Analyses examining Army materiel distribution in DoD have concluded that the process might benefit from applying modern industrial practices. This paper identifies problems in the DoD system, describes industry's practices, and suggests what DoD should do to improve its operation.
Despite high-level attention and repetitive attempts to correct the problems, Operation Desert Storm showed they still exist. Over 25,000 containers shipped to theater had to be opened simply to determine contents and destination. Supplies were lost to the system, sometimes for months. Resupply of spare parts was ineffective. Equipment was deadlined, and some units received only minimal parts support. Troops were able to continue only because of what they had brought with them; because those quantities had been substantially increased above normal; and because of aggressive, dedicated, and labor-intensive efforts. After the Persian Gulf War, the Army studied the problems with materiel distribution (the Total Army Distribution Study) and developed a plan to resolve them. But the plan focused on the Army and in-theater delivery and took an incremental rather than a systemic approach.
Given the Army's problems with the distribution system, the question arises about how logisticians have been able to support U.S. forces in past conflicts. The United States has succeeded in the past because it could rely on logistic mass and personnel to work around problems. With enough stockpiled materiel and spare equipment, distribution problems become less critical. The United States has been fortunate to have a large enough military establishment so that not all elements become engaged in the conflict. Unengaged units provide a ready source of spare parts and equipment. For example, fewer than 8 of 18 divisions fought in Desert Storm. The uncommitted divisions could be--and were--called on for parts and equipment.
Figure 1--DoD Distribution Process
Furthermore, the distribution process has a fragmented focus. Many of the nodes measure performance differently, and none uses what many regard as the most important measure--customer satisfaction. Some elements use time, others use percentage of fill, and still others use cost. The Army does measure customer wait time (called order-ship time) at the Department of the Army level. But it reports performance only by averages--not by individual shipments--and the data are of poor quality. However, the distribution process exists for only one reason: to place requested materiel in the hands of the warfighter. User (or customer) satisfaction should be the predominant performance measure. The desired standard is the right materiel in the right place at the right time, every time.
This maladaptive behavior drives up the cost of inventory and decreases capability. Inventory cost goes up because more items are requested than are needed. Simultaneously, the supply system, seeing more demands, stocks more items. The sluggishness of the system has the effect of increasing the length of the pipeline and, hence, the number of items in it. All of this has the aggregate effect of raising the cost of a given capability.
Figure 2--Cost Increases in Weapon System Components
While the cost of material has been increasing dramatically for some items, the cost of transportation has been decreasing significantly. Figure 3 displays the ton-per-mile costs for shipping by land, sea, and air. Shipping costs for all modes have dropped sharply. Twenty-five years ago, it cost more than twice as much to ship material by sea or truck as it does today. Air and rail shipment costs are also sharply lower.
The current DoD distribution process does not take these dramatic cost declines into account. For example, certain elements of the distribution process seek to minimize transportation costs by delaying shipments to allow consolidation or by using slower but cheaper transportation. Saving transportation costs is a worthy goal and probably made good sense in an era when transportation costs were high relative to the cost of the materiel being transported, but it may not make sense today. Delaying the shipment of expensive components causes the system to stock more of them. Given the high cost of some components, the cost-effective decision may be to pay the transportation premium and move them rapidly.
Figure 3--Declines in Commercial Shipping Costs
When a system does not have visibility of what it contains, efficient management is not possible. Thus, information is a key to efficient distribution. Knowing what is in the system and where it is allows operators to make timely decisions. The cost of storing and retrieving information has declined even more rapidly than the cost of transportation. Computing costs have fallen exponentially. A bit-per-second cost of $1,000 in 1950 dropped to $1 in 1960 and $.001 in 1990. And the ability to move information rapidly has increased exponentially. DoD distribution processes were designed long before such capabilities were widely available. When it is possible to track a specific engine literally minute-by-minute through the repair and return process, it may be possible to have far fewer of them in the inventory.
The standard for shipment in the United States is 5 days for the highest-priority cargo, and 65 days for the lowest priority to the Western Pacific. Given that numerous commercial companies will guarantee overnight delivery in the United States and two days overseas, these standards do not seem challenging. And DoD is far from making progress. In 1959, the standard for high-priority shipment in the United States was 6 days, and low-priority shipments were allowed 20 days.
As unambitious as the standards are, DoD fails to meet them. An analysis of the pipeline performance showed that only 17 percent of the highest-priority shipments in the United States met the standard. [1] More than a third of the lowest-priority shipments overseas took longer than the maximum standard. However, these data reflect peacetime performance, and one might hope that the system works better in wartime.
Data collected from Operation Desert Storm indicate otherwise. It performed worse. High-priority shipments took an average of 30 days, or more than three times as long as the standard. The system does not ask for high performance, and it does not even get what it asks.
Furthermore, many companies use a combination of their own system and commercial shipping companies to achieve highly responsive performance. They routinely guarantee overnight delivery in the United States. One large heavy-equipment manufacturer, for example, receives 78,000 parts requests a day, maintains a spare parts inventory of over 470,000 line items (some of which are identical to DoD parts) and guarantees 48-hour delivery in the United States or to an air or seaport, or the customer does not have to pay for the part. It meets the 48-hour standard 99.8 percent of the time.
Many companies, then, operate a distribution process that is in some respects as challenging as DoD's (and some would argue that it is more difficult) with respect to volume, if not environment, and do so much more effectively. What enables them to do so?
Industry differs from DoD in that it operates to make a profit, but it also differs because its distribution system focuses on a single goal--a satisfied customer. Customers are satisfied when shipments arrive quickly, reliably, and as cheaply as possible. If a company cannot match the service of other firms, customers can simply take their business elsewhere. Loss of customers quickly reflects on profit and loss statements, the ultimate measure for commercial activities. Commercial distribution operations may have subsidiary measures of merit, but they focus primarily on customer satisfaction.
In even sharper contrast to the DoD, many commercial distribution operations can have a single agency in charge of the entire process. Focusing on the single goal of customer satisfaction, that agency can modify or eliminate anything in the system that does not contribute to that goal. Technological innovations apply systematically rather than functionally. Thus, the distribution system operates as exactly that--a system focused on a single goal. The result is a simple, integrated, and focused operation.
Industry has effectively used technological innovation, but it has done so in conjunction with organizational changes that allow it to derive the maximum benefit from the technology. For example, Portland General Electric streamlined its procurement process and added electronic data interchange. The company reduced processing time from 15 days to one-half of a day and lowered its processing cost from $90.00 per order to $10.00. The company estimates that had it applied only the electronic data improvements, it would have achieved efficiencies of about 10 percent. Put another way, automating cumbersome procedures may make them faster but no less cumbersome.
Next, DoD should establish reasonably high standards of performance for each distribution element and measure the performance of each element against the standard. But the standards should not be measured against averages. All failures to meet the standards must be pursued until the reasons for the failures are identified and eliminated. The changes suggested here are neither incremental nor evolutionary. They are fundamental, systemic, and revolutionary. Certainly, they will not be easy to implement. The greatest challenge may be integrating the commercial approach into the theater environment. However, unless these changes are made, the United States may find itself unable to pursue its interests wherever it needs to because it cannot provide its forces the logistical support they need.
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IP-128
March 1994