Connecting Supplier to Warfighter
Written by Peter A. Buxbaum
In the commercial arena, the fantasy has been for auto makers to build cars to order and retailing suppliers to operate in a “sell one, make one” environment. In the military world, organizations would like to be able to accurately forecast demand for commodities, supplies and spare parts, to be able to communicate that demand effectively to suppliers, to have vendors respond to that demand with accuracy, to carry just enough inventory to meet warfighter needs, and to be able to position that inventory where it can be most effectively put to use. Needless to say, it is easier said than done. Implementing process, personnel and technology changes is laborious, and changes do not appear overnight. But organizations across the U.S. military are trying to achieve that vision by implementing new technologies and by effecting process and policy changes.
A recent report from the Government Accountability Office pointed out the need for just the kinds of changes that are now ongoing. The December 2008 GAO report studied the inventory the U.S. Navy had on hand between 2004 and 2007 and found that the Navy kept significantly more inventory than was needed to support current requirements.
The GAO’s analysis indicated that an annual average of $7.5 billion, or 40 percent, of the Navy’s secondary inventory— which includes reparable components, repair parts, bulk items and personal gear—exceeded current requirements. Among the key reasons the GAO found for the Navy inventory bloat: the lack of projected demand for many items and the failure to establish metrics for tracking and assessing the cost efficiency of its inventory management.
STANDARDIZING TECHNOLOGIES AND PROCESSES
The problems identified in the GAO report are just the kinds of issues the Navy Supply Command expects to address with the implementation of an enterprise resource planning (ERP) system, which is in the process of being implemented Navywide. In October 2008, NAVSUP was the second Navy activity after the Naval Air Command to receive release 1.0 of Navy ERP, which set financial, acquisitions and work force management system baselines. Release 1.1, which will more directly impact supply and logistics processes, is scheduled for rollout beginning in February 2010. “The goal of Navy ERP is to come closer to a lean financial perspective,” said Karen Meloy, the ERP program manager at NAVSUP. “From a supply perspective, we wanted to replace our 30-year-old COBOL-based systems with a new architecture and new technologies.”
Navy ERP is built on SAP ERP Central Component (ECC) 5.0, with the addition of some niche functionality, explained Tim Meyer, a managing director at BearingPoint, the original system integrator for Navy ERP. Before it decided to standardize on SAP, Navy activities were running several legacy systems, which were custom designed for those functions. “To the extent the Navy is eliminating those legacy systems, it will lose some flexibility,” Meyers noted. “But the long-term payoff of system standardization will be significant.” Standardization will provide the Navy with a single instance of its financial data and allow the Navy to calculate and compare financial and transactional reports along a single baseline. “Program budgets will no longer be calculated in an independent manner,” said Meyer. “All of it will be in the same format across all programs.”
Release 1.0 includes functionality that will allow the Navy to track its fixed assets and to generate a single consolidated materiel master plan. Release 1.1 will include an advanced planning module that will provide the Navy visibility of working capital assets and allow inventory planning against a single system.
These technology and process changes will provide the Navy with logistics savings by allowing it to make more efficient use of its warehousing space and its inventory dollars, according to Meyer. “Customer requirements were also gathered into Navy ERP,” added Meloy. “We wanted to make sure that the supply chain functioned effectively from a management perspective and that it was also attuned to customer requirements.”
Navy ERP will also allow the NAVSUP to tie supply management to finance. “Now finance and supply are on separate systems,” said Meloy. “ERP will give us the opportunity to integrate the movement of material with finance records so that all material movements can be tracked together with all associated financial transactions from the time an order is placed until it is satisfied. This will make us better stewards of the taxpayers’ dollars.”
DLA’S ENHANCED PERFORMANCE MEASURES
The Defense Logistics Agency is proceeding along a similar path, in an effort to standardize its information technology systems, simplify and streamline its processes, and develop and deploy tools that will allow supply to be seamlessly linked with demand. DLA faces the additional challenge of adapting its systems to the expanded mission, which proceeded from the Base Realignment and Closure (BRAC) process.
