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Optimizing the DoD Supply Chain for the Future Joint Force 5b. GRANT NUMBER

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LtCol Matthew B. Reuter, USMC

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13. SUPPLEMENTARY NOTES 14. ABSTRACT The future Joint Force will engage in an operating environment that is a complex mixture of uncertainty, change, and conflict. Among these complexities, global access will be challenged by anti-access and area-denial measures, focused on limiting the Joint Force’s freedom of action in a persistent combination of combat, security, engagement, and relief and reconstruction operations. Furthermore, resource constraints will produce military-wide reductions and necessitate a more economical approach to global logistics. As efficiencies are achieved, though, global logistics must effectively sustain the Joint Force. A key factor of success or failure is the effectiveness and efficiency of the logistics enterprise, of which the supply chain is an enabling capability. The current Department of Defense (DoD) supply chain has reached its highest potential, and is neither effective nor efficient enough to meet the requirements of the Joint Force amidst the demands of the future operating environment. Therefore, a new emphasis is needed to achieve an optimal strategic fit between the national defense strategy and the supply chain strategy. The fit will be made possible by changes in DoD logistics policy, strategy, organizational structure, management, and processes. Additionally, best business practices in the commercial sector must continue to be adopted and adapted to the military environment, thereby providing benchmarks that will position the DoD supply chain on the leading edge of global logistics. With these changes, the DoD supply chain will be optimized to support the future Joint Force in a complex and challenging operating environment. 15. SUBJECT TERMS: Supply Chain, Supply Chain Management, Logistics, Sustainment

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NATIONAL DEFENSE UNIVERSITY

JOINT FORCES STAFF COLLEGE

JOINT ADVANCED WARFIGHTING SCHOOL

OPTIMIZING THE DOD SUPPLY CHAIN FOR THE FUTURE JOINT FORCE

by

Matthew B. Reuter

Lieutenant Colonel, United States Marine Corps

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OPTIMIZING THE DOD SUPPLY CHAIN FOR THE FUTURE JOINT FORCE

by

Matthew B. Reuter

Lieutenant Colonel, United States Marine Corps

A paper submitted to the Faculty ofthe Joint Advanced Warfighting School in partial satisfaction of the requirements of a Master of Science Degree in Joint Campaign

Planning and Strategy. The contents of this paper reflect my own personal views and are not necessarily endorsed by the Joint Forces Staff College or the Department ofDefense.

This paper is entirely my own work except as documented in footnotes.

Thesis Adviser:

Approved by:

Signature: ~ /5~ /2.::i:::-

. 2871$LMay 2013 ~ ' Stgnature: ~–

'

. Stev~lliani, Captain, USN •

Stgnature: –~~~——–~-==~———– Dr. Keith D. Dickson Committee Member

Signature~~ ::ror:s:c::. USAF Committee Member

Signature: d~~-~ James B. Miller, USMC, Director Joint Advanced Warfighting School

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ABSTRACT

The future Joint Force will engage in an operating environment that is a complex

mixture of uncertainty, change, and conflict. Among these complexities, global access

will be challenged by anti-access and area-denial measures, focused on limiting the Joint

Force’s freedom of action in a persistent combination of combat, security, engagement,

and relief and reconstruction operations. Furthermore, resource constraints will produce

military-wide reductions and necessitate a more economical approach to global logistics.

As efficiencies are achieved, though, global logistics must effectively sustain the Joint

Force. A key factor of success or failure is the effectiveness and efficiency of the

logistics enterprise, of which the supply chain is an enabling capability. The current

Department of Defense (DoD) supply chain has reached its highest potential, and is

neither effective nor efficient enough to meet the requirements of the Joint Force amidst

the demands of the future operating environment. Therefore, a new emphasis is needed

to achieve an optimal strategic fit between the national defense strategy and the supply

chain strategy. The fit will be made possible by changes in DoD logistics policy,

strategy, organizational structure, management, and processes. The breadth and depth of

these changes will only be possible through a re-focusing of DoD logistics towards the

end-to-end supply chain. Additionally, best business practices in the commercial sector

must continue to be adopted and adapted to the military environment, thereby providing

benchmarks that will position the DoD supply chain on the leading edge of global

logistics. With these changes, the DoD supply chain will be optimized to support the

future Joint Force in a complex and challenging operating environment.

