Expediting the Supply Chain
Moving merchandise from a manufacturer to the consumer is critical in business and can spell the difference between success and failure. The efficiency of the process and the ability of management to reduce costs and increase speed set top performers apart from average companies. However, in the Navy the ability to deliver supplies to forward-deployed units can mean the difference between life and death.
A supply-chain system usually comprises a series of organizations and independent companies. It is the set of approaches used to efficiently integrate suppliers, manufacturers, warehouses, distribution centers, retailers, and ultimately the customers so that merchandise is produced and distributed in the right quantities to the right locations at right times, to minimize the total system cost while satisfying the service-level requirements.1
The supply chain is the lifeblood of any organization, whether it’s a Fortune 500 company or the U.S. Navy. Customers cannot purchase products that are not on the shelves, and the Navy cannot fight a war if its personnel do not have the necessary parts, food, or fuel. In the Navy’s system, concentric supply chains are linked through an integrated logistics system. Individual commands retain a certain amount of parts on hand, according to a coordinated shipboard allowance (COSAL). This figure is calculated based on the frequency of use and can be adjusted as needed.
Weak Links in the Chain
Even with these seemingly flawless logistics in place, commands often require parts not carried on board. This occurs if the part is rarely replaced and therefore not in the ship’s COSAL, or if the ship issued the parts it had in its COSAL but never replaced them due to a lack of funding (a common occurrence in today’s Navy) or unavailability.
This is where the system fails. To receive the required parts, commands must now issue a casualty report, an official message that can be released to a host of entities including, in some cases, the Chief of Naval Operations. Essentially the command is notifying everyone that it needs an exigent part, and it is at this point that the supply chain falls apart.
This is where “Big Navy” gets involved. Its supply system is integrated with that of the Defense Logistics Agency, which has inventory managers, a distribution system, and a central headquarters, the Naval Supply Systems Command (NAVSUP). This supervises the provisioning, cataloging inventory management, distribution, matériel handling, traffic management, transportation, packaging, preservation, receipt, storage, issue, and disposal of Navy supplies and matériel, except for items specifically assigned to other systems commands or offices. Although NAVSUP relies heavily on the other systems commands for technical advice concerning equipment and matériel requirements, it also furnishes supply-management methods and guidance to commands and offices that request assistance.
In other words, the bureaucracy takes over and the system comes to a grinding halt until the “right” person is notified. In this case, that person is usually the inventory, or item, manager. As Gary Seibel, the supply chief petty officer on the USS Winston S. Churchill (DDG-81) in 2010, stated, “The item manager has access to parts all over the world. He can tell us where a part is so we can expedite getting it. But reaching the item manager and supplying the necessary documentation takes time, which further delays the process, not to mention [that] some high-end parts are on backorder. The system can be very slow.”
These managers control high-value parts and have privileged access to the system, which prevents commands from hoarding. This corrupting practice can delay receipt of parts by other commands that genuinely need them.
And yet this safeguard is exactly where the system fails and creates conflict for those involved, because supply-chain management (SCM) differs from inventory management. SCM concentrates on each step in the overall process and analyzes its efficiency. Inventory management concerns itself with quantities on hand—not the chain used to obtain them.
Corporate Models
One successful method in the corporate world to mitigate issues in the supply chain is risk management. In fact, Wall Street’s techniques in this and hedging now can be applied to help manufacturers optimize capacity and sourcing decisions. Vivecon Corporation added two applications to its Supply-Chain Risk Management suite: Strategic Component Supply Manager, which quantifies risks and helps manufacturers develop hedges against unpredictable swings in demand, and Tooling and Capacity Manager, which assesses likely demand for a product and monitors market acceptance.2
In supply chains, using risk sharing, control and prevention, and financial instruments overturns negative effects and their financial consequences. In SCM, time is money, and the longer it takes to receive merchandise or parts, the more it is going to cost. This is true in the corporate world and in the U.S. Navy.
The service does a fairly good job of getting parts where they are needed, but the process could be improved through the implementation of a risk-management program in the supply chain. For nearly all of its evolutions, the Navy assesses the dangers to make an informed decision. What could be more dangerous than having a forward-deployed unit that does not have the necessary parts on board or in the battle group?
Risk management could eliminate unnecessary steps in the Navy’s SCM, expedite the delivery of parts, and reduce costs. First an information flow would signal the need to start the movement of matériel. In a supply chain, the fast stream of high-quality information and matériel is inextricably linked and of paramount importance to SCM success. Untimely or low-quality information virtually guarantees poor performance. A supply-chain strategy, processes, and supporting systems also need to be developed.
An effective SCM approach will focus on:
• Flexible supply and production processes that can rapidly respond to changes
• A short-cycle, demand-driven order-to-delivery process
• Accurate, relevant information that is available throughout the supply chain.
The following critical and predictive questions will point to the weak areas in systems of this type:
• When will specific orders ship?
• Which will be late?
• Why will they be late?
• What specific problems are delaying the schedule?
• What are the future schedule problems and when will they occur?
• What is the best schedule that can be executed now?3
To effectively implement risk management and improve SCM, the Navy needs to eliminate the mandate to send an official message to receive required parts. At the same time it must impose safeguards to ensure supplies get to those in need. This is a delicate balancing act, but it is one that is slowly being accomplished with the use of technology.
Streamlining the Process
Radio frequency identification (RFID) is becoming pervasive in supply chains across the globe and even in the Department of Defense. Several years ago the DOD issued a policy memorandum directing the immediate use of high-data capacity, active RFID technology that will affect all companies supplying goods to the DOD-wide application called Wide-Area Work-Flow Receipts and Acceptance. This is proposed to eliminate paper from the receipt and acceptance process. The goal is to permit authorized defense personnel and contractors to create invoices and receiving reports and to access all contract-related documents electronically.
Thus the flow of information and matériel can be expedited, and the item manager can be eliminated from the supply chain, thereby improving efficiency and reducing costs. Part location can be tracked by a central manager who distributes as needed. Additionally, parts that have been sitting on the shelves for months can be evaluated for genuine need. This can reduce unnecessarily taking up limited space on ships, which will lower costs and optimize the supply system.
1. S. Wang and B. Sarker, “Optimal Models for a Multi-Stage Supply Chain System Controlled by Kanban under Just-in-Time Philosophy,” retrieved 1 April 2010 Regent University Blackboard BMBA622.
2. E. Malykhina, “Supply Chain Meets Risk Analysis,” retrieved 1 April 2010 http://www.informationweek.com/news/global-cio/showArticle.jhtml?articleID=49901755.
3. M. Donovan, “Effective Supply Chain Management,” retrieved 3 April 2010 http://www.leanmanufacturingconsultants.com/pdf/perfor2.pdf.
Chief Bishop is the founder and chief executive officer of the Bishop Advisory Group and a doctoral student at Regent University. He has served on board the USS Deyo (DD-989) and the USS Winston S. Churchill (DDG-81).