Doctor’s Orders

ust in case" was the motto of the Defense Department's medical supply managers in the 20th century. What made them happiest were shelves stocked to the brim with pills, stethoscopes, cotton swabs and bandages.

That 20th century supply manager might need some of those pills himself if he were to see the shelves today. If there even are shelves, they're nowhere near full. The old giant medical supply warehouses are gone or are being used for other purposes. At hospitals, doctors keep just enough supplies on hand to get by. The new motto is "just in time." Instead of hoarding supplies, managers order what they need shortly before they need it, and suppliers deliver the goods-in most cases, overnight.

The just-in-time approach saves Defense Department officials money (warehousing costs, in particular), time (orders typically get to doctors in 24 hours), and waste (products don't sit on shelves becoming stale or obsolescent). Medical managers purchase supplies through an online ordering service that lets them compare product features and prices. They usually get good deals, because the system uses the combined purchasing power of the Army, Navy and Air Force, which previously bought medical supplies separately, and the Veterans Affairs Department, which buys drugs with the Defense Department.

Using the new system, managers purchased $1.4 billion worth of medical supplies in 2001, with 95 percent of orders reaching doctors in less than a day. The system has cut the average time to complete a procurement from 45 days to two days, and has enabled the military to cut its inventory of medical supplies by 85 percent. As a result, costs are down 15 percent from a decade ago.

"When you start talking about cultural change in item management, that's tough in my experience," says Stephen Busch, a senior executive program analyst with Kepler Research Inc. of McLean, Va., and a judge for this year's Business Solutions in the Public Interest Awards. "Happiness for an item manager is having a shelf full of stuff. Now we're saying that it's OK to be down to your last item because you're going to get another shipment tomorrow."

The just-in-time model is one of the key elements of the Defense Medical Logistics Standard Support (DMLSS) project that garnered the department a 2002 Business Solutions in the Public Interest Award. The program also wins kudos for being an example of effective electronic government, combining several old computer systems and paper-based processes into a single online management tool. DMLSS is a massive project, responsible for online sales of $1.5 billion in medical supplies and drugs to hundreds of military hospitals and medical facilities around the world. The project also helps the facilities manage billions of dollars worth of equipment and physical property. The leaders of the project did some key things right, according to the judges:

• Involved customers. Each military service's medical logistics chief is a member of the DMLSS governing board. Members work on all aspects of the project, from policy to technology upgrades to evaluation.
• Made the system easy to use. With DMLSS, medical officers order products via an online, Windows-based system. Clerks use hand-held scanners to keep track of supply levels. New service members and employees have adapted quickly to the new system, says Maj. Troy Molnar, a DMLSS user at Andrews Air Force Base in Maryland. Employees accustomed to the old systems have a steeper learning curve, but once they get used to the new one, they like it.
• Built modularly. The project's leaders have taken their time rolling out new parts of the system, slowly replacing the nine systems that the services previously used for medical logistics. This year-after nearly a decade of methodical work-the legacy systems will be phased out at all of the services.
• Took out the middleman. Rather than force doctors to order goods through a middleman in the Defense bureaucracy, DMLSS allows doctors to order directly from manufacturers. At the same time, the online system lets Defense keep a centralized record of orders and get volume discounts. "DMLSS was in the vanguard of electronic ordering," says Eleanor Spector, an awards judge and contracts policy vice president for Lockheed Martin. "It eliminates warehousing and eliminates procurement people."

Defense officials expect the system to cost $532 million and reap $3.1 billion in savings from 2000 to 2012.

At Andrews Air Force Base, for example, a big warehouse that was used for the on-site Malcolm Grow Medical Center now stores medical supplies for emergencies around the world. Supplies were deployed from the warehouse in response to the Sept. 11 attacks. For the on-site hospital, the base last year had 1 million items in stock. That's been reduced to 75,000 items, with new shipments coming in all the time. "We reduced our physical plant requirements," says Molnar. "We only need a tenth of the space. When we built a new warehouse, we got a little, teeny warehouse."

The new system saves Molnar a lot of time as well. In the past, when he wanted to buy a CAT scanner, he would search through catalogs, comparing prices and finally selecting what he thought he wanted. Then he would mail his order to somewhere in the bureaucracy. Two weeks later, the scanner would arrive. Now, Molnar can go online, compare features and prices for CAT scanners on the DMLSS system, select the best product at the lowest price, place an order and receive the scanner within a few days.

The lightning-speed ordering allows Molnar to keep up with the latest technologies. Rather than order a CAT scanner just to have one in stock, he orders one when he needs it. That means he's ordering the latest, most advanced product.

Military logistics chiefs learned the drawbacks of the old just-in-case approach the hard way-in the middle of a war. The Defense Department shipped truckloads of medical supplies to the Persian Gulf region during Operation Desert Storm. When the supplies got there, many of them were out of date and useless to the doctors on-site. Tons of supplies went to waste.

That experience fueled the Defense Medical Logistics Standard Support project. Logistics specialists who went through the supply disaster during the war didn't want to repeat that mistake. Medical personnel across the services and the Defense Department are familiar with the Desert Storm story, so they understand the benefits of the just-in-time system.

The project's managers also learned the importance of having everyone from contractors and subcontractors to government officials operate on the same wavelength. A DMLSS integrated product team at Fort Detrick, Md.-including members of all of the different companies and services involved in the project-keeps a brisk schedule of software development, constantly updating modules of the system to respond to customer comments. "It's not without friction," says Eric Downes, a Fort Detrick representative of EDS, the lead contractor on the project. "But we keep the cycle of software development moving to meet the needs of the users."

Steve Rohleder, an awards judge and the managing partner of consulting firm Accenture's U.S. government division, says the strong relationship between the government and EDS is one of the project's most important features. "A strategic sourcing relationship with the lead contractor is absolutely at the center of a successful modernization," Rohleder says.