CHAPTER 3 PROCUREMENTS BY SELF-SERVICE STORES Merchandise for sale in the self-service stores is obtained largely from General Services Administration depots. However, the self-service stores are constrained from providing supplies to customers because GSA accords the stores low priority on their orders for merchandise from the depots. Nevertheless, store managers are expected to meet customer demands and increase sales. SELF-SERVICE STORES ASSIGNED LOWEST PRIORITY GSA self-service stores and other civil agencies may obtain items from GSA depots only through the Federal Standard Requisitioning and Issue Procedures (FEDSTRIP) system. Under this system, when a requisition is submitted to a depot, one of four priority codes must be entered on the document. These codes indicate the importance assigned to the requisition and the estimated length of time in which delivery can be expected. The four FEDSTRIP codes, their conditions for use, and associated delivery time frames follow. a/The FEDSTRIP system is a derivative of the Military Standard Requisitioning and Issue Procedures (MILSTRIP) system which uses 15 priority codes for ranking demand for supplies. The FEDSTRIP system is authorized to use only four of MILSTRIP's 15 priority codes. GSA requires self-service stores to use priority code 15, the lowest possible priority for requisitioning supplies from GSA depots. When priority 15 is used (1) the depots do not process orders consistently, (2) deliveries from the depots are slower, (3) stores order in excess of requirements to compensate for long lead times, (this causes overstocking of some items), (4) store customers are last in line for urgently needed supplies, (5) stores purchase directly from commercial sources because delivery dates are unknown, and (6) the stores use the more expensive Federal supply schedules to obtain items which may be already available in the depots. In February 1975, during the GSA purchase moratorium, store managers were temporarily authorized to use priority Priority 15 was again required in May 1975 with priority 8 authorization given only for items which were back ordered. 8. In June 1975, self-service stores in GSA regions 7 and 10 were exempted from the priority 15 requirement and were allowed to use priority 8 indefinitely. Priority 8 enhanced the stores' inventory position and increased support to customer agencies. Although the self-service stores program is an integral part of GSA, the stores must use the priority system designed for consumers and thus are forced to compete for depot goods with agencies who are store customers. The FSS Assistant Commissioner, Office of Supply Distribution, said it is difficult to justify the assignment of any priority code to the self-service stores because they are not consumers for which the FEDSTRIP system was designed. According to a December 1974 management consultant report on FSS operations, self-service store orders should be accorded an automatic priority I on most fast-moving items and a high priority II for all other items. The report noted that adoption of this recommendation would compel GSA to treat its own orders with the same urgency that it accords orders for some of its customers. It would also reduce the number of "stockouts" in the stores caused by depot delays and, therefore, reduce the need for managers to order merchandise from more costly Federal supply schedules or commercial sources. Conclusion We concur with the premise that GSA depots should treat orders from self-service stores with the same urgency they use for orders from other customers. Just as the GSA depots are suppliers of goods so are the GSA self-service stores. Consequently, the stores should have goods available for numerous customers at all times. Since depot goods may only be obtained under the FEDSTRIP system, we believe the self-service stores should have greater flexibility in their requisitioning process and should be permitted to use higher priority codes when circumstances warrant. ECONOMIC ORDER QUANTITY PROCEDURES The economic order quantity (EOQ) principle of stock replenishment determines a reorder quantity which will result in the lowest total cost for ordering and maintaining inventory to meet expected demand. The EOQ principle balances the costs of ordering and holding stock to obtain minimum costs. Once EOQ is identified, the purchase of any other quantity will increase costs. Thus, using the EOQ principle can achieve savings. Federal Property Management Regulation 101-27.1, issued by GSA, requires all civil agencies to replenish inventories of stock items in accordance with the EOQ principle. The regulation also permits agencies to use modified EOQ procedures when space, personnel, or budgeting limitations preclude application of the basic EOQ techniques. GSA has modified the EOQ technique in the self-service store handbook to permit managers to quickly and easily determine the EOQ. We noted, however, that a December 1971 GSA memorandum stated that the handbook EOQ procedures were optional for store managers. Since GSA issues the Federal Property Management Regulations, the optional use of modified EOQ procedures appears to violate GSA's own regulations. Discussions with 17 store managers revealed that 5 managers used the EOQ principle when ordering, 3 managers used it occasionally, and 9 managers did not use it. One manager was unaware of the EOQ principle. Since no records of self-service store sales by individual item are maintained, most managers determine when to reorder and what quantities are needed on the basis of judgment, experience, and a visual examination of store stock. The store managers said that the demand for most items stocked in the stores does not justify using EOQ techniques. Conclusion We believe that EOQ, as modified by GSA, is an adequate method for store managers to replenish stock. GSA should stress the importance of EOQ and rescind its instructions which make EOQ procedures optional. In a prior report (B-133396, June 27, 1974), in which we reviewed GSA's use of EOQ, we concluded that if organizations do not use or properly apply EOQ, the Government will not realize the savings in operating costs and reduced inventory investments that the concept is designed to achieve. SELF-SERVICE STORE MANAGERS HAVE WIDE The original concept of the self-service stores was to provide a centralized self-service stockroom with emphasis on administrative supplies and general use office items. Now, the intent of the self-service stores program is to provide a "one stop" shopping service with emphasis on fullsupply support to agencies. To meet the full-supply concept, the types of items stocked in the stores have increased. In addition to stocking administrative and general use items, the stores stock such items as desk accessories, electric pencil sharpeners, water pitchers, alarm clocks, automobile accessories, styrofoam coffee cups, facial tissues, plastic spoons and forks, world atlases, air fresheners, doormats, and whitewall tires. Most store managers have wide latitude in selecting the items they stock. Some GSA regions require customer demand or regional approval before an item is stocked. Many managers, however, do not obtain prior approval. No formal criteria exist, such as a particular number of customer demands causing an item to be stocked, and no justification is needed to stock an item. One store manager said he tried items with "eye appeal"--hand cleaners packaged in bright tan and yellow containers and clocks with colored faces--because he thought they would sell. GSA pressure on self-service store managers to stock items In addition to the wide latitude managers have over items stocked, there has been regional pressure at times for the stores to increase the number of items. For example, self-service store managers in one region were directed to stock approximately 2,000 items. The managers were told that if an item was legal, there was no reason why it should not be stocked. (See app. IV.) The headquarters chief, self-service stores branch, told us that each store should carry, on the average, about 2,000 items. Thus, he noted, while each store should have 114 "must" items on hand, each manager has discretion in stocking an additional 1,886 items. For example, the Omaha, Nebraska, store stocked about 1,700 items, and the Kansas City, Missouri, store stocked about 2,900 items during fiscal year 1975. Personnel in one of the stores showed us a commendation they had received for reaching 2,000 items stocked. A GSA regional official told us there was no regulation for the stores to carry 2,000 items, but he believed a store should be able to fill most agencies' needs if it stocked 2,000 items. One store manager told us there was pressure from higher levels to increase sales. A regional chief, self-service stores branch, said there was no pressure on store managers to increase sales and said that GSA believes in "satisfying demand, not creating it." |