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i

TABLE OF CONTENTS

CHAPTER 1: INTRODUCTION …………………………………………………………………………….1

Orientation …………………………………………………………………………………………………………1

Thesis Statement …………………………………………………………………………………………………2

Methodology ………………………………………………………………………………………………………3

CHAPTER 2: SUPPLY CHAIN ………………………………………………………………………………5

History……………………………………………………………………………………………………………….5

Concepts …………………………………………………………………………………………………………….7

DoD Supply Chain …………………………………………………………………………………………….12

Future Joint Force Operating Environment …………………………………………………………..23

CHAPTER 3: ANALYSIS ……………………………………………………………………………………26

Policy and Strategy ……………………………………………………………………………………………26

Case Study: H-60 Helicopter Supply Chain ………………………………………………………….29

Case Study: OIF Supply Chain ……………………………………………………………………………30

Case Study: OEF Supply Chain …………………………………………………………………………..33

System and Organizational Factors ……………………………………………………………………..36

Best Business Practices ………………………………………………………………………………………41

CHAPTER 4: RECOMMENDATIONS………………………………………………………………….50

Policy and Strategy ……………………………………………………………………………………………50

Organizational …………………………………………………………………………………………………..51

Management and Processes ………………………………………………………………………………..53

Further Study ……………………………………………………………………………………………………55

CHAPTER 5: CONCLUSION ………………………………………………………………………………57

BIBLIOGRAPHY ………………………………………………………………………………………………..59

VITA ………………………………………………………………………………………………………………….64

ii

ILLUSTRATIONS

Figures

2.1. Logistics evolution ……………………………………………………………………………………….7

2.2. Supply chain stages, processes, and flows ……………………………………………………….9

2.3. Supply Chain Operations Reference (SCOR) model ……………………………………….10

2.4. DASD(SCI) organization …………………………………………………………………………….14

3.1. OEF distribution network ……………………………………………………………………………34

3.2. Vulnerability quadrant chart ………………………………………………………………………..46

3.3. Disruption profile ……………………………………………………………………………………….47

Tables

3.1. H-60 helicopter supply chain metrics ……………………………………………………………29

iii

CHAPTER 1: INTRODUCTION

Orientation

History has proven that the military force that understands the operating

environment and adapts to change will be successful in the conduct of warfare. For the

desired endstates, the operating environment’s critical factors provide a distinct focus that

informs the development of the military force’s ways and means of conducting warfare.

For the future Joint Force, the operating environment will be a complex mixture of

uncertainty, change, and conflict. Amidst these complexities, global access will be

challenged by anti-access and area-denial measures, focused on limiting the Joint Force’s

engagement in a persistent combination of combat, security, engagement, and relief and

reconstruction operations. To succeed in this broad spectrum of missions, operations

must be globally integrated and mutually supporting across domains. Within these

parameters, Joint Force sustainment will require precise actions over widely dispersed

logistics nodes.

Unfortunately, global integration and cross-domain mutual support will be

challenged by resource constraints generated by the Department of Defense’s (DoD)

decreasing budget. This decreasing budget, directed in the Budget Control Act of 2011,

will reduce the defense budget by $487 billion over the next 10 years. The resulting

resource constraints will produce military-wide reductions and necessitate a more

economical approach to global logistics. As economies are achieved, though, global

logistics must effectively sustain the Joint Force. Sustaining the Joint Force is a clear

priority in the 2010 Quadrennial Defense Review (QDR), which states “…effective and

efficient delivery of logistical support to our men and women in the field is an enduring

1

priority and an area where continued improvements must be made.”1 To enable this

enduring priority, the QDR establishes the objective of reforming DoD institutions and

processes to better support warfighter urgent needs, while ensuring good stewardship of

taxpayer funded defense resources.

