Supply Chain Operations Reference
Written by Peter A. Buxbaum
With federal, including defense, dollars stretched thin and the Obama administration’s promise to stop using supplemental budgets to fund combat operations (beginning next year), some see a cultural shift on the horizon, which will demand ever further efficiencies and cost cutting.
The discipline of supply chain management teaches that achieving these virtues requires an end-to-end enterprise view of logistics that stretches from supplier to warfighter, from order to delivery. So it is significant that three government agencies, two of them military and one civilian, have united in a partnership to streamline warfighter supply operations.
The U.S. Transportation Command (USTRANSCOM) has partnered with the Defense Logistics Agency (DLA) and the General Services Administration (GSA) in an effort known as the Strategic Opportunities Initiative to study, analyze and re-engineer the processes they employ to provide supplies to warfighters. Aiding them in this effort has accorded with a method called the Supply Chain Operations Reference model, or SCOR.
“The goal of the project is to meet warfighter needs at minimum total supply chain cost,” said Army Lieutenant Colonel Jeffrey Gulick, chief of the Distribution Metrics and Analysis Branch of USTRANSCOM. “This is achieved through unity of effort among the organizations in the Joint Deployment Distribution Enterprise” (JDDE).
JDDE includes USTRANSCOM, DLA and GSA, as well as commercial suppliers, and the supported organizations such as the military services and the combatant commands. Its mission is to conduct joint distribution operations from the time materiel is ordered until delivered. USTRANSCOM, as the Department of Defense Distribution Process Owner (DPO), coordinates, synchronizes and optimizes the operational effectiveness of the enterprise.
The GSA is part of the national supply system that distributes materiel to warfighters, noted Jeff Thurston, director of GSA’s Office of Supply Operations. “Together with DLA, we manage and supply products that DoD orders,” he said. GSA is generally tasked with supplying non-military specific commodities such as office supplies, tools, paints, adhesives and janitorial supplies.
As part of the partnership effort, USTRANSCOM, as DPO, led an effort to identify enterprisewide supply chain opportunities to significantly improve the performance of DoD-wide distribution processes, to analyze these through the prism of the SCOR model, and to measure the improvements made as a result of that analysis. The project has implemented significant changes in how the three agencies supply the U.S. European Command. They plan on exploiting the lessons learned from that effort to improve supply operations to the Iraq and Afghanistan theaters.
“The team identified five enterprise-level challenges that could realize significant distribution improvements, improve customer wait time, generate substantial cost savings or avoidances, and enable profound service improvements in the DoD supply chain,” said Thurston. “The scope and recommendations of this effort span the entire DoD supply chain and include participation by USTRANSCOM, DLA and GSA.”
The five opportunities identified by the partnership were distribution process improvement and deployment, strategic surface optimization, strategic airlift optimization, supply alignment and strategic network optimization.
“The goals of this project are to look for opportunities for sharing information, resources or infrastructure in order to provide better service to the military services. They are also looking for ways to leverage best practices,” said Taylor Wilkerson, research fellow in supply chain management at the Military Logistics Institute (MLI) and a certified SCOR model trainer. Wilkerson and MLI have consulted with USTRANSCOM on this partnership.
“The results have been positive,” said Gulick. “Together with DLA and GSA, we have developed and refined a SCORbased framework that measures enterprise performance and efficiency, and have used metrics to drive improvements at the enterprise level.”
SCOR is essentially a model for describing a supply chain. “Supplies chains include a lot of activities,” said Walt Miller, program manager for SCOR at the DLA. “SCOR allows management of the supply chain to be consistent across each piece.”
One part of the SCOR model provides a standard nomenclature in order to align improvement projects. “Everyone has a portfolio of projects, and they’re all throwing working capital at them,” said Bob Daniell, senior principal for life cycle management at SRA International Inc. “The purpose of using SCOR is to determine whether those improvement projects are aligned with the goals and objectives of the organization.”
The other part of SCOR involves the development of consistent performance metrics. “SCOR provides a framework of standard terminology, metrics and hierarchies that enable partner organizations to measure enterprise-level performance the same way, isolate root causes of performance issues, and collaborate on improvements for the benefit of the enterprise,” said Gulick.
