Bob Trebilcock

Supply chain management: How the DLA remade its supply chain

I’m in the middle of writing a story on inventory optimization software for the August issue of Modern Materials Handling. Talk to the companies providing these solutions, or to some of the end users that have implemented them, and the results are impressive. Five to 15% reductions in inventory across all the nodes in the supply chain with no reduction in service levels are common; some companies have reduced inventory by 50%.

This spring, I came across a great example of inventory optimization in action when I interviewed the Defense Logistics Agency to learn how it is remaking its supply chain for Aviation Week’s Overhaul & Maintenance magazine, one of my other hats.

Now, it’s generally bad form to send a reader from one magazine to another. In this case, however, I think there are lessons to be learned from what the DLA is trying to accomplish.

Here’s the basic story:

The DLA is huge organization, with 23,000 military and civilian employees who manage 5.2 million items across 26 distribution and storage points worldwide. Last year, the agency distributed more than $42 billion worth of goods and services. If it were a private-sector business, the DLA would be the third largest logistics organization in the world.

Like most logistics organizations managing so many items and locations, overstocks and stock outs is a huge issue. In the aviation spare parts world, which is what I looked at for O&M, the agency faced two diametric problems simultaneously – having too much of an item at some locations and too little of it at another. In this case, the consequence of a stock out isn’t the same as running out of 19-inch flat screen TVs at Wal-Mart (Full disclosure: My local Wal-Mart was completely out of stock of 19-inch televisions tonight; how can this happen?); not having the right part when it’s needed can ground a fighter jet or supply plane that may be needed.

Long story short (and you can read it in its entirety by clicking on the link above), the DLA is in the process of remaking its supply chain and supply chain systems to become a demand-driven and collaborative organization. They are moving to a sell one/replenish one/make one model similar to the one that supply chain practitioners have been talking about since the Internet boom. Except they’re putting theory into practice.

To get there, the DLA is implementing several of the concepts and technologies those same practitioners have been talking about for several years, including:

Network design: The DLA redesigned it’s supply chain around a hub and spoke network with two strategic distribution centers that receive and distribute material to 26 spokes, or forward distribution points. The next step is to add two more strategic distribution centers to support a more just-in-time operating environment.

Visibility and inventory optimization: The DLA is implementing a multi-echelon inventory optimization system and a new order management system to gain visibility into inventory up and down all the nodes of its vast supply chain. Instead of inventory being managed at the local level, all orders will be routed through an inventory management system at DLA headquarters in Richmond. The system can process an order – determining where best to source it based on inventory positions, lead times, transportation, etc. on a global basis – within five minutes of receiving it. The inventory management system sets inventory levels across the network, and then uses a process known as dynamic deployment for replenishment. This application looks at stock levels across the supply chain; when it finds an imbalance, it can take actions to shift inventory from one location to another to even things out. That prevents a location with too little stock from ordering new inventory from a vendor when there might be another location with too much of that same item.

Collaboration: The DLA is implementing a process it calls knowledge-based planning. When it comes to maintaining aircraft, the agency is positioning its personnel on the ground where jets, helicopters and cargo planes are being used to do inspections and determine as much as 18 months in advance of a scheduled maintenance what’s going to need to be done. When that aircraft finally shows up at a repair center, they will have had time to schedule the work, order the parts, and put together repair kits that include all the tooling, gear, components and parts needed for the job, just like delivering a surgical kit to a doctor.

The net result: The DLA expects to reduce the cycle times on repairs by as much as 50%. Overall, the agency believes it can remove as much as $7 billion worth of inventory a year from the total supply chain.

Talking to the DLA for this story was exciting because they were doing the kinds of things we so often only get to talk about. More than that, I was reminded of that old line, I’m from the government and I’m here to help. In this case, it was true. And if you want to learn more about how the DLA is remaking its supply chain, check out the Overhaul & Maintenance story.

Posted by Bob Trebilcock on June 30, 2009 | Comments (0)