With Supply Chain Transformation initiative, Army Materiel Command seeks greater efficiencies, better communication
By Mrs. Jamie Miller
It’s a new era for Army supply chain management. We are looking for more efficient ways to improve the end-to-end management of spare parts, from supplier to Soldier, for the Army’s combat systems. The U.S. Army Materiel Command (AMC) has a challenge to stay relevant and shift from a reactive war environment to a proactive drawdown environment of managing and resolving supply chain issues before they become problems.
Starting in 2003, the Army began implementing the Logistics Modernization Program (LMP), an enterprise solution that integrates supply chain, maintenance, repair and overhaul planning and execution. LMP has a user base of more than 20,000 people and incorporates more than 70 DOD systems to plan, make, deliver, repair and return equipment to Soldiers. The shift from AMC’s old requirements determination program, which dated to the 1960s, to the new SAP software product presented challenges for the Army’s supply chain managers.
More significant than the issues with the data conversion, however, was finding out that some of our old business processes would no longer work now that every business area “talks” to the others in the new system. Our old processes operated in silos, and we lacked communication and planning across business areas. We were also accustomed to transaction-based thinking (making a decision) instead of analysis-based thinking (why we make decisions). Now we understand the importance of why we make those transactions and what effects they will have throughout other supply chain business areas. AMC has thus taken a more enterprisewide approach to resource planning, analysis and integration of supply chain management processes.
Since 2005, the U.S. Government Accountability Office (GAO) has said that DOD’s supply chain management is a “high risk” area needing transformation. Most recently, a 2013 GAO report mentioned problems with excess inventory, ineffective and inefficient inventory management practices and inaccurately forecasting demand for spare parts. In response to the report, AMC created a Supply Chain Transformation Team that developed a supply chain strategy and a human capital strategy to mitigate those risks. These strategies will help to increase supply chain efficiencies, enhance key skills and improve communication within the workforce and throughout the supply chain. The transformation team has made substantial progress toward these goals with efforts in sales and operations planning, strategic sourcing and supplier relationship management, demand planning and metrics.
SALES AND OPERATIONS PLANNING
The life-cycle management commands, which include the U.S. Army Aviation and Missile Command, Communications and Electronics Command, Joint Munitions Command, and TACOM Life Cycle Management Command, are participating in AMC’s sales and operations planning (S&OP) process. The goal is to leverage best practices from industry to integrate individual business processes (i.e., demand planning, supply planning and resource balancing) in areas of enterprise-level decision-making on supply chain management.
S&OP allows the key stakeholders—from the item managers to weapon system directors all the way up to the logistics center directors and senior leaders at AMC—to collaborate and review metrics from financial projections, forecasted demand plans and supply execution plans at the individual item level or aggregate levels for weapon systems and commodities. The reports from the Enterprise Sales and Operations Planning Tool (ESOPT) help to illustrate aggregate demand and supply plans for entire weapon systems and to evaluate the feasibility and, eventually, the performance of those plans.
Each month, in place of the old “due diligence” reviews, each life-cycle management command holds S&OP internal reviews in preparation for the management business review with senior supply chain leadership at AMC. The meetings allow participating commands to discuss anticipated changes in future requirements as well as resource constraints. As budget cuts, inventory reduction goals, new equipment fielding or unforeseen events arise, these management reviews lead to decisions to mitigate potential supply chain risks in the future.
S&OP is an intensive planning and review process, not just a software tool as initially thought. As users become more familiar with ESOPT, it is clear that S&OP is in fact a process to analyze the supply position and assess demand levels, then integrate them financially. The tool is just a means to visualize the business process. For example, it can produce a graph showing inventory levels decreasing, shipments coming in, forecasted demands and a supply plan for the future. (See Figure 1.)
STRATEGIC SOURCING AND SUPPLIER RELATIONSHIP
The Supply Chain Transformation Team established a strategic sourcing and supplier relationship management (SS/SRM) initiative to coordinate the AMC logistics centers and be a single face to the industrial base while building relationships with sole-source suppliers.
