Integrating the Department of Defense Supply Chain: Techincial Report

By Eric Peltz; Marc Robbins | Go to book overview

CHAPTER FOUR
High-Level Policy Recommendations

This chapter provides recommendations for the development and revisions of DoD supply chain materiel management policy with respect to the overall objective, guiding principles and the integrating structure. To a large degree, they have been incorporated into the draft DoD Supply Chain Materiel Management Policy, DoD Instruction 4140.01 (draft as of March 2012), and the supporting manual of procedures that were in coordination at the time this report was written.


The Supply Chain Objective

In the private sector, the objective for the companies in a supply chain is to maximize profit, with the various organizations both competing for shares of this profit and collaborating to maximize total supply chain profit. Maximal profit comes from the combination of service that produces the best combination of revenue (sales and price) and cost to serve. This varies depending upon the type of good or service. Customers are in turn trying to maximize their utility, which is similarly defined as the optimal mix of price and service.

For DoD, the objective is also to find the best combination of service and cost, but service does not translate into revenue through its effect on sales as it does for private-sector supply chains. Thus, the objective function for the supply chain providers in the DoD supply chain cannot be to maximize profit. If one could translate defense capability into monetary value, this one-dimensional objective function would be possible to utilize, but the monetary value of defense capabilities are not commonly agreed upon, accepted values. A more general form of the profit-maximizing function in a government context would be the optimal provision of a public good in comparison to the cost to provide the public good. For national security, there are three forms of a possible objective function flowing from this general form: maximize defense capability given a budget, iteratively adjust the budget until the perceived value of capability equals the cost, or minimize the budget to provide a defined level of capability. Typically, the United States has used the latter in policy—not just in logistics but overall, first setting a defense strategy and then aiming to resource to it. Shortfalls in resourcing against this strategy are then recognized and characterized as risks. As part of this process, readiness goals for equipment serviceability and on hand are set. Thus, a potential objective statement would be:

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