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2121stst Century DoD Logistics Century DoD Logistics

The Honorable Jacques S. Gansler, Ph.D.

Professor and Roger C. Lipitz Chair

Center for Public Policy and Private Enterprise

School of Public Policy ~ University of Maryland

September 21, 2006

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Modern, Commercial Supply ChainModern, Commercial Supply Chain

UPS Worldport: sorts and routs 300,000 packages every hour FedEx Global Hub: an aircraft lands every 90 seconds; then

the packages move through 300 miles of conveyor sorting-belts

Wal-Mart and Dell distinguish themselves based on their “sense and respond” (demand-based) supply chains -- which respond in hours

Dell makes a desk-top computer every 5 seconds; to rapidly respond to tailored, internet orders

Wal-Mart keeps its 60,000 suppliers continuously informed about the variations in individual products within its $300 Billion annual sales

Benetton dramatically revised its production process to be able to rapidly respond to customer changing demands

Speed, cost, quality and responsiveness are driving world-class performance

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Changes that are Driving Defense Changes that are Driving Defense Transformation TodayTransformation Today

Domestic Economics - Debt, Medicare, Social Security, Supplementals, Trade Balance

Threat Changes - Asymmetric warfare (bio, cyber, IEDs); world-wide terrorism; pandemics; weapons proliferation; rogue nuclear states

New Missions - Homeland defense; missile defense; counterinsurgency; stability and reconstruction

Warfighting Changes - Netcentric Warfare; Systems-of-Systems; Joint and coalition operations

Intelligence Changes - Integrated data; open-sources; Language and culture understanding

China - Future adversary or Econ. Competitor (or large Military Sales Market)

Technological Changes - Infor., bio, nano, robotics, high-energy lasers, etc.

Industrial Changes - Horizontal & vertical integration; commercial high-tech advances

Globalization - Rapid spread of Technology; multinational firms; foreign sourcing

Government Workforce - Aging; wrong skill mix; judgment vs. rules; managers vs. doers

Recent “Scandals” - Druyun, Cunningham, Abramoff, etc.

Isolationist Moves - “Buy-American”; discourage foreign scholars; energy “independence”

Defense Budget Shifts - From Equipment to Personnel, O&M and Homeland Security

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DoD Logistics TodayDoD Logistics Today

Spend over $90 Billion/year ($126 Billion in FY 04 with the Supplemental); employ approx. 1 Million government people; have an inventory of approx. $67 Billion -- but do not do a world-class job, by any measure (response time, flexibility, cost, etc.)

Logistics has been a major problem in Iraq, and it is critical to 21st Century warfighting

The commercial world has integrated logistics data systems; DoD has over 600 non-inoperable logistics systems (and few links to the rest of the enterprise)

DoD Logistics has little cost visibility or performance accountability

The potential for dramatic improvement in performance with billions of dollars of savings must

be realized -- and soon.

The potential for dramatic improvement in performance with billions of dollars of savings must

be realized -- and soon.

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Logistics Results: “Successful”, but Logistics Results: “Successful”, but notnot World-Class World-Class

Nu

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orld

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Order to Receipt Time (days)

Dom

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21 Days 49 Days

Cur

rent

DoD

1991

Gulf

War

1-2 days

2-4 days

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The Need for a Logistics Transformation is Widely RecognizedThe Need for a Logistics Transformation is Widely Recognized

• DoD Mgmt. Initiative Decision (MID) #917 (October 20, 2004) established 6 Pilot Programs to test consistent Performance Based Logistics Strategy (including Contracting, Programming, Budgeting, Financial Processes)

• “DoD Logistics Transformation Strategy” (December 10, 2004) recognized Focused Logistics as JROC-approved Concept; and incorporated key Sense and Respond Tenets

• DoD Directive required incorporation of RFID throughout (beginning January 2005)

“We can not have a DoD transformation without a logistics transformation.” (Gen. Shinseki, Chief of Staff, U.S. Army)

