Supply chain purchase strategies for accountability of COTS X-ray equipment in Army Medical Hospitals

Supply Chain Purchase Strategies That Increase Accountability of Requirements for Commercial Off the Shelf X-ray Equipment at Army Medical

Hospitals

Supply Chain Purchase Strategies that Increase Accountability of Requirements for Commercial Off-the-Shelf X-Ray Equipment at Army Medical Hospitals

Effective supply chain management practices have received a great deal of attention in recent years, but the problems associated with supply chain management are certainly not new. Indeed, as General George Washington's experiences at Valley Forge in 1777-1778 prove, provisioning a military force in the field carries with it some unique and profound challenges, and the U.S. Army has a long history of overcoming these obstacles to ensure that its troops are provided with the materiel they need to achieve their respective missions. Today, the U.S. Army is prosecuting a shooting war on two fronts in Afghanistan and Iraq, and the need for effective supply chain purchase strategies has never been greater. To this end, this study examines effective purchase strategies for buying commercial off-the-shelf x-ray medical equipment for U.S. Army medical hospitals that will provide accountability to ensure contractors deliver the required product. An overview and history of current buying procedures used by the U.S. Army is followed by an assessment of current problems being experienced in the procurement process. An analysis of precipitating changes that compel divergence from existing practices is followed by a summary of the research and salient findings in the conclusion.

Review and Discussion

Overview and History of Current Buying Procedures.

Who is making the requirements. The U.S. Army has been purchasing x-ray equipment in support of its hospitals since at least 1940 (Smith, 1959). Today, United States of America (U.S.) laws and acquisition regulations govern all of the purchases made by the U.S. Army; in addition, the U.S. Army uses a variety of procurement methods (USACCE Pamphlet 715-5, 2002). According to this Army publication, in 1994, U.S. law established a preference for the acquisition of "commercial items"; commercial items are products sold or leased to the general public, and services sold competitively in substantial quantities in the commercial marketplace (USACCE Pamphlet 715-5, 2002). Nevertheless, Army procurement agents still retain a good deal of latitude in selecting one product or service over another. According to Kurke and Scrivner (1995), "Through its procurement decisions, management has the power to ensure that the designer or vendor takes into account human factors, health and safety, and training requirements" (p. 480). The primary contact with any Army contracting office will be with a contract specialist or purchasing agent; although contract specialists or purchasing agents cannot execute contracts or otherwise obligate the Government, they perform the routine operations of the procurement function, to include: (a) contacting firms for quotations, (b) issuing solicitations, - conducting negotiations, (d) preparing contract documents, and (e) administering awarded contracts (USACCE Pamphlet 715-5, 2002).

Typically, though, there is little accountability in this procedure because contract specialists and purchasing agents are not generally held accountable for procurement decisions that lead to disastrous breakdowns of equipment or operations (Kurke & Scrivner, 1995). Because the equipment vendor has the capability to enhance or degrade equipment system performance by the degree of attention given to these factors, procurement officials must be given the responsibility and accountability for the field performance of the equipment they purchase (Kurke & Scrivner, 1995).

Requirements support the need. The development of appropriate specifications and purchase decision requirements in the U.S. Army begins with the establishment of a requirement for a new or modified system that may or may not involve equipment by subject matter experts in the area (Kurke & Scrivner, 1995). There is also some formal guidance that must be followed during the procurement process. For example, Army Regulation 710-2, paragraph 4.20, states that a local purchase decision can be made:

During an emergency;

When the wholesale item manager has granted authority;

When the item is not in the Army Master Data File (AMDF); or,

When it is judged to be in the best interest of the Government in terms of the combination of quality, timeliness, and cost," subject to justifications for items costing more than $2, 500 (Bondanella, Brauner, Relles, Pint & Steinburg, 2002).

Local purchases, though, may not be used without the approval of the wholesale item manager for items costing more than $100,000, items that are critical to the safe operation of a weapon system, items with special security characteristics, explosives and munitions, aviation time change components, or small arms; comparable stipulations are set forth in the Defense Federal Acquisition Regulation Supplement, Subpart 208.7003-1 (Bondanella et al., 2002). Although there are some simplified acquisition procedures in place, more formal procedures are typically used for equipment, such as sophisticated X-ray imaging equipment, that costs more than $100,000; these formal procedure procedures are set forth in Table 1 below.

Table 1.

Formal contracting methods currently in use by the U.S. Army.

Phase

Description

Sealed Bidding.

The contracting office issues a solicitation, an "Invitation for Bids" or IFB. By the date established in the solicitation, a company submits a sealed bid, to be opened at a time and place stated in the solicitation for the public opening of bids. Representatives of the bidding companies are allowed to attend the bid opening. Bids are evaluated without discussions. Award is made based on price and price related factors only, to the firm offering the lowest price.

