Integrating the Department of Defense Supply Chain: Techincial Report

By Eric Peltz; Marc Robbins | Go to book overview

CHAPTER SIX
Supplier and Inventory Management Integration

This and the next four chapters explore opportunities for improved DoD supply chain efficiency through improved integration. They involve integrating across functions based upon interactions or dependencies as well as taking more of an integrated systems view in performing a process, and they build upon the supply chain design and enabling mechanism guiding principles. The first focuses on the impact of supplier performance and management on inventory efficiency. The second revolves around the interactions between shipment consolidation in DCs and the impact on transportation efficiency, along with the power of taking a systems view across delivering materiel to all customers. The third focuses on the integration of supplier and transportation management, again with potential for taking a systems view across shipping materiel from suppliers to DoD. The fourth discusses taking a holistic view of positioning and repositioning materiel in the system based upon joint consideration of all supply chain costs. The fifth involves integrating financial policy with distribution system design and inventory planning along with integrating inventory management across organizations.


Where Is the Money?

Frequently termed the Willie Sutton rule, the oft-cited first step in identifying opportunities to save money is identifying where the money is. So if DoD wants to save money in providing supplies to its personnel to conduct operations and maintain equipment, the first step is determining what drives the costs. To do this, we turn to the service and DLA WCF budgets, dividing the budgets into four main categories: cost of material, people, transportation, and other. As indicated in Table 6.1, the cost of material dominates total expenses at $40 billion ($31 billion without subsistence and medical items) out of $49 billion.1 The cost of personnel is second at $3.3 billion. These primarily comprise the people to manage the supply chains from demand and supply planning to supplier management and contracting, the people who operate physical distribution facilities—primarily the DCs, and the people who manage the enterprise. Other costs include other purchased services, utilities, travel, material for opera-

1 Taking out “subsistence” and “medical” leaves primarily the classes of supply that are the focus of this report but this cannot be done for expenses, so both totals are provided. Additionally, because of their associated prime vendor programs, there is very little DoD inventory of subsistence and medical supplies. Note also that from a supply chain and supply management account standpoint, the cost of materiel includes the cost of depot labor to repair class IX reparable items.

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