Stretching the Defense Dollar

Providing the United States with a solid, second-to-none defense capability requires a sustained level of military readiness, modern military equipment, and programs and benefits essential to the well-bing of our military men and women and their families. The question is how best to manage resources in order to achieve our goals efficiently and effectively.

"Outsourcing" is one answer. It involves transferring a function previously performed in a government facility to an outside, private-sector provider. Outsourcing allows certain tasks to be performed more efficiently, and it generates savings. Lower costs mean more resources available for modernizing our forces' equipment.

The Department of Defense can learn from American private enterprise, which has adopted outsourcing to enhance global competitiveness. Private firms are turning to outside suppliers and service providers to acquire support capabilities that are important to their businesses, but are not core operations.

Companies report that outsourcing enables senior managers to focus on core tasks, which has led to improved services, more efficient business practices, and reduced costs.

Canon, for example, guarantees photocopier replacement within 24 hours but outsources the delivery of this service. Avis manages its rental-car reservations with one of the largest data processing systems in the world but outsources the processing of its own payroll. Many local governments, such as those in San Francisco, Phoenix, and Indianapolis, use outsourcing to improve services and lower costs.

If we act prudently, the Department of Defense can obtain the same benefits. For example, we currently outsource software maintenance for many of our high-performance aircraft, as well as many installation services. Outsourcing allows the department to focus on its core competencies - that is, conducting military operations for the United States. Our focus ought to be on the mission, not on ancillary services.

Defense-related activities will only be considered for outsourcing or privatization when they meet three essential criteria:

First, we will not outsource activities that constitute our core war-fighting missions - that is, activities our military leadership considers essential to our missions and that would create too much risk if they were turned over to the private sector.

Second, a competitive market must exist for the activity. We benefit most if market forces are driving organizations to improve quality, increase efficiency, and reduce costs.

Finally, outsourcing any activity must result in better value for the government and, therefore, the taxpayer. We will evaluate past performance and costs of each potential provider to ensure reliability, timeliness, and quality.

We already know that a large number of activities are not appropriate candidates for outsourcing - maintenance of something as sensitive as our nuclear submarines, for instance. But the remaining possibilities are many. For example, we have tested a system under which medical suppliers deliver products directly to Defense Department customers, rather than to a warehouse for subsequent distribution. The results: Delivery time for pharmaceuticals is faster (within 24 hours) and 25% to 35% cheaper. Such programs not only save resources, they do the job better.

Currently, several statutory and regulatory provisions prevent us from realizing the full benefit of outsourcing. We are working with Congress to remove these impediments. Our goal is to give Americans in uniform the capabilities they need and to give all Americans the best value for their tax dollar.

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