DLA’s quest started in 1999 when the agency decided to replace its decades-old legacy systems through an initiative called Business Systems Modernization, or BSM. BSM replaced the old COBOL-based systems with an SAP ERP system, plus added on integrated planning and forecasting capabilities from Manugistics. In 2007, DLA embarked on a program called Enterprise Business Systems in an effort to enhance its supply chain and logistics processes in response to its new BRAC missions.
The DLA enterprise is huge, spending $38 billion per year to manage 95 percent of the repair parts procurement for all of the armed services as well as 100 percent of the food, fuel, medical supplies, clothing and construction equipment across the Department of Defense. DLA activities reach 126 nations with 520,000 shipments annually and 54,000 requisitions in any one day. It manages over 5 million items in eight supply chains across 26 distribution depots.
“If DLA were a private concern, it would be the third largest distribution and warehousing organization in the world,” said Joe Chenelle, managing director for national security services at Accenture, DLA’s lead contractor for both BSM and EDS.
The purpose of DLA’s BSM strategy was to enable processes that would integrate its supply management and logistics. The agency moved to ERP with the objectives of reducing inventory cycle times, improving customer service, and implementing uniform processes, procedures and performance metrics. EBS is providing additional refinement to those processes.
“Our new performance measures include metrics like demand and planning accuracy,” said Lora Conrad, deputy executive director for materiel policy at DLA’s Supply Management Division. “We place heavy reliance on obtaining the best possible forecast by collaborating with our customers,” primarily the major armed services repair organizations, “generating a demand plan and then scheduling procurement and positioning stock to the right places.” On the supplier side, DLA sought to improve supplier availability to promise and reduce lead times.
Part of the process changes DLA undertook included transformation in job descriptions and duties. “We intentionally focused on breaking out the management function interfacing with the customer to get a more accurate forecast,” Conrad said.
Some jobs were broken into several components. “We took the item manager job in our legacy system and split it into several jobs, including demand planner, supply planner and customer account specialist,” said Conrad. “It was a cultural change for us. The purpose was to keep a customer focus, get the most bang for the buck, and provide the best support for the warfighters.”
In general, however, DLA’s personnel processes were streamlined, according to Chenelle. “DLA used to have 1,100 job descriptions. Now they have less than 200,” he said. “They used to have 30 different vendor relationship processes. Now they have three. This has been one of the benefits of standardizing business processes using COTS [commercial off-the-shelf] technology.”
DLA: INCREASING DEMAND VISIBILITY
Perhaps the biggest challenge to face DLA in recent years has been to implement provisions of the 2005 BRAC Supply, Storage and Distribution (SS&D) Management Reconfiguration legislation. The BRAC legislation made DLA the effective supply department for repair parts for 13 maintenance depots—including Air Logistic Centers, Fleet Readiness Centers, Naval Shipyards and Army Industrial Depots—and, in a departure from its earlier mission, gave DLA responsibility for retail, as well as wholesale, operations.
That means that DLA is now responsible, not only for ordering and stocking parts, but for delivering those parts to the mechanics who need them. “People are going to be walking up to our counter, and the DLA has to have the ability to provide the customer with the requested item within several minutes,” said Steve St. John, DLA’s chief of planning.
The Inventory Management and Stock Positioning (IMSP) project was launched in response to the 2005 BRAC requirements. IMSP is designed to enhance EBS functionality to help DLA fulfill its new BRAC mission.
“IMSP will deliver the SAP and Manugistics inventory management functionality required to extend DLA’s support of industrial depot maintenance customers,” said Conrad.
IMSP will be delivered to those locations in three development spirals, first to air logistics centers and later to Navy/Marine Corps and Army sites. As part of IMSP, several tools have been developed within the Manugistics software package that will permit an improvement to DLA’s inventory posture through increased visibility of customer demands at the consumer level.
