unsure: 3 

The overwhelming answer (14 of 17) was yes. As 
mentioned, the menu did require more financial attention 
than it had previously due to changing prices. In the three 
survey responses that were not positive, the Supply Officers 
indicated they were confident they would be able to stay 
within BDFA limits after making several menu changes. 


10. Question ten: 

Would you prefer to have SPVI on board your ship so 

that you could order directly from the SPV contractor? 

Yes: 9 No: 4 Unsure: 4 

Nine of 17 answered yes. Some of the more inexperienced 
Supply Officers actually liked going through FISC because it 
allowed for a third party to double check their order, often 
eliminating mistakes. The nine Supply Officers who 
indicated they wanted SPVI capability believed it would 
allow them to reduce order and shipping time. 

The SPV contract currently specifies that all orders will 
be placed by the FISCs although DSCP has made the 
recommendation to DLA that ships be given SPVI capability. 
A decision from DLA is pending as of this writing. (Ford) 
The author concurs with DSCP that ships should be given SPVI 


Based on discussion with officials at DSCP, various 
FISCs, and Type Commander representatives, several other 


contractual SPV discrepancies have been discovered. 
Following each discrepancy is a recommended solution: 

1. Problem: Usage Data 

Poor usage history data were initially provided to 
Prime Vendors to assist in determining and/or establishing 
adequate start up inventory levels. This caused the 
vendors, especially in the Norfolk area, to have difficulty 
fulfilling requirements in the first several weeks of 
contract performance. 

Recommendation : Stores consumed data, by region, should be 
used in conjunction with the procurement history data 
information that is provided by DSCP. The Navy Supply 
Systems Command code 51 personnel, who track subsistence 
usage for the entire fleet, should compile the stores 
consumed data and provide them to the Prime Vendors through 
DSCP. These usage data will help the vendors in the initial 
planning phase . 


2 . Problem: Core item list does not match CARGO 

Each solicitation includes an 120 item list of core 

items that the Prime Vendors must provide to the ships they 
support. It is important for uniformity purposes that this 
core item list match the Consolidated Afloat Replenishment 
Guide Overseas (CARGO) food item list. The CARGO details 
the food items that the replenishment ships (CLF force) 
carry and will use to support ships when they deploy. 
Recommendation : DSCP SPV contracting officers should always 
ensure that the core item list is consistent with the CARGO. 
SPV contracting officers should be placed on the initial 
distribution list for CARGO updates to ensure contract 
accuracy is maintained. 

3. Problem: Substitutions 

The contract state's that all supplies shall be 
furnished on a " fill or kill" basis, meaning that only the 
actual items ordered will be delivered and that no 
substitutions will be made. This policy creates problems 
for ships especially when they are getting underway soon 


after they receive stores and do not have time to order 
substitutions for the items that were not in stock. 
Recommendation : Give the ships the option of whether or not 
to use the fill or kill policy. Let the ships elect to have 
the vendor make substitutions as necessary to fill 
requisitions for items that are not in stock. When they 
elect to allow the vendor to make substitutions, ships will 
have to rely on the vendors to make appropriate substitution 
decisions. Given the ability to make substitutions as 
necessary will allow the vendor to better support their 
ships . 

4. Problem: Packaging 

Commercial cartons/packaging in many cases did not hold 
up to the bulk storage shipboard environment. Excessive air 
space in boxes is the primary cause. Chill and freeze items 
are the major concern. Weight of meat boxes often exceeded 
60 pounds and is not manageable by the average person. 
Additional freeze items were delivered in 10 pound cases 
(i.e., preformed hamburgers, diced pork, etc.) and cannot 
withstand excessive handling and long term storage. 


This problem is unique to the Prime Vendor process as 
vendors are delivering items packaged in the same manner 
they are packaged for commercial customers. These 
commercial customers often have larger storage capacity, 
more automated equipment to load boxes into their 
storerooms, and can maintain a lower on hand balance of food 
items because they have the ability to take deliveries at 
any time (they don't go to sea) . 