“We can not have a DoD transformation without a logistics transformation.” (Gen. Shinseki, Chief of Staff, U.S. Army)

Yet a recent, senior, external review group (meeting at LMI) concluded: “Current DoD programs and initiatives will not achieve Focused Logistics by 2020”

Yet a recent, senior, external review group (meeting at LMI) concluded: “Current DoD programs and initiatives will not achieve Focused Logistics by 2020”

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Achievement of DoD Logistics Transformation Requires:Achievement of DoD Logistics Transformation Requires:

1. Technology - - funding for Research and Demonstrations

2. Infrastructure - - modern communications and ERP

3. Business/Finance Rules - - visibility and flexibility

4. Personnel - - government as managers of the “doers”

5. Organization - - single point responsibility for end-to-end supply chain (performance and cost)

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Performance Based Logistics Availability and Response TimePerformance Based Logistics Availability and Response Time

F-14 LANTIRN

Navy Program Pre-PBL Post-PBL

H-60 Avionics

F/A-18 Stores Mgmt System (SMS)

Tires

APU

73% 90%

71% 85%

65% 90%

70% 85%

98%65%

Material Availability Logistics Response Time

Pre-PBL Post-PBL

56.9 Days 5 Days

52.7 Days 8 Days

42.6 Days 2 Days CONUS7 Days OCONUS

28.9 Days 2 Days CONUS4 Days OCONUS

35 Days 6.5 Days

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Focus on Continuous Improvement Focus on Continuous Improvement ((Maintenance Cycle Time Days)Maintenance Cycle Time Days)

83

40

1411 10

3

Oct-01 Apr-02 Oct-02 Apr-03 Oct-03 Apr-04

AIMD Lemoore Power Plants ShopF404 Engine Repair Cycle Time

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Barriers to Moving to World-ClassBarriers to Moving to World-Class (Cultural)(Cultural) Protect jobs (govt. workers and mil. commanders) Resistance to change (been “successful” and believed to be “core”) Don’t trust contractors (can’t “control” contractors on the

battlefield in wartime, and will be locked into sole source in peacetime)

Don’t trust other Services to collaborate in crisis “Current COTS only satisfies 90% of requirements” Want to “see” inventory (don’t trust “just in time”) Don’t trust security of system (to cyberwarfare) “Transition too hard”

Protect jobs (govt. workers and mil. commanders) Resistance to change (been “successful” and believed to be “core”) Don’t trust contractors (can’t “control” contractors on the

battlefield in wartime, and will be locked into sole source in peacetime)

Don’t trust other Services to collaborate in crisis “Current COTS only satisfies 90% of requirements” Want to “see” inventory (don’t trust “just in time”) Don’t trust security of system (to cyberwarfare) “Transition too hard”

Each of these must be explicitly addressed to achieve a successful transformation.

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Defense Logistics: Stryker Vehicle SupportDefense Logistics: Stryker Vehicle Support

Contractor Maintenance (in Iraq)

• 45 personnel embedded in Stryker brigade -- priorities directed by battalion commander

• “Exceeded Army–established performance goal of 90% operational readiness”

• “From October 2003 through September 2005 averaged 96% operational readiness -- despite 800% higher mileage usage than anticipated”

• Army stated: “Contractors were knowledgeable about maintenance”; “provided timely information on status and spares”; “freed soldiers to perform military functions”

GAO report, September 5, 2006

However, The Army has decided to replace the 45 contractor personnel with 71 soldiers -- to be taken from military positions and trained on Stryker maintenance. The Army rationale is stated as “increased flexibility in different combat situations”. (Costs and readiness not considered factors)

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DoD DoD MustMust Move to a World-Class System Move to a World-Class System

1. Great increase in readiness

2. Great increase in responsiveness

3. Dramatic increase in dependability

4. Significant cost reductions

5. Significant error reductions

The commercial world has demonstrated it can be achieved Leadership action is required to overcome barriers Logistics Modernization must be a true leadership priorityThe DoD must take maximum advantage of commercial technology

It is truly transformational for the DoD