The Department of Defense (DoD) directs the largest and most complex supply chain in the world. DoD spends at least $150 billion a year on goods and services and their delivery to end users. The Defense Logistic Agency, for example, manages an inventory of tens of thousands of items valued at approximately $80 billion. The DoD supply chain also includes hundreds of original equipment manufacturers, many of which not only produce new items but help support systems and platforms in the field.
DoD is in the process of transforming its supply chain. The goal is to create an integrated supply chain that is flexible, agile, responsive to the warfighter and, where possible, less costly than the present system. In many ways, this effort is an attempt to apply the practices and experiences of the private sector in its efforts to improve efficiency and effectiveness in the delivery of goods and services.
Much progress has been made. No longer does DoD deploy so-called iron mountains of supplies that are expensive to maintain and move. Instead, it is moving towards a system that emphasizes, like its commercial counterparts, delivery of the right items, in the right quantity, to the right consumer at the appropriate time. This system will also include the efficient retrograde movement of personnel and materiel back to depots, bases and storage facilities. DoD and the services have undertaken a number of important initiatives intended to further the transformation of the military supply system. Many of these initiatives are designed to reduce the degree of fragmentation in DoD supply chain management. For example, U.S. Transportation Command (TRANSCOM) has been designated the Distribution Process Owner (DPO). The DPO is meant to serve as the single entity to execute the strategic distribution system. The Defense Logistics Agency has instituted new policies and plans, including strategic distribution and a national inventory management strategy, designed to improve management of stockpiles and distribution. It is now responsible for the management and distribution of all depot-level repairables. Army Materiel Command is assuming management responsibility for the Director of Logistics facilities in an effort to provide greater control over all Army maintenance and repair activities.
One important aspect of supply chain transformation is better integration of the private and organic industrial bases. This is being achieved through the use of both traditional contracts and innovative arrangements such as performance-based agreements, public-private partnerships and indefinite duration/indefinite quantity contracts. TRANSCOM will soon award a contract for a private supply chain management company to manage all its U.S. shipments. Army Materiel Command is recompeting its very successful LOGCAP contract to provide contingency private sector support for deployed forces.
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. DoD needs to make better use of private sector companies in the management of its supply chains.
The initial draft of this paper was written by Daniel Goure of the Lexington Institute staff. Members of the working group had an opportunity to review and modify the final report.
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