Navy ships require boxes that are not so heavy that 
they can't be handled by several people as they are 
transported from the pier to the storerooms. The boxes also 
need to be able to withstand the pressure of being stacked 
from the floor to the ceiling, often with up to 300 to 400 
pounds stacked on top of them. 

Recommendation : Solicitation should spell out these issues 
to ensure good packaging (i.e., Type II) and minimize air 
space. The contract states that: " Case weights should not 
exceed 60 pounds. Case weights for high volume items should 
not be less than 4 pounds. Packaging for shipboard stowage 
may require deviation from standard commercial pack. 
Product should be packed in a snug fitting case. Case head 


space should be kept at a minimum to accommodate stowage 
aboard ships." (Contract, p. 60-61) 

This statement should be amended to include box 
strength and durability requirements that conform to the 
shipboard environment . 

Another packaging problem that is being experienced is 
that often packaging is for meats is not vacuum packed which 
often causes freezer burn. The contract states: " All 
packaging and packing shall be in accordance with good 
commercial practice. All beef, pork, lamb, and veal items 
shall be packaged in a vacuum and gas flushed, or vacuum 
packed, and wrapped in a polyethylene wrapping, or vacuum 
packed." (Contract, p. 60) 

Afloat Supply Officers and FISC representatives should 
ensure to inspect packaging and report discrepancies to the 
vendor and the contracting officer. 

5. Problem: Labels 

Often labels are missing or cannot be easily read to 

determine expiration date, date of pack, or best use by 
date. This is important information which must be included 


on every container of food delivered to a Navy vessel. The 
contract states that this information is mandatory. 
(Contract, p. 60) 

Recommendation : Ships should be reminded to ensure that 
product labels are included on everything that they receive. 
They should inform the vendor, the FISC, and DSCP if 
discrepancies exist . 

6. Problem: Approved Source List not used 

In some cases, Prime Vendors have delivered products to 
ships which were procured from suppliers who were not on the 
Navy Supply Systems Command's " Approved Source List." 
Recommendation : Include a statement in the contract that 
requires the Prime Vendors to deliver items manufactured by 
suppliers who are listed on the " Approved Source List." 

7. Problem: Invoicing 

At initial contract start-up, all required data needed 
on the Prime Vendor invoice were not available (i.e., total 
quantity of units delivered, unit of issue, and unit price) . 


Recommendation : Invoices must reflect all necessary- 
information required by the end user, SPVI operator and the 
Prime Vendor. Include in the solicitation that the invoice 
must include Government unit of issue and price . 


This chapter presented the customer survey data. It also 
presented a list of discrepancies which were compiled 
through survey and interview with several SPV officials at 
various commands. Also presented were recommended solutions 
to those discrepancies. 



In general, the Subsistence Prime Vendor program is a 
valid resupply method. The afloat Supply Officers whom are 
supported by SPV are thrilled with the availability of a 
full range of commercial products, as well as the reduced 
order and shipping time that SPV provides. SPV represents a 
shift in DoD's strategic thinking that is consistent with 
the Navy's logistics goals which include developing 
solutions emphasizing innovative thinking, rather than 
resource intensive answers. 

Transferring subsistence inventory management to the 
private sector represents a manageable amount of risk for 
DoD. As was discussed in Chapter IV, there are several 
things that DoD can do in order to mitigate the risk 
associated with SPV. These include: developing logistics 
surge mobilization plans which provide guidance to the Prime 
Vendors; conducting joint surge exercises; employing 
techniques to provide inventory visibility electronically 
both to DoD and to the Prime Vendors . 


As discussed in Chapter V, there are several problems 
with SPV, the resolutions of which require contractual and 
administrative changes, and improved communications between 
customers and contractors . 


The primary research question was: 

What impact will the Defense Logistics Agency's 
Subsistence Prime Vendor program have on Navy afloat food 
service operations? 

The SPV program has had a positive impact upon the 
quality of afloat food service operations. The availability 
of name brand commercial products has been a huge success, 
order and shipping time has been drastically reduced, and 
use of automation has facilitated the ordering process. 

The secondary research questions were: 

1. What is the traditional DoD subsistence 
distribution process? 


A description of the traditional food distribution 
process was presented in Chapter II, Section C. Under the 
traditional system, subsistence items were procured using 
delivery order contracts and then stored in DoD owned 
depots, DSOs, and base warehouse facilities. 

