From Factory to Foxhole: The Battle for Logistics Efficiency

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Military and business logistics managers share some challenges—tracking, moving, and storing inventory while maintaining visibility—but the differences are dramatic. For the military, the goal is survival, not profitability. The competition is an enemy force. And the customer is a warfighter on the move in hostile territory.

A quiet revolution in logistics and supply chain management is helping to modernize the U.S. Armed Forces and the Department of Defense (DoD), positioning them to swiftly and effectively respond to irregular warfare fighting enemies who use asymmetric tactics.

The ongoing transformation of military logistics has significantly extended and transformed the supply chain. Rather than focus on traditional port-to-port capabilities, today's military logisticians are modernizing and reengineering in support of the warfighter, combatting logistics inefficiencies with savvy leadership, forward-thinking supply chain initiatives, and best-in-class technology.

In many ways, commercial supply chain managers and military logistics professionals are tackling similar challenges. Commercial and military logisticians both need to track, move, and store inventory, and maintain visibility while goods are in transit. Some major differences, however, make the military effort more complex and urgent.

"Profit is not our bottom line," explains Allan A. Banghart, director of enterprise transformation for the Defense Logistics Agency and a 30-year Navy veteran. "The ability to perform in combat is our bottom line."

"Our problems become more complex on the operational end, supporting troops on the move and in hostile areas," says Rear Admiral Marc L. Purcell, director of strategy, plans, policy, and programs for the U.S. Transportation Command (TRANSCOM).

"When you have an enemy actively working to disrupt your efforts, and when your supporting information systems have to maintain connectivity with dispersed and highly mobile units, you have some additional distribution challenges."

Efforts to modernize logistics processes are well underway across DoD logistics organizations and in the Armed Forces. Among those at the forefront are the Defense Logistics Agency (DLA), the U.S. Transportation Command (TRANSCOM), and the U.S. Marine Corps.

Marines Modernize

"Marines are warriors," says the Marine Corps' recruiting web site. "Ours is a smaller, more dynamic force than any other in the American arsenal, and the only forward-deployed force designed for expeditionary operations by air, land, or sea."

Logistics modernization is critically important to the U.S. Marine Corps for effectively supporting its tactical forces on fluid battlefields.

"We need world-class logistics support at the tactical level across all logistics domains," says Lt. Gen. Richard L. Kelly, deputy commandant, installations and logistics for the Marines. Kelly is spearheading ambitious logistics efforts that simultaneously address people, processes, and technology.

"On the technology front, we are working on our Global Combat Support System—Marine Corps (GCSS-MC)," Kelly says. "Process changes involve supply, maintenance, and distribution reengineering; and the people component includes organizational reform, education, training, and developing new skill sets."

The Marines haven't always embraced logistics and supply chain management as a strategic differentiator. "We've historically addressed logistics with brute force," Kelly says. "In today's world and in the future, we have to be more precise about our logistics processes."

Kelly and his team have embraced logistics modernization, or LOGMOD, as a strategic warfighting imperative, designed to improve processes and technology supporting Marine Air Ground Task Force operations. "LOGMOD is my number-one priority," Kelly says.

"Three years ago, if I had talked about logistics modernization, people might have rejected it," he says. "But today, in the logistics community and among the soldiers we support, we encounter little resistance to what we're doing."

Kelly and his LOGMOD team have paid great attention to communications and change management, both of which contribute significantly to the success of the Corps' logistics modernization efforts.

"Treating logistics modernization and information technology enablers not as software or IT, but as weapons platforms, has been another critical success factor," Kelly says. He views software and IT, for example, as "equivalent to weapons platforms such as joint strike fighters and tanks.

"IT is the engine behind logistics," he adds.

The new GCSS-MC system, which replaces two major legacy and multiple supporting systems, gives the Marine Corps a single IT suite for tactical, operational, and strategic logistics purposes.

The Marines' web-based system, which uses Oracle's e-business suite—including supply chain planning, procurement, maintenance, and service applications—provides end-to-end visibility and a single view of the Marine Corps' supply, maintenance, and distribution operations. Compliant with the Department of Defense logistics architecture, GCSS-MC is interoperable with the military's other systems.

"We will give up the legacy systems in about two years and move to the new software," Kelly says. "I anticipate the new corporate logistics IT system will be intuitive and easy to use."

