Administrative and Holding Costs Resulting from Processing Reports of Nonconforming Supplies
Abstract
This study examines two elements of the cost of nonconforming items. The administrative cost arises from actions normally performed at various supply and staff levels (internal and external to DLA) when a nonconforming item is discovered and a Quality Deficiency Report (QDR) is initiated, processed, investigated and resolved. The holding cost results from the storage and handling of nonconforming items and from the lost opportunity of investment for money tied up in these discrepant supplies. The average administrative cost accumulated for a single QDR for a typical DLA item is $501. The average holding cost per QDR is estimated as 3.55% of the contract value for a typical DLA item. The administrative costs (in dollars) and holding costs (expressed as a proportion of the contract value) were derived for various levels of detail, that is, Federal Supply Class, Federal Supply Group and supply center. These sets of results are the products of this study. In comparing 2 or more bids for a particular item, the contracting officer at a center may calculate 'evaluation factors' for each potential contractor based on the contractor's quality history and contract data. A 'true' cost to the government of doing business with each offeror can be better assessed using these factors. A more cost-effective decision can be made. It is recommended that the cost estimates developed in this report be tested as bid evaluation factors at one or more of the supply centers. (edc)
Document Details
- Document Type
- Technical Report
- Publication Date
- Jul 01, 1989
- Accession Number
- ADA214426
Entities
People
- John Bray
Organizations
- Defense Logistics Agency