Historically, the Army has procured spare parts with limited communication with other partners in the supply chain. SS/SRM provides better value and supply chain performance by establishing relationships with sole-source suppliers to create open dialogue and synergy. Relationship strategies may differ depending on the supplier; however, common components include contracting (number of contracts and key terms), logistics (e.g., lead times and delivery issues), and information flows (creating appropriate communications channels). Ultimately, SS/SRM promises to lower the cost of material, reduce production lead times and improve product support to the warfighter.
AMC is developing the SS/SRM program to span various Army secondary part suppliers as opportunities arise. It is imperative that we identify opportunities for participation from across the AMC enterprise of logistics centers, and institutionalize the program as a standard business practice. Previously, AMC was not organized for enterprise coordination with suppliers, and collaborating across logistics centers (e.g., through enterprise contracts) rarely occurred. AMC overcame this challenge by creating a representative governance structure—including leadership from each of the logistics centers, HQ, AMC and U.S. Army Contracting Command—to guide SS/SRM activity.
SUPPLY CHAIN METRICS
Metrics are essential to performance improvement and thus to the success of any supply chain program. We get what we measure. AMC also faces an increasingly complicated challenge of meeting its mission requirements in a fiscally constrained environment. LMP was the first step in linking the data used to measure supply chain processes into one system. However, the logistics centers were still reporting nonstandardized metrics in manually intensive processes that were organizationally and systemically isolated. These obstacles hindered the centers’ ability to report a true, timely and actionable picture of secondary item supply chain performance.
Data analysis on parts of the supply chain was available; however, it came from different commands with inconsistent methods of data extraction, sources and analysis. Creating and implementing a single solution for our supply chain metrics allows for a consistent reporting platform for determining supply chain issues. We also needed a governance structure to monitor those metrics and provide actionable responses to the data in order to be proactive instead of reactive.
AMC has metrics to assess performance of each transformation process and of the supply chain itself. What we have measured since implementing S&OP in March 2013 shows that our endeavors have had a positive impact on our supply chain. The number of spare parts put on back order is down from $551 million to $458 million, a difference of $92.9 million or 17 percent. Inventory is down from $22 billion to $19.6 billion, an 11 percent reduction. In March 2013, we were over-forecasting by $1.9 million. We have increased our forecast accuracy by 29 percent, which means a cost avoidance of $1 billion—a significant accomplishment for item managers, given the extremely unpredictable industry in which we operate.
Figure 2 illustrates a dashboard system, with notional data, developed by AMC’s Logistics Support Activity for metrics analysis.
AMC’s Supply Chain Transformation Team recently received the 2013 Department of Defense Award for Supply Chain Excellence.
AMC is embracing forward-looking planning and problem-solving. Through our current efforts and transformation initiatives to come, we can visualize long-range budget plans, demand forecasts and supply execution plans, and address any gaps before they become problematic. We are not sifting through measurements anymore; we are using meaningful metrics. The AMC workforce is shifting from transaction-based processes to analytics. We have learned the importance of measuring the “right” elements and will continue to ensure that the Army’s supply chain is efficient, relevant and always improving.
The success of the AMC transformation is the result of the dedication, determination and innovation of our people. The transformation team is building the necessary relationships with the workforce through supply chain workshops and leadership development programs, both starting in FY15. We are dedicated to improving morale, communication and supply chain management training so that we can retain and recruit the best in the business.
For more information, contact the author at 256-450-8903.
MRS. JAMIE MILLER is the Supply Chain Transformation Team lead at AMC Headquarters, Redstone Arsenal, AL. She holds an M.S. in logistics from the Florida Institute of Technology and a B.S. in education from the University of Alabama. She is Level III certified in life-cycle logistics and has attended the Penn State Executive Program in supply chain management.
This article was originally published in the October – December 2014 issue of Army AL&T magazine.
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