Mr. THOMAS. Do you need all this $1 million here?

Mr. BEAN. Yes, sir. I think I could give you some reasons why we even need more.

Mr. THOMAS. We better move on to the next item, then.

RELEASE OF STORAGE SPACE DUE TO REDUCTION IN INVENTORIES

Mr. JONAS. How many square feet about, Mr. Moore, did you say they were going to release?

Mr. BEAN. According to testimony by Assistant Secretary of Defense, Mr. Morris, a direct result of reduced inventories has been the release of millions of square feet of space of covered storage formerly occupied by supplies and parts. As indicated in their program for phasing out unneeded warehouses, in June 1957, they had in active status 348 million square feet of covered storage space and 3 years later these facilities had been reduced by 37 million square feet.

Mr. JONAS. You do not have any vacant warehouse space, do you? Mr. BEAN. No, sir.

Mr. JONAS. If they release it to you, where will you store it? Mr. BEAN. We are taking over some few installations which they have released.

Mr. JONAS. There will not be any net release though, will there? Mr. BEAN. Oh yes, because we have so far taken over about 1.5 million square feet since 1957 and that, related to the 37 million, is not very much.

EXPENSES, SUPPLY DISTRIBUTION

JUSTIFICATION OF THE ESTIMATE

Mr. THOMAS. Let us take a look at "Expenses, supply distribuPut pages 26, 27, 28, 29, and 30 in the record.

tion."

(The justifications follow:)

SUPPLEMENTAL ESTIMATE OF APPROPRIATION, 1962-"EXPENSES, SUPPLY

DISTRIBUTION"

APPROPRIATION LANGUAGE

"For an additional amount for 'Expenses, supply distribution', $2,500,000: Provided, That this amount shall be apportioned for use pursuant to section 8679 of the Revised Statutes, as amended, only to the extent determined by the Administrator, with the approval of the Bureau of the Budget, to be necessary to provide for store sales at a rate which would be expected to result in total store sales exceeding $215,000,000 (exclusive of direct delivery sales) for the fiscal year 1962."

GENERAL STATEMENT

"This proposed supplemental appropriation is to provide for an increase in sales volume related to greater supply support to the Department of Defense as the General Services Administration assumes substantial additional item supply responsibilities. A number of items have already been assumed with additional takeovers expected to proceed on an orderly basis. In the event sales volume does not increase as rapidly as anticipated, funds available through the apportionment process will be limited to actual requirements related to volume growth." (Quoted from House document.)

This appropriation provides for expenses of operation the nationwide supply system through which common-use commodities are sold to Government agencies from stocks in supply depots, or by direct delivery from suppliers ordered by GSA or by customer orders placed directly with contractors under Federal supply schedule contracts developed by GSA.

Sales for 1962 are currently estimated at $1,145.4 million, as compared to $1,097.8 million originally contemplated.

The justification which follows reflects data for 1961 in the 1962 budget as previously amended, and for the current 1962 estimate. As indicated in the justification, the additional amounts are necessary to support higher sales programs than were contemplated in the earlier estimates for 1962 submitted to Congress.

These estimates provide for the first time, for the impact of a program for greater GSA supply support to agencies of the Department of Defense. Negotiations between GSA and DOD have now reached a point where large additional item responsibilities will be assumed by GSA at specific dates in the months immediately ahead, with additional takeovers to result in succeeding months as item management decisions are made on an orderly basis.

1. Stores activities.-Unit costs are related to sales from stores stock, including fuel yard and retail stores; and depot inventories, as follows:

Stores operations.-Stocks of common-use commodities are received, warehoused, and sold at cost to Federal agencies through a nationwide system of supply depots. The decline in unit cost from $4.92 in 1961 to $4.88 in 1962 will be possible by improved operating methods and more effective management controls.

Space and related costs.-Reduction in unit cost in 1962 will be made possible by increased use of federally owned facilities as opposed to leased facilities. Nonrecurring costs provide for the movement of some depots into these facilities.

2. Buying operations.-Unit costs are related to the value of purchases, as follows:

The volume of stores items buying depends largely upon the volume of stores sales. With increasing sales forecasts, buying in any one period will tend to exceed sales in that period, as purchases must be made sufficiently in advance to insure availability for subsequent issue. Unit costs for buying for stores items and for schedules increase slightly above the level forecast in the 1962 budget because the sales increases now forecast will result from the addition of a considerable number of items of supply to the GSA system. These additional items will not be handled in the same volume per item as those presently in the system, so that slightly more buying effort will be required per $100 of purchases than in the past.

3. Inspection operations.-Costs are related to the value of purchase orders issued as follows:

Increased funds for nonstores items purchased are necessary to provide for 100 percent quality control coverage of these items. Under the budget as originally submitted, it would have been possible to inspect only about 82 percent of the nonstores volume. In addition to assurance of conformity with specifications, this activity involves (a) contract administration assistance to assure that the contractor understands completely all contract terms, (b) review of the contractors' quality control systems, and (c) taking action to assure delivery in accordance with the terms of the contract. In rendering contract administration assistance the inspector acts as the representative of the contracting officer on the scene. This system has already proven its effectiveness in its application

to purchase of stores items, and it is unwise to continue exempting a large segment of the nonstores volume from this system. It will be noted that the unit cost for nonstores supplies inspected would decline from the 1961 level and the original 1962 estimate.

