The Value Of Integrating DoD’s Supply Chain

Modern weapons platforms are among the most complex systems man has ever designed. Building a warship, combat aircraft or armored fighting vehicle requires bringing together components, assemblies and systems from hundreds, even thousands of suppliers. In many instances the prime contractor for a weapon platform does not even control major systems being included. Often these systems are government-furnished equipment (GFE) built by a different contractor and delivered to the prime contractor to be integrated onto the platform. Unless the development and production timelines for both the weapons platform and GFE are closely coordinated it is possible that one will have to wait for the other, or worse, that changes to the design of a system developed as GFE will force the prime to redesign portions of the platform to accommodate unpredictable changes in system. The misalignment of programs can cause major cost increases for weapons platforms.

Once a platform is deployed there is the equally big challenge of maintaining it. Somebody has to be responsible for all the parts that are needed to keep a platform in service, repair battle damage and provide for periodic upgrades to its capabilities. Not only do parts go to different places but they come from different sources. The prime contractor, the military service and the Defense Logistics Agency (DLA) may all contribute to the flow of parts, even at times all providing the same part. Managing the supply chain so that the right parts get to where they are needed on time and so the Pentagon is not stuck paying for parts they do not need has always been an enormous challenge. Over the past decade as the demand for repair and upgrade skyrocketed due to the conflicts in Iraq and Afghanistan, the supply chain management problem grew worse.

One of the most important lessons to emerge from a decade of conflict is the value of integrating supply chains. This requires visibility across the entire supply chain from the parts makers to the shippers and the organizations that maintain inventories of parts all the way into the facilities where repairs, overhauls and maintenance are performed.

A good example of what can be achieved by integrating supply chains is the program to support the HMMWV or Humvee. Called “Customer Pay” it involved a collaboration on the part of the Humvee’s manufacturer, AM General, DLA, the Army’s Tank and Automotive Command (TACOM) and the three depots where repair and maintenance work was performed. AM General acted as the supply chain manager, responsible for ensuring that the right parts got where they were needed when they were needed. AM General was able to leverage both the private sector and government supply chains as well as the company’s unique insights into how the demand for parts was changing over time.

Customer Pay not only dramatically improved the flow of parts to the depots but at the same time it reduced the overall cost to the government. The program allowed the depots to reduce the amount of parts they kept on hand. AM General was also able to reduce significantly work stoppages causes by parts being unavailable. An independent audit concluded that the program saved almost $40 million in its first year.

Customer Pay is but one of a number of similar success stories. It illustrates the value of using an experienced private sector supply chain manager to integrate all the moving parts in the complex system that supports repair and maintenance of modern weapons platforms.