Faster, Better, Cheaper

U.S. Army Manages a Logistics Revolution

By Rick Eden

Rick Eden is an associate director of the Arroyo Center Military Logistics Program at RAND.

Late in 1999, when the new U.S. Army Chief of Staff, General Eric Shinseki, outlined his vision for the army, he spoke of the need to "revolutionize the manner in which we transport and sustain our people and materiel." Such logistical details are rarely considered the stuff of revolution. But Shinseki went even further, promising that a revolution of this kind would lead to "a comprehensive transformation of the army" itself.

Shinseki could speak so boldly because of the success that the army had already achieved in reforming its logistics system. By dramatically improving key parts of the system during the 1990s, the army had quietly laid the groundwork for the "comprehensive transformation" that Shinseki was talking about. Indeed, the revolution in logistics of the 1990s would help transform the way the army deploys and fights today.

For decades, the quality of military logistics had fallen progressively behind that of the best commer-cial practices. The performance gap became a source of frustration, cost, and risk. Some army leaders even referred to army logistics as a "burden" to army operations.

But since the early 1990s, the army has ramped up its logistics performance to world-class standards. For example, today it takes less time for an army repair depot to get a spare part from an army supply depot than from a commercial vendor. The army's streamlined system now delivers spare parts in half the time it took to deliver them just a few years ago. The improved delivery system, in turn, contributes directly to improved equipment readiness. The faster, better system has also become cheaper.

Much of the credit for improvement lies in a new way of thinking about army logistics. Called "velocity management," the new paradigm emphasizes velocity over mass, quality over quantity—and costs less. RAND has worked with the army to design, implement, and refine the tools of velocity management. With these tools, the army has unexpectedly demonstrated a remarkable capability for achieving quick, dramatic, and lasting change.

Senior officials throughout the defense department have been duly impressed. The U.S. Marine Corps, U.S. Navy, Defense Logistics Agency, and U.S. Transportation Command have asked RAND to apply the lessons of velocity management to their own operations. Currently, RAND analysts are attempting the unprecedented: to help streamline the distribution system throughout the entire defense department, including all branches of the military services, other defense agencies, and private defense contractors (see sidebar).

Enhanced Efficiency for Enduring Freedom
The principles of velocity management that have been applied by the U.S. Army during peacetime have also proved valuable for the U.S. military as a whole during the war in Afghanistan.
When logistics generals familiar with velocity management rotated to leadership positions in the U.S. Transportation Command (TRANSCOM) and the Defense Logistics Agency (DLA) in the late 1990s, the generals saw opportunities to apply the same process improvement approach on a joint level to benefit the entire U.S. Department of Defense. As a result, TRANSCOM and DLA created the Strategic Distribution Management Initiative (SDMI) to improve the effectiveness and efficiency of distribution processes throughout the defense department.
In 2000, SDMI planners laid the groundwork for major change. Drawing on the lessons of velocity management, the planners set up a coalition of leaders, created a realistic new vision for the defense distribution system, and developed measurement tools (databases and metrics) to diagnose problems and monitor improvements. The planners then formed multiorganizational teams to guide progress in three areas:

Defense department inventories are being consolidated to make overall distribution more efficient.

Distribution—especially intermodal moves by land, sea, and air—is being increasingly synchronized.

New financial tools are beginning to simplify billing and to make costs transparent to customers.

Throughout 2001, SDMI underwent a rolling implementation that almost immediately began to improve the speed, responsiveness, and reliability of service to major military customers both within the continental United States and abroad.
After Sept. 11, Operation Enduring Freedom became a critical test of SDMI. Would its improvements stand up in time of war? Final data are still being gathered, but early indications show that the distribution system is performing very well. It continues to deliver fast, responsive, and reliable support to engaged forces in locations as far away as the system can reach: Diego Garcia, the Persian Gulf, and Uzbekistan. Moreover, the metrics tracked by RAND show that the lines of support to Operation Enduring Freedom were established and sustained without disrupting the improved service to other military customers worldwide.

Once a Lumbering Beast

At the outset of the 1990s, the people who depended on the army's logistics system could justifiably complain about its performance. The system was huge, moving massive amounts of supplies and materials and employing thousands of army personnel and outside contractors. It was also unreliable, inefficient, expensive, and unresponsive to changing needs. The problems persisted despite repeated attempts to fix them. It became clear that reforming the logistics system would require a fundamental shift in how the army thought about logistics.

When it was first being implemented in 1995, velocity management promised a new way of doing business. As the term implies, "velocity management" seeks to improve both the speed and the accuracy with which materials and information flow from providers to users. The improved speed and accuracy reduce the need for massive stockpiles of resources. Velocity management was created precisely to replace the army's traditional reliance on mass with the modern business concept of high-velocity processes tailored to meet evolving customer needs.

Under the army's traditional approach to logistics, vast quantities of supplies—spare parts, fuel tanks, extra vehicles, ammunition, and so on—are kept on hand "just in case" they are needed. But massive stockpiles do not guarantee that combat forces will get what they need when they need it. Massive stockpiles do guarantee a great deal of diverted manpower, money, and resources to manage the stockpiles. Mass-based logistics also pose tremendous physical risks to army personnel in terms of footprint and mobility.

Since 1995, velocity management has succeeded beyond all expectations on three key levels of performance: time, quality, and cost. Accelerated deliveries of spare parts have accelerated the repairs of equipment. Improved inventory management has provided customers with ready access to a broader array of items. Financial management systems are also becoming less cumbersome. The army has replicated these improvements at its facilities and installations throughout the United States and around the world.

Replacing Mass with Velocity

Velocity management views the logistics system as a set of interlinked processes—a supply chain—that delivers products and services to customers. To enhance performance along the supply chain, the army has instituted an improvement method consisting of three steps: Define the process, measure the process, improve the process.

The first step, "define," identifies the customers and their needs. The logistics process is then broken down into segments or subprocesses. Experts representing each segment of the process pool their collective knowledge and walk through the steps of the process together to understand it better.

Whereas the first step improves knowledge about how a process is done, the second step, "measure," gauges how well it is done. Metrics are developed to measure performance in terms of time, quality, and cost—thus reflecting customer needs and values. The metrics are used to isolate performance problems, monitor the effects of changes made to rectify the problems, and give feedback to the people implementing the changes.

The third step, "improve," capitalizes on the expertise gained during the first two steps. Armed with deeper knowledge of the process, of customer needs, and of performance measures, the experts specify goals for improvement that are realistic yet challenging. As performance improves, the define-measure-improve cycle begins anew, with a remapping of the improved process, continued measurement, and further improvements.

Because of the complexity of army logistics processes and the many people and organizations involved, the army recognized the need for a high-level commitment and a strong management structure to ensure success. Therefore, the efforts are guided and sustained by a coalition of senior leaders called the Velocity Management Board of Directors (or simply the Velocity Group). Leading the group are three senior army officers: the deputy chief of staff for logistics, the deputy commanding general of the Army Materiel Command, and the commanding general of the Combined Arms Support Command.

Two types of teams implement velocity management. Process improvement teams are composed of technical experts representing all segments of an army logistics process, plus RAND analysts. These teams establish detailed definitions of armywide processes, develop metrics and performance reports, analyze current performance, and recommend process changes. Site improvement teams are installation-level teams of local technical experts and managers. They apply the same improvement method to local processes and also help to implement armywide improvements.

A particularly useful metric now used by the army and the defense department measures "customer wait time" (CWT). CWT captures the time from when a customer orders an item until it is delivered. CWT provides an aggregate measure of the performance of a variety of logistics processes. The measurement depends on what is stocked locally, what is stocked elsewhere, how long it takes to repair or procure items not in stock, how long it takes to ship material, and how long it takes to receive shipments. CWT is a high-level metric that can be used to drive improvements throughout the supply chain.

Expediting Deliveries

In the army's experience with velocity management, improvements began with the order fulfillment process, as measured by CWT. It is critically important that spare parts for damaged weapon systems be delivered quickly and reliably. However, prior to velocity management, the process was very slow and highly variable. Some orders for spare parts took weeks or even months to fill.

A process improvement team walked through each step of the order fulfillment process at several major army installations, including Fort Bragg, N.C.; Fort Campbell, Ky.; Fort Hood, Tex.; and Fort Irwin, Calif. RAND analysts then used army data to establish a baseline for tracking improvements. The process improvement team recommended a new suite of metrics to measure CWT in terms of the number of days required to fill 50 percent, 75 percent, and 95 percent of requisitions. These metrics were thus capable of depicting both typical (median) performance as well as performance variability.

Improvements appeared throughout the order fulfillment process. Some quick fixes were made at the local level with no added costs. For instance, participating installations simplified some rules, reduced review processes, strengthened oversight, improved the use of new requisitioning and receipting technologies, and streamlined on-post deliveries.

Other changes involved coordination among multiple organizations within and outside the army. The introduction of regularly scheduled trucks (rather than waiting for full truckloads) reduced delays and variability in shipping times. Installations also switched to automated sorting and receipting systems. Some supply depots repositioned their stocks, allowing orders to be processed more efficiently. Many installations redesigned their delivery routes, work schedules, and distribution systems. These changes made the delivery of spare parts much faster and more reliable.

Figure 1 displays the dramatic reductions in customer wait times for major installations both inside and outside the continental United States. Importantly, improvements have not been confined to a limited set of customers. The army has reduced CWT for all units within the United States as well as for those stationed and deployed abroad.

CP22.fig1

Shortening Repair Times

The expedited deliveries of spare parts helped army mechanics shorten their repair times. Velocity management helped reduce repair times in other ways as well. The "define" step was critical in this regard. A process improvement team of experts looking at the repair cycle redefined it as extending from the time an item is broken until it is fixed—as opposed to the army's traditional definition, which covered only the hands-on repair time in the shop. The new definition made it easier to identify non-shop-related delays that could be eliminated, such as administrative procedures, repetitive inspections, and unnecessary cleanings. These changes reduced repair times and reserved manpower for other repairs.

Figure 2 illustrates four years of repair cycle times at Fort Campbell, including a baseline year and three subsequent years. In 1996, the army's vice chief of staff set a goal of slashing the repair time in half for 75 percent of all repairs (the 75th percentile). By 1998, Fort Campbell had already reduced the time for those repairs by 38 percent, well on the way toward the goal of 50 percent. The improvements are particularly remarkable at the 95th percentile, indicating that the process had become much more reliable across the board. These improvements were achieved without added expense.

CP22.fig2

Stocking Smarter Inventories

Success builds on success. The velocity management methodology has also been applied to the army's inventory management process. This process determines which items and how many items an installation should stock at its local warehouses.

A process improvement team of inventory experts visited army warehouses to define the inventory management process. Opportunities for improvement quickly became apparent, such as repositioning stocks and upgrading technologies for receipting systems. Metrics were then developed to measure how well the inventories met customer needs. RAND analysts also developed new algorithms to determine optimum stockage levels, which allowed more low-cost, high-demand items to be stocked.

These changes spurred immediate and dramatic improvements in performance. Figure 3 tracks the percentage of orders filled from stocks on hand (the fill rate) at one local supply warehouse at Fort Campbell. After the implementation of velocity management, the fill rate there rose from about 5 percent to about 50 percent.

This improvement was achieved without a large additional investment. Before the implementation of the new algorithms, this supply warehouse held about $1.2 million in inventory. Unneeded items were returned to inventory. Some of the credit was used to stock other items. As funds became available, the breadth of inventory was expanded further, and the investment level rose modestly to $1.3 million.

CP22.fig3

Enhancing Financial Information

Velocity management can also improve financial management. Logisticians depend on the army's financial management process for timely, reliable, and accurate data about current prices, recent credits, and other financial facts. Price and credit information is of particular concern, because many logistics decisions depend on knowing exactly how much money a unit must and can spend at a given time.

Walkthroughs of the financial management process revealed that improvements are needed in both the timeliness and the quality of financial information. Changes are being sought in several areas: reducing uncertainties in prices and credits, reducing the time required to publicize information (in catalogs and budget updates), and improving access to information. These changes may require investments in automated systems, expanded networks, and additional staff. Many of these investments require policy decisions at the Headquarters Department of the Army or the Office of the Secretary of Defense.

Linking Improvements to Increased Readiness

As velocity management made army logistics processes faster, better, and cheaper, the next step was to assess the effect of these improvements on equipment readiness. To this end, RAND developed a relational database, called the Equipment Downtime Analyzer (EDA), to integrate the data collected by various army information systems.

These data track the daily history of supply and maintenance activities that are related to every piece of major army equipment found to be "not mission capable," or unavailable when needed. The EDA can thus determine how much each process and organization in the entire logistics system contributes to equipment downtime.

From the daily history, the EDA creates a huge hierarchy of linked metrics (see Figure 4). This hierarchy literally adds up the delays that occur at each step of the lengthy "broke-to-fix" process. By revealing the underlying causes of equipment failures, the EDA can suggest where improvements would make the most difference in equipment readiness. The EDA can also measure the frequency with which workarounds occur (e.g., when a repair is made by removing a needed part from another piece of equipment). And it can identify multiple ordering cycles (e.g., because of changed diagnoses).

CP22.fig4

The EDA can differentiate the levels of performance among different maintenance units and different levels of maintenance. For instance, the EDA can identify operating shortfalls, inform recapitalization decisions, and highlight the need for more reliable equipment design. Army organizations have already found several ways to exploit these insights. The ultimate promise of the EDA is an enhanced capability to focus constrained resources where they will have the greatest effect on keeping equipment ready to fight, whether by reducing repair times or by improving equipment reliability.

Sustaining Continuous Improvement

Velocity management has given the army a new way to think about logistics processes and to make them more efficient and effective. Several factors have enabled the army to sustain the momentum and to ensure that progress is not limited to a single budget cycle or a single officer's tenure.

First, velocity management has been implemented with the participation of a determined coalition of army leaders having sufficient scope and authority to make systemwide change. The army's formation of the Velocity Group will also help sustain an initiative that, by its nature, must outlast the tenure of any given general officer or even any cohort of officers.

Second, the army has institutionalized the "define-measure-improve" method. Of particular importance is the "measure" step, which requires the development and use of metrics, such as customer wait time, that reflect key customer needs and values and span the full logistics process. These metrics have become the lingua franca by which all the players in a process communicate with one another about the status of their improvement efforts.

Third, the quick pace of implementation has helped to jumpstart the velocity management initiative despite its emphasis on improvement as a continuous goal, not a one-time transition. Fourth, the initiative has been systematically expanded to new processes and sites. These expansions continually renew interest in the initiative. Fifth, the initiative has yielded improvements within the constraints of existing, if not declining, resources.

With velocity management, the army continues to transform its logistics system. Once decried as a "burden" on operations, the logistics system is becoming a strategic asset that can support revolutionary ways of deploying and fighting.