Risky Business

ompanies providing everything from drugs to bandages had trouble getting deliveries to soldiers in Afghanistan. Deliveries of more than half of all other supplies-including cold weather gear, tents, and materials needed to build base camps-also were late. The Defense Logistics Agency had not yet cut deals with delivery firms in the region. DLA is responsible for buying and shipping more than 4 million items-everything from prepackaged meals to repair parts for weapons-to U.S. forces abroad and in the United States.

Problems getting supplies into Afghanistan raised red flags among the military's top war planners, the Joint Chiefs of Staff. A draft Joint Chiefs' report, obtained by Government Executive, criticizes DLA's heavy reliance on the private sector to supply and deliver products directly to soldiers during military operations. The draft report points out that the shortfalls in Afghanistan sometimes left troops with only "a minimum quantity of many supply items and on several occasions supply quantities nearly dropped to zero, which would have caused mission failure." According to the report, "U.S. Central Command concluded that commercial delivery concepts posed more risk than the command could accept."

Central Command is one of nine commands that oversee military operations in different regions or functional areas. Central Command controls operations in Central Asia and the Arabian Peninsula. It is running the war in Afghanistan and will take the lead if the United States goes to war with Iraq. Transportation Command moves people, weapons and products into war zones. The commands fall under the Joint Chiefs' purview. Every two years, the Joint Chiefs and the commands assess support organizations such as DLA.

The most recent assessment, conducted between last December and June, came as DLA was gearing up to support operations in Iraq that could dwarf the effort in Afghanistan. While the Joint Chiefs praise DLA for its overall operations, the report's criticisms cut to the core of the agency's business transformation over the past 12 years from an operator of warehouses to overseer of just-in-time delivery contracts with suppliers. Criticisms of the vendor-based system aren't new. In an assessment two years ago, military commanders voiced similar doubts. "Regarding transition to war, the particular area of concern mentioned was the integration of vendor and contractor shipments into the defense distribution system," the 2000 report said.

Part of the problem, according to a former DLA official speaking on the condition of anonymity, is that most of the agency's contracts during the early 1990s were written with peacetime requirements in mind. They did not always take into account the dramatic expansion required during combat. Since 1999, DLA has been building such requirements into its contracts.

Additionally, the agency does not always identify supplies the same way its vendors do. For example, the agency uses its own system to label drugs. This leads to confusion and duplicative orders when troops don't think the right supplies are in the system. DLA is working with industry experts to develop a common labeling system, but it is years from completion.

DLA officials say that one of their biggest hurdles is educating military commanders about what DLA does, how it does it, and how the private sector factors into the equation. The Joint Chiefs' 2002 draft report acknowledges the need for information: "Combatant Command personnel need continual DLA education due to their 18- to 24-month rotation cycle. Commands lose DLA knowledge as the staff rotates and new personnel report to the command with varying levels of DLA knowledge." A separate report prepared last February for the Joint Chiefs by the McLean, Va.-based Logistics Management Institute points out that military personnel are accustomed to peacetime standards under which DLA has provided next-day delivery for many products. Those standards are hard to meet in wartime, especially in a country like Afghanistan where roads and other parts of the transportation infrastructure are virtually nonexistent.

GOING COMMERCIAL

The criticism by the Joint Chiefs raises serious questions about the very reforms that have enabled DLA to vastly improve its delivery times-at least within the United States. In the past, DLA maintained huge warehouses of inventory. Keeping those supplies on hand in large quantities proved ineffective and costly.

To improve operations, streamline the procurement process and become more efficient, the agency, during the 1990s, moved from operating warehouses filled with products to managing the supply chain. Instead of warehousing thousands of items, DLA began crafting contracts with manufacturers that promised to rapidly increase production when additional supplies were needed. In some cases, companies also took over monitoring and replenishing the inventories of their goods at military installations.