In addition to rolling out the new integrated system, the Marines are reengineering their supply and maintenance processes. Its current 10-class supply system has been in existence for 50 years. "The future requires us to move away from those 10 classes of supply, and place all our goods and services on the 'quad model,'" Kelly notes.

The quad model measures the value of a product to mission accomplishment. By tracking the relative uniqueness and mission criticality of supplies along four quadrants, the model enables the Corps to develop more effective methods for managing supplies. Items that are commonly found and are not mission-critical will be purchased and managed differently than unique, mission-critical items.

"Certain items such as paper, pens, and glow plugs fall into one quadrant, while optics and tank repair parts fall into another quadrant," Kelly explains. "Today, we group supplies in 10 classes, then prioritize. To meet future demands, we need a more dynamic way to manage all our supplies," which the quad model supports. This revamping of supply classifications is expected to occur during the next several years.

The Marines are also streamlining maintenance operations. "If we factor reliability and maintenance into the acquisition process, equipment will break less frequently and be easier to fix," Kelly says.

This will help reduce the levels of maintenance as the Corps buys new equipment. The benefit: improved equipment readiness, shorter repair cycle time, more efficient use of people, and increased combat effectiveness.

The Corps is also paying great attention to the people aspect of logistics modernization. Four years ago, the Marines started a logistics education program at Pennsylvania State University, offering two-week classes twice a year for its logisticians.

"I'm convinced the relationship we have with Penn State and other business schools has led us to where we are today," Kelly says. Such education and training has helped the Corps build a strong cadre of professional logisticians with up-to-the-minute skills who are making logistics modernization a reality.

DLA: A New Business Model

The Defense Logistics Agency (DLA) is DoD's largest combat support agency, providing worldwide logistics support to the military services, several civilian agencies, and foreign countries. It's a mammoth task.

As of May 2005, DLA had processed three million requisitions totaling more than $4.5 billion in support of Operation Iraqi Freedom, and provided more than 158 million field meals and 1.5 billion gallons of fuel. DLA supplies all the food, fuel, and medical supplies as well as most of the clothing, construction materials, and spare parts for weapons systems for the forces remaining in Iraq during reconstruction.

As with the Marines, DLA is undergoing major change. "Back in the mid- 1990s, DLA was a traditional wholesaler," says DLA's Allan Banghart. "We operated between the military services and the American industrial base to provide repair parts, subsistence food items, and other products. We dealt with our customers largely on a transactional basis."

But DLA's mission broadened 10 years ago as a number of weapon-specific repair parts became the agency's responsibility. This caused DLA to change its core business model, expanding from general troop support to become directly linked to warfighter readiness.

"We had to become a warfighter-driven organization as opposed to a traditional wholesaling organization," Banghart says. "This required managing, integrating, synchronizing—and sometimes dominating— the supply chain to meet the warfighter's requirements."

Today, DLA works closely with its customers—the warfighters—and its suppliers—the American industrial base. Moving to this new model has dictated reorganizing the agency "from a conglomerate-like organization to a single, tightly integrated enterprise," Banghart explains.

DLA is driving its transformation with a number of initiatives, including improvements to customer relationship management (CRM), supplier relationship management (SRM), and business systems modernization (BSM).

Customer Relationship Management. An ongoing initiative during the last five years, DLA's CRM efforts closely parallel those of a commercial company.

"We are trying to add value to the warfighter by providing the right item in the right place at the right time and at the right cost—every time," Banghart says.

DLA's CRM initiative enables this goal. "The CRM effort is designed to provide us with the workforce, processes, and information technology tools to move from a transactional-based relationship to a personal, partnering relationship with the customer," Banghart explains. The initiative also helps DLA act as an integrated member of its customer's team.

DLA's customers are not required to buy from the agency. "They can spend the money wherever they find the best value," Banghart notes. Just as a commercial company does, DLA has to make sure it delivers the best value to its customers; the CRM initiative will help it accomplish that mission.

Supplier Relationship Management. DLA's SRM initiative consists of two key components: strategic material sourcing and strategic supplier alliances.

"DLA manages 5.2 million items, but about 500,000 drive our business," Banghart says.

Moving those 500,000 line items to long-term contracts means DLA can assure their availability, quality, and best value, resolving most of the challenge of getting the right item to the right place at the right time. DLA has already transitioned more than 160,000 of these key items to long-term contracts, and is steadily working on the rest.

While these core items are competitively sourced, a number of products handled by DLA—such as tanks, airplanes, or weapons—have only one source.