Quality control coverage of materials procured from Federal supply schedules has been limited to (1) requests from ordering agencies for inspection services, (2) plants that are visited on stores or nonstores inspections, and (3) items where safety or security is a factor. This has caused problems in some cases, which can be largely eliminated by moderate increases in quality control activities for schedule items. Even after the increases proposed, the operations will cost about 4 cents per $100 worth of schedule procurement. Increased use of schedules by the Department of Defense, which will produce significant advantages to the Government, hinges upon expanded quality control activities. The military services frequently ship supplies to remote locations, and defects which may be discovered cannot then be readily rectified. It is necessary, therefore, to have adequate systems for assuring quality at the source. GSA is committed to DOD to perform source inspection of FS schedule items to maximum extent practicable. It is contemplated that this inspection coverage will involve one or more visits each month to at least 800 contractors' plants.

The increase is necessary because of the rapidly expanding volume of workload in connection with the transfer of supply responsibilities from Department of Defense to GSA. This activity is the central point of coordination with DOD in working toward full utilization of the supply capabilities of GSA by the military departments for common-use, commercial-type items. This involves development of policies and procedures in conjunction with the Office of the Assistant Secretary of Defense (Installations and Logistics) and the supply single managers of DOD. Negotiations have proceeded to the point where some 50,000 items of supply have already been referred to GSA for decision as to item management. An additional 228,500 will be referred to GSA, largely from existing single managers and those to become operational in the near future. Item volumes of this magnitude require considerable coordination to assure that the transfers and policy decisions can be made as smoothly as possible, to provide for maximum economy and joint-system supply effectiveness. Examples of the work involved under this activity are as follows:

(a) Determining the groups and classes of supplies for which FSS can be most effective, as a guide to the single managers and others in referring items for decision to GSA.

(b) Developing procedures for referral of specific items to GSA, and for transmission of decisions on tens of thousands of items back to DOD. (Some items will be eliminated due to standardization, others will be dropped from the supply system, the remainder will be put into one of the three modes of supply of GSA.)

(c) Assuring that effective dates for the assumption of supply responsibilities by GSA are appropriately phased with catalog cutover dates.

(d) Provisions for transfer of inventory, including steps to assure that adequate demand and sales data are available.

(e) Steps to be taken with respect to residual quantities of items in DOD locations.

(f) Arrangements with respect to operation of GSA facilities at DOD locations, which is a strong future possibility.

(g) Steps to assure procedural compatibility, such as the format of requisitions, shipping instructions, and other documentation, and the provision of uniformity in ADP procedures so far as practicable.

As noted, about 50,000 items have already been referred to GSA for decision, and various groups of these items are already at the stage where concrete actions must be taken in the areas enumerated above. This workload will increase sharply in the months immediately ahead.

5. Administrative operations.-This supplemental estimate is to provide administrative support for the projected increase in supply distribution activities, as follows:

The continuing expansion of GSA programs, and particularly the stores operations, have consistently strained our accounting and reporting activities, especially the automatic data processing facilities.

The long-range forecast reflects over a 100-percent increase in total sales and almost a 200-percent increase in sotre sales from 1961 through 1967. In order to be in a position to process the expanded workload in an economical manner, it is necessary to commit current resources in preparation for handling the expanding workload in succeeding years.

To keep abreast of expanding GSA program requirements, studies were initiated in 1959 to design and install automatic data processing systems which would provide improved services to management and dollar savings to GSA. The studies are continuing and systems are designed for equipment that is installed on a progressive basis to meet program demands. For example, small-scale electronic computers were installed in five regional offices as follows: Kansas City, December 1958; Atlanta, October 1959; Dallas, December 1959; San Francisco, June 1960; and Denver, October 1960. A large-scale computer was installed in the Washington region late in fiscal year 1961.

The large-scale computer has the capability of combining customer order filling, inventory management, and related accounting functions into one integrated system. The system for handling FSS procurement and sales business on the small computers is being expanded to provide additional features such as automatic preparation of bills of lading, consolidating of freight shipments, a standard production schedule, automatic preparation of buy cards, automatic demand forecast by item, etc.

Present trends indicate that the volume of supply business in several regions will exceed the capacity of present equipment within the next 4 to 12 months. Therefore immediate steps must be taken to meet this situation.

Thus, the costs cover not only processing of current workload but also planning, redesign, and installation of systems to meet expanded program requirements.

The use of automatic data processing operations facilitates the handling of procurement and stores distribution business at reduced unit costs but places a greater financial burden on the administrative operations fund. It is anticipated that about 300,000 additional line items will be processed through the ADP system as a result of increased stores volume, with the attendant increase in inventory accounting, payment of invoices to suppliers, billing to customers, and related items of a financial nature.

Mr. THOMAS. For an additional amount for "Expenses, supply distribution," $2.5 million:

Provided, That this amount shall be apportioned for use pursuant to section 3679 of the Revised Statutes, as amended, only to the extent determined by the Administrator, with the approval of the Bureau of the Budget, to be necessary to provide for store sales at a rate which would be expected to result in total store sales exceeding $215 million (exclusive of direct delivery sales) for the fiscal year 1962.