Amend_0006_Attachment_3-Vendor_Managed_Inventory_(VMI)_Procedures_for_Government-owned_inventory_or_transferred_inventory.docx

SECTION I – CONTRACT CLAUSE CONINUATIONS

Vendor Managed Inventory (VMI) Procedures for Government-owned inventory or transferred inventory.

The contractor will comply with the following:

· Assumption of Item Management. Assumption of Item Management occurs when the contractor assumes responsibility for inventory management, distribution, and when applicable, forecasting of the designated items or groups of items. The contractor is assigned a routing identification code (RIC) and when a Materiel Release Order is issued by a DLA activity, the item(s) are shipped by the contractor within the performance metrics for customer delivery requirements. Shipments by the contractor to the customer may also be based on customer performance requirements, and/or forecasts as identified in the contract.

· GPM Management: For GPM management, the contractor provides an accountable storage plant for Government owned inventory based on DLA inventory management procedures.

· The contractor assumes responsibility for Receiving, Warehousing and Materiel Issue, and Physical Inventory control. The receiving function includes offloading of freight, including proper handling, inspection classification, reclassification (using Kind, Count, Condition procedures) of all incoming materiel, and the routing of that materiel to storage. The receiving function also includes checking packaging, markings, and the use of research data systems, such as FLIS. The contractor is responsible for maintaining documentation, reporting discrepancies, and identifying items requiring inspection or testing by Quality Assurance personnel.

· The warehousing function includes physical storing of materiel, as well as selecting materiel for shipment. Warehousing also includes maintaining the stock locator system, keeping storage plans current, preparing space utilization reports, and controlling all Materiel Issues (MRO’s, DRO’s, and RDO’s). Physical Inventory Control includes maintaining accurate records, conduction location surveys, physical inventories, researching inventory discrepancies, and causes for adjustments. Reconciliations are performed to ensure internal and external balance conformity.

· The contractor is responsible for conducting research to resolve discrepancies in asset balance comparisons between (1) EBS, (2) the customer’s records and (3) the contractor’s records.

· The Government will retain title of the inventory.

· The contractor will develop a risk management plan as part of the performance plan for inventory management which includes the physical location of the government-owned inventory. The control of risks will include risks of the physical and environmental damage, spoilage, and other risks identified in the risk assessment. The contractor will assume Risk of Loss for VMI in accordance with Clause 52.247-34(b)(4). The contractor will report occurrences of risk events on a monthly basis.

· The contractor shall be responsible and accountable for all government-owned-inventory accepted into stock. The contractor shall be responsible for:

1) EDI Transactions: The contractor will maintain inventory levels in an EBS Plant location (i.e. an EBS Stock Plant) where accurate and current stock inventory will be recorded. The contractor shall receive routing requirements from the Government via EDI for fulfillment from the inventory and provide EDI transactions for contractor invoicing.

2) Preservation: the contractor shall provide preservation, protection, maintenance, and refurbishment of the Government inventory sound industrial practice. Contractors will develop a risk assessment of inventory loss (human, environmental, and other) and develop loss controls in accordance with the risk assessment and sound industrial practice. Contractors shall report any loss of inventory to the government.

3) Location Accuracy: The contractor shall maintain an audible inventory of all Government owned materiel which will be monitored by a daily, weekly, or monthly random sampling to maintain accountability in the assigned EBS plant designation (i.e. EBS Stock Point) for all Government owned materiel. Inventory changes, adds, deletions, and corrections will be entered by the contractor through EDI to the DLA EBS.

· The contractor will conduct location survey and required for a physical verification of inventories, other than actual count, between physical assets and recorded location data to ensure that all assets conduct prompt research to determine the need for an inventory.

· The contractor shall accomplish a complete location survey of all locations no less than once a year utilizing a statistical sampling methodology that ensures all locations are included in the population and have probability of selection or a combination of complete statistical sampling.

· The contractor will maintain a location accuracy goal of 99.5%. If a sample survey is selected and the goal of 99.5% is not achieved, the contractor may be required to perform corrective action including by not limited to increased sampling, complete location survey of the warehouse area where the sample was conducted, or other actions as deemed necessary by the contracting officer. Calculation of accuracy rate shall be based on the number of locations that are correct in the population sampled divided by the total number of locations sampled. Results shall be reported on a monthly, quarterly or annual basis as applicable.

4) NSN Quantity Assurance: The contractor shall maintain a quantitive balanced record for all materiel, regardless of ownership. The contractor shall maintain transaction histories to support the balance records. Maintenance of these records shall provide the capability to detect theft or diversion of materiel and improve the ability to determine the cause of inventory variances for corrective action.