SCOR divides supply chains into five major process categories: plan, source, make, deliver and return. SCOR also examines these processes in four hierarchical levels. Level 1 is concerned with the strategic or enterprise view. Level 2 breaks this down into SCOR’s major process categories. Level 3 further breaks this into process segments such as inventory handling, shipping, transportation and theater distribution. Level 4 describes individual activities, such as picking and packing, building and consolidating loads, selecting carriers, delivery to ports and so on until customer receipt.
SCOR was originally developed in a commercial environment, but the military was able to adapt the method without too many changes. “The biggest difference is that DoD has some unique processes that standard SCOR language may not address,” said Gulick. “In some cases we have adapted the SCOR framework to fit those unique processes.” Most notably, the military does not “make” any products, strictly speaking, but places a great emphasis on the parts repair process, which is often absent in a private industry model.
“But we’ve learned some great lessons from the private sector,” said Gulick. These include horizontally integrating organizations instead of maintaining stovepiped vertical hierarchies, and measuring performance from the customer’s perspective.
When applied across organizational boundaries, as USTRANSCOM, DLA and GSA have done, SCOR can make a big difference in the end-to-end enterprise coordination of the supply chain, according to Wilkerson. With integrated views you eliminate suboptimization of processes,” he said. “Otherwise, DLA may be making distribution more efficient at the expense of transportation or vice versa. In this way, they are able to improve overall performance to the end customer.”
The partnership’s efforts in the first of its projects—distribution process improvement and deployment (DPID)—focused on the removal of white space—unnecessary slack time—from distribution processes and rapidly deploying those improved processes across the supply chain. “Process white space often develops within supply chain nodes as they modify their formal business practices or adopt informal norms that become standard operating procedure,” said Thurston. “For example, the use of a conservative required delivery date to minimize rejected bookings has a negative impact on precision.”
The DPID concept has been proven on a small scale with USTRANSCOM’s Distribution Network Optimization Europe (DNO-E) effort. Its customers have seen significant reductions in delivery times and delivery variability.
GSA contributed to the specific process changes used to achieve these results by changing its ocean transportation booking preference from the next departing vessel to the next arriving vessel. “An analysis of the ship routes showed that booking to the next arriving vessel produced faster deliver times,” said Thurston. “It was a question of getting the freight on an express rather than a local at the same cost.” The result has been a reduction of shipping time from 65 days to 35 days.
The Strategic Surface Optimization project involved maximizing the use of 40-foot, as opposed 20-foot, ocean shipping containers. This requires consolidating cargo from multiple sources bound to multiple consignees into single containers. “This can reduce shipping costs significantly with customer service equal to or, in some cases, exceeding current service levels,” said Thurston. “DoD projects that it can achieve significant cost savings with minimal investment and minor changes to the existing distribution infrastructure.”
GSA improved the efficiency of its supply operations by consolidating containers at its own facilities instead of shipping freight to DLA depots for consolidation. The freight was shipped directly to port, bypassing the DLA facility. “This improvement resulted in a 14-day reduction in customer wait time,” said Thurston. “A secondary benefit to GSA and DLA is that this improvement saves considerable man-hours and results in cost avoidance for DLA.” With this process proven and now in place for supply of the European Command, the three-agency partnership plans on inaugurating a similar capability for Kuwaitbound, Iraq-destined freight in the summer of 2009.
The partnership’s Strategic Airlift Optimization project utilized principles similar to surface optimization to identify significant improvements in airlift efficiency and channel precision and reliability. The challenge was to utilize the full array of airlift services, including military airlift and commercial air transportation to more closely match airlift capacity to requirements.
“This significant increase in utilization can achieve significant cost reductions with a simultaneous improvement in distribution effectiveness, particularly for low-volume customers,” said Gulick.
The trick is to choose the right service for each specific shipment. “Based on operational requirements and the amount of traffic bound for a specific destination, one service may provide a substantial cost and/or service advantage over another,” said Gulick. “By implementing processes that select the optimal service for each shipment, DoD can simultaneously reduce costs and improve customer service levels.”