The enabling capability that logistically sustains the Joint Force is the DoD supply

chain. This supply chain links the defense industrial base to the Joint Force’s tactical

organizations. Yet this supply chain is not optimally managed from end-to-end, thereby

producing inefficiencies that degrade its effectiveness. The DoD supply chain has been

classified as “High Risk” by the Government Accounting Office (GAO) since 1990. This

classification necessitates broad reform to prevent waste, fraud, abuse, and

mismanagement of taxpayer funded defense resources. Through its research, the GAO

identified five common deficiencies within the DoD supply chain: management

oversight, performance tracking, planning, policy, and processes.2 The July 2010 DoD

Logistics Strategic Plan provides strategic direction for improvements in DoD supply

chain management, but lacks specificity in the areas of performance measurement,

capability gaps, resources, and linkages to the logistics enterprise.3

Thesis Statement

The DOD supply chain must be optimized to meet the requirements of the future

Joint Force operating environment and align with best business practices. The goal of

this thesis research is to identify how to improve the effectiveness and efficiency of the

1 U.S. Department of Defense, Quadrennial Defense Review Report (Washington, DC: Government Printing Office, 2010), 76.

2 U.S. Government Accountability Office, DOD’S HIGH-RISK AREAS. Progress Made Implementing Supply Chain Management Recommendations, but Full Extent of Improvement Unknown (Washington, DC: Government Printing Office, 2007), 5.

3 U.S. Government Accountability Office, DOD’S HIGH-RISK AREAS. Observations on DOD’s Progress and Challenges in Strategic Planning for Supply Chain Management (Washington, DC: Government Printing Office, 2010), 2.

2

DoD supply chain. Sub-optimal conditions exist that degrade support to the Joint Force,

yet there remains no single manager who is focused on executing the end-to-end supply

chain process. These conditions will become more severe as DoD operates in the future

environment as described in the Capstone Concept for Joint Operations (CCJO) and the

Joint Operational Access Concept (JOAC).

This thesis research is relevant to the Office of the Under Secretary of Defense for

Acquisition, Technology, and Logistics (USD(AT&L)), Office of the Assistant Secretary

of Defense for Logistics and Materiel Readiness (ASD(L&MR)), Office of the Deputy

Assistant Secretary of Defense for Supply Chain Integration (DASD(SCI), Joint Staff

Logistics Directorate, United States Transportation Command (USTRANSCOM),

Defense Logistics Agency (DLA), Combatant Command Logistics Directorates, and

other DoD supply chain stakeholders.

Methodology

The thesis research methodology consisted of a literature review, organizational

and supply chain management research, an analysis of policy and supply chain

operations, and an analysis of best business practices. The operating environment

described in the CCJO and JOAC provided the context for the future Joint Force’s

resources and requirements. The scope of the end-to-end supply chain addressed in the

thesis research is primarily at the strategic and operational levels of logistics, with limited

focus on manufacturing, acquisition, retail distribution, and asset visibility. Current

documents containing Defense logistics policy and Joint logistics strategy were reviewed

to determine the level of supply chain integration within the DoD logistics enterprise.

The current capabilities of USTRANSCOM and DLA were analyzed to determine the

3

degree of their overall effectiveness and efficiency in sustaining the Joint Force.

Additionally, information from Operation IRAQI FREEDOM (OIF) and Operation

ENDURING FREEDOM (OEF) was incorporated to highlight how DoD supply chain

management affects Joint Force operations. Lastly, leading commercial sector supply

chain management processes were evaluated to identify best business practices that DoD

could emulate and utilize amidst current DoD budgetary constraints. Ultimately, the

research focused on how to improve the effectiveness and efficiency of the DoD supply

chain.

4

CHAPTER 2: SUPPLY CHAIN

History

The importance of well-developed supply lines for sustaining a large army is

initially shown in the second half of the 17th Century. Michel Le Tellier and his son

Louvois established a network of supply magazines that enabled the French army to

expand and conduct operations that led to Louis XIV’s rule over Europe.1 Thus began

the logistics concept, of provisioning instead of foraging, that sustained military forces

operating in foreign countries. Warfare in the 18th and 19th Centuries required more

complex supply structures to sustain forces that were deployed for longer periods over

greater distances. Active provisioning remained an important variable that affected the

success or failure of military operations, as was proven by the British loss in the

American Revolutionary War and in Napoleon’s failed Russian campaign in 1812.

