The supply chain is one of mankind’s greatest inventions, allowing for work specialization, the exploitation of the economic and organizational benefits of comparative advantage, enabling the rise of great civilizations and ensuring that most of today’s world is provided with the goods and services they need and desire. In a modern, globalized economy, the creation and maintenance of an effective and efficient supply chain is extremely challenging. Often termed supply chain optimization, this is the application of processes and tools to the management of all aspects of the supply chain, including at times the design and manufacture of goods themselves, so as to ensure the optimal operation of the entire enterprise at an acceptable price and satisfaction of the customer. U.S. companies such as Menlo Worldwide Logistics, UPS, Maersk Line Limited and C.H. Robinson have turned supply chain management into a high art as well as a lucrative business.
Just as the global market benefits from improving the operation of commercial supply chains, the Department of Defense (DoD) has found value in applying the same principles, commercial best practices, to its logistics activities both at home and abroad. Private corporations provide a wide variety of supply chain services to the Department of Defense. For decades, Maersk Line Limited has been under contract with DoD to move virtually every type of equipment and commodity to and from hostile zones. DoD contracts with a set of approved commercial air carriers to move its people around the world. Because they have to create and manage supply chains to produce their products, all major defense equipment manufacturers such as Lockheed Martin, BAE Systems, General Dynamics and Raytheon have been providing similar services to the Pentagon, including directly for the warfighters in Iraq and Afghanistan.
Another way that DoD has benefited from commercial best practices in supply chain management is in its contracts for sustainment based on Performance-Based Logistics (PBL). Because PBL sustainment contracts are based on measurable outcomes such as increased throughput at a depot or air logistics center and the contractors earn more only by reducing their costs, an efficient and responsive supply chain matters a lot. The C-17 PBL contract with Boeing and Pratt & Whitney is a model of efficiency having saved the government more than $3 billion to date. Expanding the number of PBL maintenance and support contracts would be a straightforward way for DoD to reduce its sustainment costs while at the same time improving military effectiveness.
Another example of the value of improved supply chain management is the Defense Transportation Coordination Initiative (DTCI) contract between Menlo Worldwide Logistics and the U.S. Transportation Command to move defense-related goods and materials throughout the United States. Now in its seventh year, DTCI has generated yearly cost savings while simultaneously maintaining a 98 percent on-time delivery record.
Better supply chain management also is a natural way for DoD to reduce its use of energy and, hence, its sustainment costs. Just in time delivery is a natural energy saver. Transportation giants such as UPS, C.H. Robinson and Maersk Line Limited have made saving energy a central pillar of their transportation and logistics businesses. Global companies like Caterpillar, Pratt & Whitney, Boeing and Honeywell manage their supply chains so as to reduce transportation-related energy costs as well as the energy usage embodied in stocks of spare parts.
In case after case, the private sector has demonstrated that its approach to supply chain management can improve its efficiency and effectiveness. As the size of the U.S. military shrinks, forces return from overseas and budgets tighten, reliance on the private sector to manage and maintain supply chains will only grow. In these difficult budget times, DoD needs to make better use of private sector companies’ expertise in supply chain management to reduce operations and maintenance costs while maintaining the desired levels of military readiness.
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