It was determined that the traditional system was too 
expensive and cumbersome. GAO recommended that DoD adopt 
commercial inventory distribution practices for subsistence 
in order to reduce infrastructure costs and improve customer 
service . 

2 . What is the Subsistence Prime Vendor (SPV) program 
and how does it work? 

A complete description of the SPV program is provided 
in Chapter II, Section D. The SPV program is designed to 
use commercial practices for food distribution. It is an 
attempt by DoD to tap into private sector logistics 
approaches. Specifically it is designed to: (1) use w just- 
in-time" business practices that shift responsibilities for 
storing and managing inventory to commercial suppliers; (2) 
shift responsibility for managing items to suppliers through 


the use of long-term agreements with only a few key 
suppliers; (3) use direct delivery practices that bypass the 
need for intermediate handling and storage; and (4) 
eliminate paperwork and speed up ordering by using 
electronic ordering systems and bar coding. Adopting the 
commercial distribution practices was intended to help DoD 
reduce inventory infrastructure, inventory levels, and 
handling costs. SPV utilizes indefinite quantity, 
indefinite delivery (IDIQ) type contracts with commercial 
food distributors to deliver subsistence products directly 
to the end-user, bypassing the depots and base warehouse 
activities . 

3 . What are the expected benefits of SPV? 

Chapter III details the benefits of SPV. The benefits 
include cost savings via infrastructure reductions, pricing 
agreements, and wholesale inventory reductions. Other 
benefits include the increased availability of commercial 
products, financial flexibility for afloat food service 
operations, increased efficiency, reduced order and shipping 
times, and lower end user inventories. 


4. What are the expected risks and concerns of SPV? 

The risk and concerns of SPV are addressed in Chapter 
IV. The primary risk of SPV comes from relinquishing 
inventory management and distribution functions and relying 
on the commercial sector to satisfy all of the Navy's 
requirements. Routine deliveries are not considered a major 
concern, but the Prime Vendor's ability to satisfy full 
scale surge requirements is a concern. Their ability to do 
so has not been validated in a joint exercise wherein the 
Services (Navy, Marines, Army) were competing for resources. 
Also, there is no contractual incentive for Prime Vendors to 
support DoD's full scale, short notice requirements. 

5. Given a likely surge scenario, what problems might 
SPV contractors encounter, and what risks do they 
present to the fleet? 

Given a likely surge scenario, similar to the one 
presented in Chapter IV, Section E, there are several 
problems which the SPV contractors might encounter. 
Depending on their geographic proximity to other major 


military installations wherein other Services may also be 
preparing for full scale deployment, the Prime Vendors may 
be competing with the other Services for resources that are 
provided by the same suppliers. This competition for 
resources could jeopardize the Prime Vendor's ability to 
support their customers . 

Other surge scenario problems are discussed in Chapter 
IV, Section B. 

6. What contractual measures or other actions can be 
taken to mitigate problems that are being 
experienced with SPV? 

Several contractual and administrative measures 
intended to improve the current SPV process were presented 
in Chapter IV and V. 