One such offering is a Web-based collaboration tool that allows DLA customers to convey their supply plans to the agency. DLA aggregates the data generated by individual customers and passes that along to suppliers, allowing them to plan production. Planning horizon timelines are up to five years, which is required for major systems such as ships and aircraft.
“There is often a disconnect between demand and supply,” said Conrad. “But if we go into this tool every month we can repeatedly correct and tweak the forecasts until they sync up.” Another new tool being used by DLA is a forecasting tool deployed as part of the Manugistics suite. “This tool can use several different statistical models to make a forecast,” explained Conrad. “The system actually chooses which model to use for any given situation.” This tool is especially useful for situations where past experience is not an effective predictor of future demand. DLA’s legacy system included only one forecasting model.
On the supplier side, the DLA is in the process of configuring a portal within SAP, which will allow vendors to view two-year forecasts for individual products. One of the objects of this tool, explained Scottie Knott, DLA’s director of acquisitions management, is to reduce the procurement and production lead times required for products that DLA orders, thereby also streamlining processes and reducing costs. DLA plans on rolling out that portal in 2010.
DEVELOPING COLLABORATIVE RELATIONSHIPS
Matching up supply and demand is not merely a question of technology, however. Closer and more collaborative relationships among the DLA and its customers and suppliers have also proved to be key to the changes DLA is seeking.
On the customer side, DLA has sought to conclude joint collaboration agreements with 50 of its largest customers in an effort to get the best possible data for its forecasts. “It all starts by getting good data,” said St. John. By getting granular data from documents such as bills of materials and repair schedules, DLA is better able to meet the needs of the service repair facility, he explained.
DLA has also established strategic supplier alliances with 31 vendors. “By partnering with these vendors, we are able to improve the processes that underlie the relationship,” said Knott. “We can get process improvements, reduction in lead times, and work on whatever other mutual objectives we may have.” In order to make this program as effective as possible, the DLA focused on the 20 percent of its suppliers that provide 80 percent of its products, Knott explained.
DLA has also sought to streamline its deliveries by acquiring endto- end commercial supply chain services through its prime vendor program. DLA has contracted with food, fuel and medical suppliers to manage these supply chains and deliver commodities directly to warfighters. “The government is not involved in the manufacture or distribution of the products,” Knott explained. “It is the responsibility of the prime vendor to acquire the product.” DLA prime vendors even deliver to Iraq and Afghanistan, where warfighters benefit by enjoying the same brand-name food and consuming the same medicines they are used to back home.
DLA’s strategic relationships have dramatically reduced lead time from an average of 79 days for regularly sourced materials to an average of 29 days for their strategically sourced counterparts. Some product lead times have been reduced from 60 days to two days, according to Knott. The response of DLA’s vendors has been excellent, Knott reported. “They are interested in responding to warfighter requirements,” she said. “But there are certainly areas we need to improve upon. Downward pressure on pricing will continue to be at the forefront of these alliances.”
LOOKING FOR FUTURE IMPROVEMENT
Improving supply chain visibility is a continuing and ongoing process that will always inch forward toward, but may not actually achieve, full demand and supply synchronicity. But this continuous improvement is important, especially as DLA takes on its new, BRACinduced retail role.
“Our feeling is that the demand signal is a little distorted because we are not seeing consumer demand,” said St. John, “but increased visibly of consumption should lead to better planning.” The result should be, according to Conrad, better stock positioning, and a reduction in the footprint and cash outlays of the supply centers run by the armed services.
NAVSUP is looking forward to ERP release 1.1, which, said Meloy, will “increase opportunities for visibility and improve inventory requirements determinations.” Visibility will be improved because data now resident in half a dozen databases will be available in a single view.
Release 1.1 starts deployment in January 2010 with an anticipated 18-month rollout, Meyer noted. He is confident that the Navy’s investment in ERP will be a worthwhile one: his estimated return on investment is five to one, meaning that the Navy will generate five times the cost of the ERP program in savings. ♦