Lean Six Sigma Project - Defense Logistics Agency/Honeywell Long-Term Contract Model Using One-Pass Pricing for Sole-Source Spare Parts
Abstract
To address concerns with the length of the Defense Logistics Agency (DLA) Honeywell contract (12 years) without a significant pricing review and the effectiveness of the one-pass pricing process, the project was initiated to determine whether actual costs had increased in line with inflation. The purpose of escalation clauses is to provide adjustments to the contract price as a result of changes in the national economy, so that the contractor will realize neither economic benefit nor economic loss because of economic fluctuations. The project resulted in significant improvements to the strategic supplier alliance with Honeywell International, Incorporated (Honeywell). Specifically, the project recommended a repricing clause (at the 3- to 5-year mark), which will help ensure that pricing is fair and reasonable over the long-term contract. The project also recommended using a statistical sample to effectively reprice thousands of items. Overall, the project reduced prices on 348 sole-source spare parts valued at about $100.8 million (based on 3-year sales) to $91.3 million, or by about $9.5 million or 9.4 percent for future procurements. This should generate $3.16 million in annual recurring savings. The project also showed that prices have increased less (11.7 percent) than the inflation rate over a 19-year period, and significant administrative savings have been obtained by DLA and Honeywell.
Document Details
- Document Type
- Technical Report
- Publication Date
- Feb 18, 2011
- Accession Number
- ADA546764
Entities
Organizations
- Office of the Inspector General, U.S. Department of Defense