1. USS ARDENT (MCM 12), LT Blackburn, 14FEB98 

2. USS GETTYSBURG (CG 64), LT Luna, 04MAR98 

3. USS GLADIATOR (MCM 11), LT Ingram, 17FEB98 

4. USS GUNSTON HALL (LSD 44), LT Mitchell, 20FEB98 

5. USS JOHN L. HALL (FFG 32), LT Barger, 27FEB98 

6. USS MCINERNEY (FFG 8), MSC Lewis, 11MAR98 

7. USS OAK HILL (LSD 51), LT Kutney, 25FEB98 

8. USS PATRIOT (MCM 7), LT Bach, 25FEB98 

9. USS SAMUEL B. ROBERTS (FFG 58), LT Burks, 18FEB98 

10. USS SCOTT (DDG 995), MSC Koehler, 19FEB98 

11. USS SCOUT (MCM 8), LT Mann, 19FEB98 

12. USS SOUTH CAROLINA (CGN 37), MSCS Harrison, 14FEB98 

13. USS SULLIVANS (DDG-68), LT Goudreau, 30MAR98 

14. USS SUPPLY (AOE 6), CDR Thornton 04MAR98 

15. USS THORN (DD 988), LT Stephens, 19FEB98 

16. USS TICONDEROGA (CG 47), LCDR Bartels, 17FEB98 

17. USS YORKTOWN (CG 48), LCDR Johnson, 23FEB98 





1. Is there effective communication between the afloat 
customers and the SPV contractor? 

2 . Are the contractors making deliveries to the ships as 

3. What problems, if any, are you experiencing with 

4 . Do you find that the SPV catalog is accurate and user 

5. How well has SPV supported you while on deployment? 

6. Does SPV satisfy your short fused (one hour to 24 hour] 
delivery requirements effectively? 

7 . Has SPV had any negative impact on your menu? 

8 . What impact has SPV had on your records keeping 

9. Are you able to stay within your Basic Daily Food 
Allowance (BDFA) limits? 

10. Would you prefer to have SPVI on board your ship so 
that you could order directly from the SPV contractor? 




Adreano, James M. and Hanley, Francis E., " The Feasibility 
of Implementing a Prime Vendor Program for Laboratory 
Supplies and Related Material , " Master's Thesis, Naval 
Postgraduate School, Monterey, CA, December 1996. 

Bailey, David B., "Applicability of Subsistence Prime 
Vendor to Contingency Rations, " Master's Thesis, Naval 
Postgraduate School, Monterey, CA, December 1996. 

Bartels, John LCDR, SC, USN, Supply Officer of USS 
TICONDEROGA, Interview conducted in February 1998. 

Bland, Paul CAPT, SC, USN, Director of Subsistence at 
Defense Supply Center Philadelphia, Philadelphia, PA, 
Interview conducted in January 1998. 

Bland, Paul CAPT, SC, USN, " After Action Report For 
Subsistence Prime Vendor Surge Exercise, " Defense Personnel 
Support Center Memorandum, December 1997. 

Byres, David LCDR, SC, USN, Code N416 at Commander Naval 
Surface Forces U.S. Pacific Fleet, Coronado, CA, Interview 
conducted in January 1998. 

Capano, Anthony, xx The Effects of the Department of 
Defense' s Prime Vendor Program on Navy Medical Readiness, " 
Master's Thesis, Naval Postgraduate School, Monterey, CA, 
December 1994 . 

Contract Number SP0300-98-D-2945, For Total Food Support For 
Naval Ships at San Diego, issued by Defense Personnel 
Support Center, Philadelphia, PA on December 23, 1997. 

Defense Logistics Agency (DLA) Fact Sheet dated February 2, 

Defense Logistics Agency (DLA) Fact Sheet dated February 12, 


Doyle, Richard, Phd, Public Policy and Budget class lecture 
notes, Naval Postgraduate School, Monterey, CA, January 
through March, 1997. 

Dysick, Jerald, SPV Manager at Fleet and Industrial Supply 
Center, Norfolk, VA, interview conducted in February 1998. 

Eaton, RADM(Ret), " Eaton's Five Initiatives for Better 
Logistics by the 21 st Century, " Naval Postgraduate School 
Point Paper, Monterey, CA, January 1998. 

Ellis, Sandy CDR, SC, USN, Defense Logistics Agency, Fort 
Belvoir, VA, Interview conducted in January 1998. 

Ford, Keith, Director of Subsistence Prime Vendor at 
Defense Supply Center Philadelphia, Philadelphia, PA, 
Interview conducted in January 1998. 

GAO/NSIAD-93-110, POD Food Inventory: Using Private Sector 
Practices Can Reduce Costs and Eliminate Problems , United 
States General Accounting Office, Washington, DC, June 1993. 

GAO/NSIAD-95-142, Inventory Management: POD Can Build on 
Progress in Using Best Practices to Achieve Substantial 
Savings , United States General Accounting Office, 
Washington, DC, August 1995. 

GAO/NSIAD-96-156, Inventory Management: Adopting Best 
Practices Could Enhance Navy Efforts to Achieve Efficiencies 
and Savings , United States General Accounting Office, 
Washington, PC, July 1996. 

