Many of the techniques practiced by supply-chain professionals in the private sector originated in the military - including the term "logistics." So it's only fair that the U.S. Army should draw on the lessons of business in return.
The Army Materiel Command (AMC) oversees all aspects of the service’s logistics, including transportation, sustainment, uniforms, weapons and battlefield movements. Jim Dwyer, principal deputy chief of staff for logistics and operations planning at AMC headquarters, says the group has done a commendable job of managing huge amounts of inventory and logistics during the Iran and Afghanistan engagements, "at probably near-record rates for the entire war." Nevertheless, he saw an opportunity for cutting costs dramatically.
Dwyer was intrigued by the private sector’s embrace of sales and operations planning (S&OP), a method of getting the various disciplines within an organization to rally around a consensus forecast. At the same time, he was seeing the value of the enterprise resource planning application that AMC had installed in various subordinate commands between 2003 and 2010. Part of the Army’s modernization program, it was the first ERP system to be implemented successfully within the U.S. Department of Defense.
What really caught Dwyer’s attention, though, was the concept of integrated business planning (IBP), sometimes referred to as advanced S&OP. It takes the idea of internal collaboration even further, drawing on disparate processes to create one holistic organizational plan.
“When I found out what S&OP does in combination with supply-chain management, I understood that we could do that here in the Army,” says Dwyer. “I knew it would be hard, but I knew the benefits would far outstretch the pain and expense of implementation.”
Following DOD’s usual process for accepting bid solicitations, AMC selected the consultancy of Oliver Wight Americas to guide it through the IBP effort. Oliver Wight principal Jim Correll says the firm was invited to review AMC’s S&OP process following a struggle by the Defense Logistics Agency (DLA) to acquire similar capability. Its conclusion: “There wasn’t any.”
What’s It All About?
With Oliver Wight on board, Dwyer proceeded to learn exactly what an S&OP effort entailed. The Army had been relying on historical demand patterns to assess its future needs. But that perspective “can be skewed and inaccurate, depending on how quickly things change,” he says. “We were looking to be more futuristic, and proactive versus reactive.”
Dwyer had no illusions about the challenges involved in promoting deep cultural change across a 65,000-person command. In fact, the business-process element of the project was more of an issue than the supporting technology, notwithstanding the years it had taken for AMC to get its ERP software up and running.
Oliver Wight is credited with having originated the concept of S&OP in the 1980s. “Our whole process is about people change and process change,” says Correll. Applying the technique to the tradition-bound U.S. Army would require no deviation from the firm’s approach.
There were frustrations along the way. The education effort began with just a handful of people at AMC. It reached a turning point when Oliver Wight was able to show members of the command what the existing data looked like. They saw inventory levels continuing to rise, even though the demand forecast was flat.
“I wasn’t real happy,” recalls Dwyer. Yet the supply-demand mismatch only motivated him more to reform AMC’s approach to planning. “We went all in,” he says, “and adopted it across all three commodity commands – aviation, electronics and ground.”
The command’s logistics managers weren’t used to being asked for their real-world demand data, but soon came to understand why it was needed. Dwyer calls it “a huge business-process change – the Army collaborating more with its customers.”
Even the best demand forecast faces uncertainties, of course. AMC was careful to build a degree of surge capability into its inventory levels, “to make sure we don’t get caught in a very quick rising storm.” It pre-positions stocks around the world to help mitigate or buffer a sudden need for supplies.
A Top-Down Effort
AMC began installing the new system in March 2013, with the adoption of S&OP. Dwyer shepherded the effort and stayed involved on a monthly basis, supported by senior executives at the various lifecycle-management commands. “It was a top-down-driven event,” he says.
By the summer of 2014, some commands had already achieved “Class-A distinction,” reaching AMC’s target for best practices. The rest of the command caught up in 2015. The whole effort took less than two years to implement worldwide, Dwyer says. “Once people saw the value of this and what it could do for us, they moved very quickly.”
Even so, there was a learning curve with which to contend. Correll says the effort probably encountered more resistance at the outset due to the realities of military culture. Oliver Wight began by coaching small teams of AMC’s managers, who would in turn undertake actual implementation of the system. In the end, AMC achieved full buy-in from both senior executives and the subordinate commands.
The benefits were dramatic. As a result of the program, AMC was able to cut inventory by $6bn over a period of two years. Projected annual savings over the coming 10 years were also in the billions. Annual storage costs were reduced by $60m, and the agency saw a 50-percent reduction in both inventory staff and forecast error.
Today, AMC only buys what it needs. “We’re able to provide the same level of readiness to our soldiers at a much reduced cost,” says Dwyer. “And we’re doing it with fewer people.”
There’s more work to be done. Dwyer says AMC continues to tweak its forecast and inventory policies. “We’re improving every month,” he says, “and there’s no end to it.”
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