Competitive Negotiation.

The Army contracting office issues a solicitation, a "Request for Proposals" or RFP. By the date established in the solicitation, a company submits a written technical proposal and a price to provide the supplies or perform the services. The solicitation will tell the company precisely what to submit; detailed technical proposals, past performance history, and cost information are usually required.

Evaluation.

The Government evaluates all proposals received under stringent guidelines so each firm is afforded a fair opportunity; however, an award may be made without negotiations. If the Government's evaluation reveals areas which the Contracting Officer needs to discuss with competing firms (e.g., questions regarding the proposed technical solution or price) negotiations will be held. Those firms which submitted a proposal most highly demonstrating a clear feasibility of being selected, subject to some changes, are invited to discuss (negotiate) their proposal with the Contracting Officer. After negotiations, companies submit a proposal revision (technical and/or price). The Government again evaluates the proposal and a contract will be awarded to the firm providing the best value to the Government.

Source: USACCE Pamphlet 715-5, 2002, p. 11.

Current Problems or Situations.

Keeping Up with Technology. Today, the U.S. military is faced with a great deal of pressure to maintain or improve performance while reducing its infrastructure costs to pay for new weapon systems, force structure, and personnel retention initiatives (e.g., pay increases) (Baldwin, Camm, Cook & Moore, 2002). According to USACCE Pamphlet 715-5 (2002), "The cornerstone of the U.S. Government acquisition system is competition. With very limited exceptions, the U.S. Army must obtain competitive prices for all procurements with an estimated value greater than $2,500. Competition encourages new solutions and ideas which ultimately result in improved products and services for the Army, and at a lower overall cost" (p. 3). In addition, although specific U.S. Army requirements/specifications must be met to be awarded a contract with the Army, these specific requirements can frequently be met with minor modifications to current products or services. In fact the U.S. Army is required to purchase commercial items or these modified commercial items when they are available to meet their needs (USACCE Pamphlet 715-5, 2002).

Reliable Delivery Procedures. While the U.S. Government awards contracts only to companies that can demonstrate their ability to perform the requirements of a contract (USACCE Pamphlet 715-5, 2002) a number of existing supply chain management practices used by the U.S. Army typically increase the time a customer must wait for a part or delivery of equipment (Bondanella et al., 2002). The U.S. Government enjoys the right to terminate a contract, at any time, when it is in its interest to do so because of unreliable delivery experiences: "A contract may be terminated for default (or cause) when, for example, the contractor fails to deliver supplies or perform services within the time specified in the contract" (USACCE Pamphlet 715-5, 2002, p. 5).

Precipitating Changes.

Lack of Personnel. The Army procurement procedures currently in place are designed to provide follow-up assessment of the effectiveness of the processes involved, one of which is ensuring that there is adequate staffing available to accommodate the requirements of the materiel being purchased. If the procurement analysis indicates that personnel needed to effectively operate the system are unavailable, the next step is to reconsider the doctrine, employment, design, manpower, personnel, training, or performance requirements for the system (Kurke & Scrivner, 1995).

Strategies for improvement. One of the purposes of establishing a set of criteria to evaluate price and credit policies is to determine whether these are cost-effective from an Army-wide point-of-view (Bondanella et al., 2002). In this regard, Baldwin and his colleagues (2002) report that new purchasing and supply management (PSM) practices from the commercial sector's best practice approaches have been reported to substantially improve performance and reduce the costs of purchased goods and services. Moreover, the U.S. military has become increasingly aware of such strategies for improvement based on these "best" practices because of their potential to help the military achieve its strategic goals and their perceived ability to help formulate relevant strategies for improving military procurement procedures (Baldwin et al., 2002).

U.S. Army Hospital Mission.

Impact. Today, U.S. Army hospitals may be situated in the middle of the homeland or in close proximity to the battle front (Hegadoren & Lasuik, 2006). While the need for timely and quality medical care is equally important in either venue, in the latter case, there are some important distinctions that affect the need and timing for procurement procedures. In this regard, the old adage, "There's a war on!," has been used time and again to justify emergency procurement techniques for the military that might appear exorbitant or inappropriate from a civilian perspective, but the military occupies a special niche in American society and human lives are constantly at stake as a result of the supply chain management process. According to Bondanella and his associates, "Financial considerations are only one factor affecting the decisions of logistics customers. Customers may also care about the speed with which an item is delivered or repaired and the quality of the service, for example. Taking all these factors into account, customers make decisions that are cost-effective from the local perspective" (2002, p. 18). This approach is congruent with existing U.S. Army procurement policies that use a best value concept to award many contracts.