GAO/NSIAP-97-71, Pefense Logistics: Much of the Inventory 
Exceeds Current Needs , United States General Accounting 
Office, Washington, PC, February 1997. 

GAO/NSIAP-97-110, Pefense Outsourcing: Challenges Facing 
POP as It Attempts to Save Billions in Infrastructure Costs , 
United States General Accounting Office, Washington, PC, 
March 1997. 


GAO/NSIAD-97-214 , Inventory Management : Greater Use of Best 
Practices Could reduce DoD' s Logistics Costs , United States 
General Accounting Office, Washington, DC, July 1997. 

GAO/HR-97-4, Defense Contract Management , United States 
General Accounting Office, Washington, DC, February 1997. 

GAO/HR-97-5, Defense Inventory Management , United States 
General Accounting Office, Washington, DC, February 1997. 

GAO/HR-97-7, Defense Infrastructure , United States General 
Accounting Office, Washington, DC, February 1997. 

Hamre, John J., w Management Reform Memorandum #12— 
Expanding the Use of Prime Vendor Contracts Instruments , " 
Office of the Under Secretary of Defense, Washington, DC, 
June 17, 1997. 

Inspector General Report number 96-109, Prime Vendor Support 
of Medical Supplies, May 7, 1996. 

McCormack, Anthony, Subsistence Prime Vendor Sales 
Representative for Labatt ' s Corporation, San Antonio, Texas, 
interview conducted in February 1998. 

Moore, John, w DoD Launches Next Logistics System," The 
Early Bird, October 20, 1997. 

Peters, Katherine M., " Defense Logistics Agency: Relying on 
Vendors For Quick Buys, 1 ' GovExec homepage, August 1996. 

Peters, Katherine M. , * Cashing In on Contractors, " GovExec 
homepage, June 1996. 

Secretary of Defense, * Highlights - Best Business 
Practices : Excerpt from November 1997 SECDEF Defense Reform 
Initiative Report," Washington, DC, November 1997. 

Stewart, J.D. MGEN (USMC) , * Naval Logistics Wargame 2007 
Executive Summary" Unites States Naval War College, 
Newport, RI, October 10, 1997. 


Welsh, Linda MSCM(SW), Senior Mess Management Specialist on 
Staff of Commander, Naval Surface Forces, U.S. Atlantic 
Fleet, interview conducted in February 1998. 

White, Kevin L. , * Adopting the Prime Vendor Program to 
Manage Marine Corps Authorized Medical /Dental Allowance 
Lists," Master's Thesis, Naval Postgraduate School, 
Monterey, CA, December 1996. 

Young, John, Subsistence Manager ate Fleet and Industrial 
Supply Center Detachment Ingleside, Texas, interview 
conducted in February 1998. 

Zayas, Miguel LCDR, SC, USN, Defense Logistics Agency, Fort 
Belvoir, VA, Interviews conducted January- February 1998. 



Defense technical Distribution Center 
8725 John J. Kingman Rd. , STE 944 
Ft. Belvoir, Virginia 22060-6218 

2 . Dudley Knox Library 

Naval Postgraduate School 

411 Dyer Rd. 

Monterey, CA 93943-5101 

3 . Defense Logistics Studies Information Exchange 
U.S. Army Logistics Management College 

Fort Lee, Virginia, 23801-6043 

4 . Dr. David V. Lamm, Code SM/Lt , 

Department of Systems Management 

Naval Postgraduate school 

555 Dyer Rd. 

Monterey, CA 93943-5101 

5 . CDR David A. Smith, Code SM/Sv 

Department of Systems Management 

Naval Postgraduate school 

555 Dyer Rd. 

Monterey, CA 93 943-5101 

6 . Dr. Mark Nissen, Code SM/Ni 

Department of Systems Management 

Naval Postgraduate school 

555 Dyer Rd. 

Monterey, CA 93943-5101 

7. LCDR Christopher S. Mosher, SC, USN 

226 Pleasant St. 

Pembroke, Massachusetts 02359 


3 4B3NPG 
10/99 22527-200 


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