"We need assured availability, quality, and best value for these items," says Banghart. As a result, DLA has initiated strategic supplier alliances with 30 key DoD sole-source providers.

Business Systems Modernization. As part of its BSM efforts, DLA is replacing its obsolete legacy systems with an ERP system consisting of an SAP backbone and a Manugistics planning component. The first release of the ERP went live in summer 2002. "We've spent a lot of time stabilizing and improving the system," Banghart says.

About $3.6 billion of DLA's sales are managed within BSM today, and the agency brings on 200 additional users and 200,000 line items every month. When the new ERP is rolled out completely, it will have about 6,000 users and 5.2 million line items, supporting $18 billion in sales.

DLA's transformation efforts are paying off handsomely. For example, the agency's cost recovery rate—the marked-up amount DLA charges its customers to cover costs—was more than 30 percent in the 1990s. That number has dropped to less than 15 percent. And DLA is committed to reducing its cost recovery rate further next year, according to Banghart.

DLA's transformation efforts carry an estimated $1.5-billion price tag. "We'll invest the $1.5 billion during the next five or six years, and will return a net $3 billion to invest in weapons platforms or savings to improve readiness," Banghart says.

Most of the current transformation initiatives will be completed over the next three years; some will stretch beyond that, and others will be added. As a result of these transformation initiatives, "DLA is very different today than it was three years ago, and will be very different again two or three years from now," Banghart says.

TRANSCOM Becomes DPO

The U.S. Transportation Command provides the United States with strategic mobility capability, controlling a fleet of military assets valued at more than $52 billion. These assets include 87 ships, 1,269 aircraft, 2,150 railcars, and more than $1 billion in infrastructure.

During an average week, TRANSCOM conducts more than 1,900 air missions, with 25 ships in transit, and 10,000 ground shipments operating in 75 percent of the world's countries.

TRANSCOM has three component commands: the Air Force's Air Mobility Command, the Navy's Military Sealift Command, and the Army's Military Surface Deployment and Distribution Command. In September 2003, TRANSCOM was designated the Distribution Process Owner (DPO) for DoD distribution.

"For the first time, DoD now has a single, accountable combatant commander responsible for integrating the DoD supply chain and distribution pipeline from end to end," says TRANSCOM's Purcell. "We have numerous partners in this effort, but TRANSCOM has the overarching responsibility for successfully integrating these efforts."

The work is paying off, yielding more than $418 million in validated cost avoidance realized from DPO-related actions in less than two years.

The supply chain integration initiative has three major components: Developing "to be" supply chain processes for all nine classes of supply, aligning diverse information technology, and reorganizing at the combatant commander level to support distribution and logistics for the U.S. Joint Forces Command (USJFCOM), which coordinates the Army, Marine Corps, Navy, and Air Force warfighting services.

1. Process mapping. Understanding the current supply chain involves a far-reaching effort to map existing "as is" processes—most of which were developed as the Services worked independently to take care of their supply and logistics needs, Purcell explains.

TRANSCOM now works closely with the services and DLA to map current processes, trying to align them more closely with industry best practices.

"We estimate we'll have the 'to be' architectures for the nine supply classes mapped out by September," says Purcell. Analysis and process redesign are the next steps, beginning this fall, as military logisticians move to close the process and IT gaps between "as is" and "to be" processes.

2. Information technology. Rationalizing DoD's IT systems is another massive undertaking.

"More than 580 IT systems support distribution in one way or another throughout DoD," Purcell notes. Bringing visibility to and sharing information across those systems is a high priority for TRANSCOM, which was named Distribution Portfolio Manager for DoD Distribution IT systems last July.

"Unifying and aligning the distribution IT effort was an attempt to bring organization to the business process," Purcell explains.

"Someone needed to set system priorities, be in charge of DoD's organization, and be responsible for the progress of that effort.

"TRANSCOM is not trying to dictate what the Services can and can't do internally," Purcell continues. "We are trying to identify the principal distribution systems that we need to support to move the Joint Services/DoD effort forward, and to link those systems between the Services and national partners."

The project's overarching goal is to drive connectivity into the disparate logistics IT systems, achieve asset visibility throughout the distribution pipeline, and improve logistics support to combatant commanders and warfighters.

TRANSCOM will also play an important role in DoD's use of radio frequency identification technology. Once DoD determines how it will use RFID, and sets active and passive RFID policy, TRANSCOM will be actively involved in implementing and integrating the IT requirements. Ensuring that RFID technology integrates effectively with the DoD IT backbone is a major priority, Purcell says.