DLA also was one of the first government entities to embrace the notion of prime vendor contracts. Under these agreements, the agency designates a primary contractor to manage a category of products, such as medical supplies. That vendor has agreements with suppliers to provide the goods. Customers, mainly military bases, communicate directly with the prime vendor, not with DLA. The agency keeps a watchful eye from the background, monitoring the transactions and managing the overall contract.

During peacetime, relying on contractors has worked well. Between 1993 and 2000, Defense Supply Center Philadelphia, one of three DLA supply centers, reduced the value of its on-hand inventory from $3.96 billion to $2.24 billion. Meanwhile, sales jumped from $4.1 billion in 1994 to $6.2 billion in 2001, and the time needed to fill orders improved from six days in 1999 to four days in 2001.

It's the transition to war that has the Joint Chiefs and other military commanders worried. Quoting a senior military leader from the war in Afghanistan, the report by the Logistics Management Institute, which focuses exclusively on medical supplies, says troops did not have all of the materials they needed. And once inventories fell, replenishing them proved difficult. "Prime vendors were not able to comply," the officer said. "I firmly believe this area to be our 'go-to-war Achilles heel.' "

The Joint Chiefs were just as blunt in their 2002 assessment, saying, "Exclusive reliance upon medical prime vendor suppliers increases the risks of not meeting surge requirements for a large-scale contingency." The Joint Chiefs doubt that prime vendors can meet increased demand during the first few days of large engagements. LMI calls such criticism "an unfortunate and ultimately pointless observation. It's unfortunate because the prime vendor program works quite well" and mimics the distribution system used by the U.S. health care industry. The report goes on to say, "Military logisticians face an imperative: Wartime plans and practices must be adapted to commercial support because there is no alternative."

William Kenny, executive director for business operations at Defense Supply Center Philadelphia, which handles medical supplies for DLA, says it is probably true that prime vendors can supply only about 80 percent of needed products. Part of the reason is that the prime vendor program covers only pharmaceuticals and surgical supplies. The agency relies on other types of contracts for such things as optical, dental and laboratory supplies and first aid kits.

For most medical supplies, the agency buys access to company inventories, rather than buying actual allotments of products. In an emergency, DLA can tap a company's existing inventory regardless of commitments by the firm to its other clients.

Despite these arrangements, Vice Adm. Keith Lippert, DLA's director, acknowledges that this is an area where DLA has to build confidence and earn trust that it can indeed deliver on its promises. "We've been working with these contractors for years and we have been working with them successfully," he says. "We've never had a problem with them not being able to meet requirements." To that end, the agency plans to conduct simulated war games to assure the Joint Chiefs that medical suppliers can indeed meet requirements during a major war. But such an exercise is unlikely to squelch the concerns of military leaders. The 2002 assessment notes, "A simulated exercise does not actually prove that a contractor could surge and deliver supplies in a short period of time." DLA officials did not say when an exercise would take place, other than to suggest that it could occur in early 2003.

DELIVERY ON DEMAND

Just as the private sector is supplying more goods to military facilities than to warehouses, contractors are delivering more products directly to troops in the field. Through the mid-1990s, Transportation Command focused only on moving supplies from one air base to another. The command did not worry about how shipments got to their final destinations, according Air Force Maj. Gen. William Welser, director of operations and logistics at Transportation Command. Moving supplies to troops was left largely to military leaders in the field. DLA and Transportation Command now are focused on end-to-end delivery and are responsible for getting products delivered the last mile to the field.

To an increasing extent, they rely on commercial entities. For example, Transportation Command was on track to spend $6 million on commercial airlift in fiscal 2002. Since the Sept. 11 terrorist attacks, that has jumped to $1.2 billion. Commercial carriers such as Federal Express, United Parcel Service and some airlines account for roughly 13 percent of strategic airlifts from the United States to key drop-off points in Pakistan and other parts of Central Asia. The remaining supplies are shipped on Transportation Command aircraft. Pakistani delivery firms have been awarded contracts to deliver products from those airfields into the war zone, mainly by truck.

Here again, the Joint Chiefs were frustrated with the heavy reliance on companies. