In recent years the Army has sought to improve its purchasing and supply management (PSM) through the introduction of practices such as longer-term contracts, sharing demand forecasts with selected suppliers, and reducing lead times. To enhance these efforts, it asked RAND Arroyo Center to review its achievements in implementing best PSM practices and to assess how its progress compares with that of leading commercial enterprises.
A Gap Analysis of Life Cycle Management Commands and Best Purchasing and Supply Management Organizations
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- According to the academic and business literature, what are the best purchasing and supply management (PSM) practices?
- What are the key characteristics, activities, and practices of each step in an organization's evolution toward best purchasing practices?
- How does the Army compare to leading commercial enterprises in its implementation of best PSM practices?
In recent years the Army has sought to improve its purchasing and supply management (PSM) through the introduction of practices such as longer-term contracts, sharing demand forecasts with selected suppliers, and reducing lead times. To enhance these efforts, the Army Materiel Command (AMC) asked RAND Arroyo Center to review its achievements in implementing best PSM practices and assess how its progress compares with that of leading commercial enterprises. Arroyo developed a list of PSM implementation factors and interviewed leaders and personnel at each of the Army's Life Cycle Management Commands (LCMCs) to assess progress in each area. Arroyo found that AMC and the LCMCs are, overall, making progress toward implementation of best PSM practices, but that implementation needs to be more widespread and progress is better in some areas than others. In particular, Arroyo suggests that AMC develop commodity councils and supplier management teams to increase leverage for key commodities and coordinate purchases with leading suppliers.
"Best practices" fall roughly into four organizational dimensions, which can be ranked along five ratings ranging from "reactive" to "world class."
- "Functional attributes" cover characteristics about the organization such as reporting level, education and skills of personnel, and the extent to which clerical and administrative tasks are automated.
- "PSM activities" cover such tasks as market research, supplier selection, and management of supplier quality.
- "PSM practices" are those that implement PSM, such as cross-functional sourcing teams, spend analyses, and supply-base rationalization.
- "Time allocation" refers to how much time personnel spend on various general purchasing activities such as transactional buying, sourcing strategy and analysis, and supplier development.
The Army currently ranks in the middle on most characteristics and practices that make up world-class PSM.
- Making good progress in the area of personnel education levels.
- Behind in the areas of spend analysis and analytics and market research.
- Losing ground in the area of supplier analysis.
- AMC should develop supplier teams for its top suppliers. If Army spending with a specific supplier is concentrated at one LCMC, then the team for that supplier should be located at the LCMC. If spending with a specific supplier is fairly evenly spread among two or more LCMCs, then the team should be at AMC HQ or at the LCMC with larger spend.
- AMC should develop category or commodity teams for its key commodity groups. These teams would aggregate competitive requirements across weapon systems, rationalize suppliers, standardize parts across weapon systems as much as possible, and seek ways to leverage AMC spending and better manage suppliers of key commodities.
- AMC should develop the analytic capabilities at AMC headquarters and the LCMCs to support world-class PSM. This includes the capability to do rigorous LCMC-, Army-, and DoD-wide spend analyses by commodity, supplier, and weapon system. It also includes rigorous supplier, market, and supply-base analyses as well as supply-chain risk analyses.
Table of Contents
Background on PSM
Gap Analysis Methodology and Identification of PSM Evolution Dimensions and Factors
Findings from Our Analyses and Interviews
Conclusions and Recommendations
Interview Findings on PSM Organizational Dimensions
Data Tables for Time Series Analyses
Example of LCMC Organizational Structures and How They Can Impede Best PSM Practices