The world wars and conflicts in the 20th Century refined concepts of sustainment

for large military forces operating in demanding environments. These events highlighted

the importance of the defense industrial base, global transportation, and regional supply

distribution. A greater emphasis on logistics command and control was developed in

order to support operational-level maneuver and more complex military equipment.

The supply chain concept and supporting processes were developed in the latter

half of the 20th Century. Their formation was the result of a three-phase evolution in

commercial and military logistics that began in the 1960s and ended in the 1990s, as

depicted in Figure 2-1. During this period, numerous fragmented logistics processes

1 Martin Van Creveld, Supplying War: Logistics from Wallenstein to Patton (New York: Cambridge University Press, 1977), 17-26.

5

became increasingly integrated as a result of technological advancements and business

competition. This integration produced a physical distribution concept along with a focus

on the outbound side of the logistics system. The analysis of total system cost led to a

systems concept that identified strong relationships between cost and performance when

managing purchasing, inventory, warehousing, packaging, transportation, and other

necessary functions. With transportation costs being the driving variable in this period’s

system, physical distribution management became a focus area for logistics managers.

The 1980’s saw the deregulation of transportation and financial institutions, as well as a

revolution in technology. These changes combined to produce an integrated logistics

management concept, which modified the physical distribution concept by connecting

inbound logistics to outbound logistics. This connection became increasingly important

with the global sourcing of products and materials, thereby making transportation

scheduling a key aspect of process management. Global competition in the 1990’s

elevated the focus on total system cost. To remain competitive, organizations optimized

their integrated logistics processes using a management concept that focused on the end-

to-end process chain: supply chain management was the resulting concept.2

2 John J. Coyle, Edward J. Bardi, and C. John Langley Jr., The Management of Business Logistics: A Supply Chain Perspective, 7th ed. (Canada: South-Western, 2003), 13-14.

6

Figure 2.1. Logistics evolution.3

The conceptualization of supply chain management was first perceived by Keith

Oliver in 1982. As a Booz Allen Hamilton management consultant who was supporting

Phillips electronics, he described supply chain management as the process of planning,

implementing, and controlling supply chain operations, with the purpose of efficiently

satisfying customer requirements. He clarified that it spans the movement and storage of

raw materials, work-in-process inventory, and finished goods, from point-of-origin to

point-of-consumption. The concept was further explained by J. B. Houlihan in 1985,

who emphasized the efficiencies and mutual benefits produced from information sharing

and coordination within a supply chain.4

Concepts

A complete end-to-end supply chain consists of interdependent stages, processes,

and flows. The stages include the component or raw material supplier, product

3 Ibid., 14. 4 Stephen Hays Russel, “Supply Chain Management: More Than Integrated Logistics,” Air Force

Journal of Logistics 31, no. 2 (Summer 2007): 58.

7

manufacturer, wholesale distributor, retailer, and customer. The processes that occur

within and between the stages are the procurement cycle, manufacturing cycle,

replenishment cycle, and customer order cycle. Through these processes flow

information, product, and funds that create the interdependent nature of a supply chain.

The environment that contains the supply chain’s stages, processes, and flows is

described as a “pipeline or conduit for the efficient and effective flow of

products/materials, services, information, and financials from the supplier’s suppliers

through various intermediate organizations/companies out to the customer’s customers,”5

and is depicted in Figure 2.2. All of this activity is focused on meeting customer needs

and, simultaneously, generating some form of profit.

5 Ibid., 15.

8

Figure 2.2. Supply chain stages, processes, and flows.

The Supply Chain Council (SCC), founded in 1996, produced and maintains the

Supply Chain Operations Reference (SCOR) model, which is the SCC’s consensus view

of supply chain management. The SCOR model, shown in Figure 2.3, provides a

framework to guide processes, metrics, best practices, and technology towards more

effective and efficient supply chains.6 The model, consisting of the Plan, Source, Make,

Deliver, and Return processes, is widely used throughout the commercial sector, and

more recently in DoD. Its use is promoted by the SCC as described in the following

statement:

6 Supply Chain Council, Supply Chain Operations Reference (SCOR) model: Overview – Version 10.0 (Cypress, TX: Supply Chain Council, 2010), 6.