5) The contractor will conduct a complete scheduled physical inventory of all Government owned materiel by contract close-out using a statistical sampling methodology that ensures all NSNs are included in the population and are sampled without replacement at least once during the year. Inventory methods can be cyclical or wall to wall. The Government will verify the contractor’s physical inventory listing and will conduct joint inventories and location surveys where practicable. The Government may also conduct unscheduled random sampling of the inventory as warranted. Results shall be calculated as follows:

· Total number of parts correctly sampled/total number of parts reported in system records for sample.

· Total dollar value of parts correctly inventoried/total value of parts reported in system record for sample.

The contractor shall reimburse the Government the contract prices for any inventory shortages that exceed a negotiated dollar value threshold or unit variance. The Government reserves the right to inspect and audit the VMI and the contractor’s VMI records at any time during performance of the contract.

6) Inventory Records Management (IRM) for GPM. The contractor shall Initiate IRM process (via EDI) with the Government on a negotiated basis. The total IRM process must be completed before contract close-out.

7) Returns: Where designated by the contract, the contractor shall be responsible for picking up materiel returns at the designated sites (both CONUS and OCONUS) and shipping these assets to the contractor’s facility. The contractor will arrange for materiel return within the number of days specified either in the contract or in the contractor’s performance management plan and metrics. The Useable materiel returns remain the property of the US Government and become VMI to be used in fulfilling customer demands under the terms of this contract. The customer may request a pick-up via a toll-free number and website link established and maintained by the contractor. The contractor shall provide a quarterly report, identifying the customer and listing each pick-up and its total number of NSNs. The contractor shall maintain an aggressive materiel return program that prevents/limits the number of returns into the DLA depot system. In the event of returns to the DLA depots, the contractor shall be responsible for transportation of the gases/cylinders to its location for appropriate disposition.

8) Disposal: The contractor shall perform the recycling/disposal of VMI that is identified by the CO to be excess inventory and/or VMI that experience shelf-life expiration which fails recertification process. VMI shall be disposed in accordance with all applicable local, state, federal, and country laws and regulation as well as the terms and conditions of the contract.

· The contractor shall dispose of any customer returns that are not in usable condition and cannot be made usable (i.e., through recertification of shelf-life). The contractor disposal of inventory shall be recorded and reported monthly to the contracting officer.

· The contracting officer shall provide written instructions on non-refurbish able Government-owned cylinders, parts, fittings, and appurtenances within 30 days. The contractor shall make disposition in accordance with the CO’s instructions and in compliance with applicable federal, state, local, DOD, and international requirements. The contractor disposal of non-refurbishable items shall be recorded and reported monthly to the contracting officer.

9) Discrepancies: The contractor will develop as part of its performance management plan and metrics a process for handing discrepancies, including inventory variations and quality discrepancies. The contractor shall implement its proposed performance plan for handling product quality deficiencies and supply discrepancies and report the metrics monthly to the contracting officer. The contractor shall ensure during execution of the contract that they will conduct thorough and timely investigations and resolve nonconforming or discrepant materiel. The contractor shall report monthly on overall discrepancies identified during that month, with earlier reporting as identified below. The contractor shall track Transportation Discrepancy Reports (TDR) that will be used to document discrepancies of materiel that was damaged or destroyed during transit. The contractor will report those to the Government within five business days so that the Government can process and receive timely reimbursement for transportation discrepancies.

· The contractor shall track Supply Discrepancy Reports (SDR) that include receipts and resolution and shall make this report available to the CO monthly. A SDR is used anytime a contractor finds discrepant materiel at the time of receipt. When the SDR is created at receipt, it will be accompanied with an appropriate suspended condition code (J, K, and L) change unless the SDR is “info only” or the SDR is being submitted because of a shortage or overage.

· Adjustments posted to the accountable and/or financial records shall result in research. The research shall be performed on all Classified and Sensitive item adjustments, regardless of dollar value; uncontrolled item adjustments between, $5,000 and $16,000 with a unit variance greater than 25 percent; and, all uncontrolled item adjustments greater than $16,000.

MINIMUM RESEARCH REQUIREMENTS FOR POTENTAIL OR ACTUAL PHYSICAL INVENTORY ADJUSTMENTS

POST COUNT

VALIDATION

· A Physical Inventory discrepancy involving uncontrolled items equal to or less than $1,000 will require an inventory adjustment be automatically processed. A Physical Inventory discrepancy involving uncontrolled items greater than $1000 will require a post count validation to be performed. Once a post count validation has been validated, and if the discrepancy is greater than $1,000 or less than or equal to $5,000 with a greater than 10% unit variance or greater than $5,000 then a pre-adjustment research is performed. See above chart for applicable guidance.

· The contractor shall track Product Quality Deficiency Reports (PQDR).