The supply alignment piece involves the strategic placement of selected materiel in forward inventory locations to minimize the use of high-cost air transportation and increase distribution effectiveness. “The basic premise is that stocking the optimal items forward in the optimal quantity can reduce the use of high-cost transportation and provide stocks at increased service levels to the customer,” said Thurston.
As an example of how this has worked, GSA since 2004 has placed larger quantities of inventory at DLA’s theater distribution center in Kuwait. This has resulted in an estimated savings of at least $30 million in transportation costs in fiscal year 2008, according to Thurston.
The partnership’s Strategic Network Optimization project has sought to optimize the number, location and function of supply chain nodes to provide cost savings and cost avoidance opportunities with improvements in distribution effectiveness. The fluidity of military logistics requirements requires periodic changes to the layout of the distribution network. “Strategic Network Optimization is a continuing effort,” noted Thurston, “to determine the optimal location for key distribution nodes, such as inventory locations, sources of supply, consolidation and deconsolidation locations, and transportation hubs and ports and to provide a high-level design of distribution lanes and routes.”
Important to the implementation of the SCOR project has been the establishment of common performance metrics across all of the processes under consideration. “When USTRANSCOM, DLA and GSA share the same metrics and hierarchy, it helps us see the process the same way,” said Gulick. “A common hierarchy of measures helps us quickly determine root causes of performance gaps so we can collaborate on improvements.”
USTRANSCOM uses a SCOR-based metrics framework that has been developed and refined with DLA and GSA to measure the velocity of materiel throughout transport. The metric known as logistics response time “is similar to what SCOR calls order fulfillment cycle time,” said Gulick, “and measures the end-to-end distribution time.”
The “hierarchy of measures” refers to the development of appropriate metrics that can measure supply chain performance at each of the process levels that SCOR sets forth, from the enterprise level down to the process and activity level. This allows the partner agencies “to spotlight root causes when performance does not meet expectations, and enables the partners to identify actions to improve performance,” he said.
“The advantage of this multitier metric approach,” explained Thurston, “is that if you are not achieving success at the big picture, Level 1 metrics, the metrics measuring performance at the lower levels will identify those specific areas where performance is lacking and where you need to make improvements.”
For example, USTRANSCOM measures logistics response time at the enterprise level from receipt of an order to ultimate delivery to the user. Drilling down into the process, other measures would be taken of activities such as warehouse processing time, time of delivery to port, ocean transportation time, and distribution time in theater. At yet a lower level, metrics might examine the availability of transportation equipment, the time required to prepare shipments, and the percentage of accurate transportation booking.
In the case of the 2008 project that sought to optimize the distribution network for the U.S. European Command, the three partners put together a cross-functional team from the organizations involved and focused on a representative slice of distribution lanes supporting Italy. “The team used the SCORbased metrics and commercial supply chain best practices and benchmarking to identify root causes and improvements at the enterprise level,” said Gulick. “The team measured progress using the SCOR-based metrics to ensure the actions taken had the intended effects.”
The results were improved surface and air distribution velocity to northern Italy by 19 percent and 38 percent, respectively, with reduced surface and air costs by 52 percent and 24 percent, respectively. “We also improved surface distribution performance to Kuwait by 38 percent from fiscal years 2006 through 2008,” Gulick added. Overall, Gulick estimated that the DPO Strategic Opportunities initiative will reduce annual supply chain cost by $500 million and will improve customer service by 45 percent.
The DLA is now leading an effort to implement SCORbased operational metrics throughout DoD supply chains. “We are engaged with all of the services to shift from their legacy metrics to the SCOR framework,” said Miller. “The goals are to provide end-to-end visibility and to examine supply chain performance from the customer’s point of view. All four of the armed services are moving from their legacy metrics to a SCOR-based approach.
“We have found that SCOR is a very useful model when trying to collaborate, align and integrate with providers and customers,” Miller added. “It is crucial to be speaking the same language when measuring performance, identifying gaps and developing solutions.”
“SCOR improves the effectiveness and efficiency of supply chains by aligning supply, transportation and distribution processes,” said Gulick, “optimizing strategic surface and airlift networks, and striking the right balance between inventory positioning and transportation requirements.”
The bottom line, added Miller, “is to figure out how to best support the warfighter in this resource-constrained environment.” ♦