The authors provide a framework for an integrated Department of Defense (DoD) supply chain, associated policy recommendations, and a companion framework for management practices that will drive people to take actions aligned with this integrated supply chain approach. Building on the framework and policy recommendations, they identify opportunities to improve DoD supply chain efficiency and highlight several already being pursued by DoD.
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Research Questions
- How can the Department of Defense (DoD) become more integrated and tap the full potential of integrated supply chain management?
- How should DoD supply chain materiel management policy be changed to reflect a more integrated approach to supply chain management?
- What management practices would enable effective execution of policy designed to achieve supply chain integration?
- What opportunities does DoD have to improve supply chain efficiency based upon taking a more integrated, cross-functional approach to supply chain design?
The Department of Defense (DoD) sustainment supply chain community has increased performance and harvested significant efficiencies through process improvement activities and the rationalization of common activities. However, the majority of strides have been made within functions and processes. The authors build a case that opportunities remain for improvement through end-to-end supply chain integration — spanning all DoD organizations and its suppliers — of processes jointly affecting total supply chain costs and performance. They define supply chain integration, provide illustrative evidence of DoD supply chain integration shortfalls, and describe why such shortfalls exist. They then provide a framework for an integrated DoD supply chain, associated recommendations for DoD supply chain policy, and a framework for developing management practices that drive people to take actions that lead to supply chain integration. In the course of the project, the Office of the Secretary of Defense adopted many of the policy recommendations put forth in this volume; these changes are described in this report. Building on all of this, the authors turn to potential opportunities to further improve DoD supply chain efficiency and performance, several of which DoD supply chain organizations have already begun pursuing as mentioned in the report. These opportunities also provide further indication that there is room to improve supply chain integration.
Key Findings
Improved Understanding of Supply Chain Interactions Is Needed
- Improved systems thinking by the Department of Defense (DoD) supply chain workforce is needed to imbue all aspects of supply chain design, interaction, and management with an integration emphasis.
- A framework for the DoD supply chain can provide a common understanding of the overall design, the roles of each function and process, and dependencies.
Gaps in Supply Chain Integration Have Been Rooted in DoD Policy
- These gaps have arisen from an overemphasis on customer responsiveness and inventory minimization instead of minimizing total cost and meeting customer needs through the best standard approaches.
- DoD policy has under recognized the role of stock positioning in minimizing total supply chain costs through the integration of inventory, materiel handling, procurement, and transportation planning.
DoD Has Recently Developed Policies That Will Improve Supply Chain Integration
- The draft of a new DoD manual (DoDM), Supply Chain Materiel Management Procedures, addresses many of the supply chain integration policy gaps.
Effective Use of Enabling Management Mechanisms Engender Effective Execution of Policy
- They include incentives, decision rights and authorities, decision support tools, financial controls, information systems, and career development.
Reducing Lead Times and Order Quantities Are Key Opportunities to Reduce Supply Chain Costs
- Forecast error and the generation of excess inventory is driven by long lead times combined with nonstationary demand. Large order quantities increase the inventory exposure to reductions in demand. As a result, long lead times and high order quantities drive Department of Defense inventory holding costs for consumable items.
- Reductions in lead times and order quantities would also improve customer support by enabling improved responsiveness to unanticipated demand shifts.
- Lead time and order quantity reduction can likely be achieved through improved supplier and internal process integration.
There Are a Number of Other Potential Opportunities for Improved Efficiency Through Enhanced Organizational, Process, and Functional Integration
Recommendations
- Increase the emphasis on minimizing total supply chain costs to meet customer needs in Department of Defense (DoD) supply chain policy as per the draft DoD manual, Supply Chain Materiel Management Procedures.
- Increase the focus on the integrative role of stock positioning in supply chain policy, in conjunction with the broader adoption of stock positioning metrics.
- Incorporate a guiding supply chain framework into DoD supply chain policy.
- Ensure supply chain workforce personnel understand how they affect the supply chain, receive feedback on their effects on the rest of the total supply chain, and have the tools to make integrated supply chain decisions.
- Ensure that organizations have the breadth of budget responsibility to pursue courses of action that will optimize the overall supply chain.
- Improve end-to-end information sharing, including with the supply base.
- Determine how to achieve lead-time and order quantity reductions with a focus on supplier and process integration.
- Examine how the service materiel commands could improve demand and supply planning integration for depot-level reparables to reduce the need for inventory and new buys.
- Assign responsibility for distribution planning and performance to a central organization, aligning decision rights in accord with the best systems view.
- Consider DoD management of inbound freight to integrate supplier and transportation management.
- Base stock positioning and repositioning decisions on total supply chain costs.
- Integrate financial policy with distribution system design and inventory planning to rationalize and integrate inventory management across organizations.
Table of Contents
Chapter One
Introduction
Chapter Two
Case Studies That Illustrate the Need for Supply Chain Integration and Systems Thinking
Chapter Three
Policy Review
Chapter Four
High-Level Policy Recommendations
Chapter Five
Enabling Mechanisms
Chapter Six
Supplier and Inventory Management Integration
Chapter Seven
Scheduled Truck — Apply a Systems View for Shipment Consolidation
Chapter Eight
Integrating Supplier and Transportation Management
Chapter Nine
Positioning Materiel Based on Total Costs
Chapter Ten
Integrating Financial Policy with Network Design and Inventory Planning
Chapter Eleven
Conclusions and Overall Recommendations
Appendix A
Legal and Regulatory Environment for FDT Alternatives
Appendix B
Inventory Performance Analysis
Research conducted by
The research described in this report was prepared for the Office of the Secretary of Defense (OSD). The research was conducted within the RAND National Defense Research Institute, a federally funded research and development center sponsored by OSD, the Joint Staff, the Unified Combatant Commands, the Navy, the Marine Corps, the defense agencies, and the defense Intelligence Community.
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