What does DMSMS mean?

DMSMS stands for Diminishing Manufacturing Sources and Material Shortages. It is the loss or impending loss of manufacturers or suppliers of items, raw materials, or software. In other words, DMSMS is obsolescence. DMSMS occurs when companies (at any level of the supply chain) that make products, raw materials, or software stop doing so or are about to stop. DMSMS issues can occur for various reasons, such as technological advancements, shifts in market demand, regulatory changes, or a manufacturer’s strategic business decision.

Where can contractors find DMSMS requirements?

DMSMS requirements are typically found in prime contracts. Specifically, a Statement of Work (“SOW”) can describe DMSMS requirements such as: a DMSMS Management Plan, a Bill of Materials, Health Status Reports, End of Life Notices, and various other requirements to mitigate DMSMS risks. The contract may use Contract Data Requirements Lists (“CDRLs”) to specify the content of deliverables, the inspection and acceptance process, and the frequency of delivery (e.g., the Contractor must deliver a Health Status Report “monthly” or an End of Life Notice “as required”).

Below are descriptions of these DMSMS concepts:

• A DMSMS management plan is a comprehensive strategy that outlines the processes, roles, responsibilities, and tools necessary to proactively identify, assess, and mitigate the risks associated with the loss or impending loss of manufacturers or suppliers of critical items, raw materials, or software throughout the life cycle of a system.
• A Bill of Materials is a comprehensive list of materials, components, and assemblies required to construct, manufacture, or repair a product, often presented in either a flat or indentured format to show the relationships and hierarchy of the items.
• A Health Status Report provides a comprehensive accounting of specific obsolescence issues within a system and identifies estimated obsolescence dates, usage rates, and stocks on hand for each item.
• An End of Life Notice provides the part numbers, descriptions, and manufacturers for all items that are approaching or have reached a point when the item will no longer be produced, supported, or maintained by its manufacturer.

What are the important DMSMS resources?

Below are key policies on DMSMS that also include recommended contract language:

1 – Source: Robin Brown, Under Secretary of Defense Research & Engineering, DMSMS & Parts Management Program (Apr. 23, 2024) (ndia.dtic.mil/wp-content/uploads/2024/dla/Tue_Breakout_DMSMS_PMP.pdf).

DoD Instruction 4140.01 Vol. 3 recommends 18 potential courses of action for the Department of Defense (“DOD”) to consider when trying to resolve DMSMS issues, such as encouraging the existing source to continue production, making a life of type buy, converting design specifications to performance-based specifications, etc.

What risks does DMSMS pose to contractors?

• Increased Costs: Contractors may need to invest in managing DMSMS risks and finding alternative sources, redesigning components, or making a life of type buy to ensure the availability of critical items. These activities can be expensive and, depending on the contractual language, may not be covered by the contract, leading to financial strain.
• Compliance Risks: Contractors must comply with contract terms related to DMSMS and other terms such as qualified baselines and source of origin for parts. Failure to adhere to these requirements can result in legal and financial penalties. For example, the use of non-compliant materials or failure to report DMSMS issues can lead to contract termination or other legal actions.
• Schedule Delays: DMSMS issues can cause significant schedule delays and disrupt production timelines due to the time required to identify, qualify, and implement alternative solutions.
• Quality and Reliability Concerns: The use of alternative parts or materials can introduce quality and reliability concerns. For example, counterfeit parts or parts that do not meet the original specifications can compromise the performance and safety of the system. This can result in increased maintenance costs, reduced system reliability, and potential safety hazards.
• Strained Customer Relationships: DMSMS can significantly strain a contractor’s relationship with its government customer. DMSMS issues can lead to increased costs, contract non-compliances, schedule delays, and quality concerns. The government purchasing command has its own customer, the warfighter, and contractors that fail to perform as required can strain that purchasing command’s relationship with the warfighter, leading to further reputational harm if the contractor is blamed for negative impacts to the warfighter.

What should contractors do to mitigate DMSMS risks?

• Identify all prime contract requirements that need to be flowed down to meet prime contract terms.
• Establish subcontract terms up front that will mitigate DMSMS risk such as recurring parts forecasting updates, licensing with the Original Equipment Manufacturers for access to Bills of Materials, using external data sources to identify predicted level of obsolescence risk for supplies, and developing interchangeability Parts Lists.
• Negotiate terms so that if a supplier will no longer manufacture a part, they will license sufficient intellectual property (“IP”) for another source to manufacture the part. This should include the IP for necessary tooling.
• Establish subcontract terms defining the party responsible for cost increases due to DMSMS issues.
• Negotiate advance notice terms regarding parts availability such as requiring the supplier to provide a Last Time Buy Notice months prior to discontinuation of the product.
• Request information regarding DMSMS as part of the supplier selection process.
• Collaborate with customers and higher-tier suppliers through proactive risk identification and resolution, regular reviews and updates, and effective communication.