9

A process reference model can be a powerful management tool. Once a complex management process is captured in standard process reference model form, it can be measured, managed, and controlled. It can also be tuned and re-tuned to achieve a specific purpose or attain a competitive advantage.7

Once an organization’s supply chain configuration is captured, its performance can be

measured in the areas of reliability, responsiveness, agility, cost, and assets. Lastly, as

organizations endeavor to improve their supply chains, they use a combination of process

improvement methods, to include process re-engineering, Lean Manufacturing, Six-

Sigma, Theory of Constraints, ISO-9000 family of standards, Balanced Scorecard, and

benchmarking.8

Figure 2.3. Supply Chain Operations Reference (SCOR) model.9

The benefits of supply chain management are well documented. The SCC

annually captures business statistics that represent the benefits of an organizational focus

on supply chain management. In the 2012 survey of 503 organizations that manage

global supply chains, leading organizations showed the following results: (1) 70% higher

7 Ibid. 8 Supply Chain Council, “How Do I Use Scor?,” Supply Chain Council, http://supply-

chain.org/scor (accessed January 2, 2013). 9 Supply Chain Council, Supply Chain Operations Reference (SCOR) model: Overview – Version

10.0 (Cypress, TX: Supply Chain Council, 2010), 6.

10

performance where the supply chain is a strategic asset, (2) 4% higher earnings before

interest and taxes, (3) 7% higher perfect delivery performance, and (4) 7% higher

inventory turns per year.10 The SCC also formally recognizes commercial and military

organizations for their supply chain initiatives. The U.S. Air Force was recognized by

the SCC in 2008 and 2012 for supply chain initiatives that improved performance and

reduced costs. The 2008 recognition was for an effort to transform collaboration between

the acquisition and sustainment communities. It used the SCOR model as a standard

framework to guide the transformation effort. The results produced $6.75 billion in

Operations and Support savings over the Fiscal Year (FY) 2006 to 2011 period.11 The

2012 recognition was for an effort to improve supply support to depot maintenance

facilities. Specifically, this initiative employed the SCOR model to focus on

manufacturing and materiel shortages, KC-135 flight control overhaul issues, and aircraft

engine shortages. The SCOR model’s process analysis and improvement framework

assisted in transforming each of these areas. Highlights include $210 million in cost

avoidance savings while increasing aircraft availability, $3.5 million in savings in the

area of parts obsolescence, improvements in KC-135 Mean Time To Repair, and an

increase in KC-135 engine production from 4-5 per month to 8-11 per month.12

Supply chain management is more than a passing concept in the evolution of

logistics management practices. In the past two decades, it has improved the

effectiveness and efficiency of commercial and military operations through a process

10 PricewaterhouseCoopers LLC, Global Supply Chain Survey 2013 (Delaware: PricewaterhouseCoopers LLC, 2012), 8-9.

11 U.S. Air Force, Driving Transformation with DCOR and SCOR (Washington, DC: U.S. Air Force, 2007), 20.

12 U.S. Air Force, The Air Force Global Logistics Support Center – War on Lack of Parts (Washington, DC: U.S. Air Force, 2011), ii.

11

chain focus. This process chain focus has had revolutionary organizational influences

that are producing end-to-end visibility, cost reductions, performance metrics, process

improvement, and increased customer satisfaction. Supply chain management is broader

than integrated logistics support, which is defined as “A composite of all the support

considerations necessary to assure the effective and economical support of a system for

its life cycle.”13 Additionally, it is more than a purely logistics concept due to its

involvement in activities that are outside the scope of logistics. These activities include

information systems, manufacturing, strategic sourcing, finance, business process

connectivity, and risk management.

DoD Supply Chain

Within joint doctrine, the supply chain consists of the linked activities associated

with providing materiel from a raw material stage to an end user as a finished product.

Supply chain management is a cross-functional approach to procuring, producing, and

delivering finished products and services to customers. This broad management scope

includ