3. Reorganization. Part of TRANSCOM's reorganization involves integrating national-level distribution capability with the combatant commander's operational and tactical efforts in theaters of operation—such as Iraq and Afghanistan—by establishing deployment distribution and operation centers (DDOCs). These DDOCs are designed to improve distribution of material and visibility of critical warfighting assets.

After its designation as DPO in 2004, TRANSCOM partnered with DLA, the Services, and USJFCOM in setting up a DDOC in Kuwait to work with the United States Central Command (CENTCOM), the combatant command responsible for the Iraq war. This DDOC is staffed with logistics and transportation professionals from the combatant command and its partners, who work under the authority of the CENTCOM commander.

"The Kuwait DDOC was a prototype, the first time such collaboration occurred," Purcell notes. To date, the Kuwait DDOC has assisted in moving more than 250,000 troops and one million tons of cargo during its pilot phase.

"It became obvious quickly that this joint capability offered great value, and the other combatant commanders expressed interest in developing the capability in their theaters," notes Purcell.

As a result, the combatant commanders and DoD logistics/transportation organizations continued to develop the model. A DDOC in Pacific Command (PACOM) was put in place when the tsunami struck in late 2004. In addition, a PACOM DDOC is currently being implemented in Korea, a European DDOC has recently begun full operations, and Southern command now has its own DDOC capability.

TRANSCOM has seen increased efficiencies in meeting the combatant commander's priorities, improving asset visibility, and streamlining the distribution process, thanks to the DDOCs, says Purcell. Having better logistics operations visibility lays the groundwork for combatant commanders to synchronize the joint forces across the supply chain.

The Defense Transportation Coordination Initiative (DTCI) is another TRANSCOM major reorganization effort. Its mission is to improve the reliability, predictability, and efficiency of DoD material moving within the continental United States by forming long-term partnerships with a world-class transportation management services coordinator.

The initiative involves centralizing military domestic transportation scheduling and fulfillment with a third-party logistics provider. A pre-solicitation conference for the DTCI procurement will be held in August, with the Request for Proposal scheduled for release in October. Contract award is expected in mid 2006.

DTCI is one example of TRANSCOM's success in leveraging commercial partnerships to improve results. "We think DTCI will be a winner for all of DoD," Purcell says.

Becoming the Best

"As part of its transformation, TRANSCOM spent significant time baselining its initiatives with the biggest logistics firms in industry," Purcell says. "We found we had many things to learn from them." But TRANSCOM also found that civilian businesses felt they could learn from military logisticians as well, in part because of the great complexity of the military's operational and tactical distribution challenges.

The same is true for DLA. Working with consultants who presented a number of commercial best practices, "we discovered that DLA already has some best practices in place," Banghart says. DLA's governance structure, for example, is world class.

"We have a corporate board that meets monthly, and oversees our Transformation Executive Board," explains Banghart. More than half of DLA's senior executives sit on this executive board, which meets biweekly to discuss the agency's transformation efforts. DLA also has a Supply Chain Integration Forum made up of staff who are executing the transformation plans.

The Marine Corps is in a similar place. "A few years from now, logisticians will come to the Marines to learn how we achieve results," Lt. Gen. Kelly predicts.

Part of the three organizations' success at driving significant and far-reaching change can be traced to the careful attention paid to change management.

"You can never do too much change management—that's one thing we found out going through this process," Banghart says. "While DLA has always been fairly aggressive with change management, we recently set up an enterprise change management office to coordinate all those efforts across the organization."

Each of DLA's transformation initiatives has a change management component. "We want to make sure our messages are consistent, synchronized, and follow a common theme so we don't send mixed signals to the workforce," says Banghart.

While embracing change management as a core discipline is relatively new to DLA, it's becoming well-entrenched as the military modernizes.

"At the Services, Office of the Secretary of Defense and Joint Staff level—everyone recognizes the critical importance of change management," says Banghart.

Lt. Gen. Kelly has direct responsibility for change management efforts related to the Marine Corps' logistics modernization program. His team developed an extensive change management/communications plan, which includes explanatory articles written for Marine Corps publications as well as an informational CD.

Careful attention to change management, coupled with visionary leadership, a dedicated and skilled staff, sound planning, and crisp execution, are the tools military logisticians are using to win the battle of maximizing value and service to the country's warfighters.

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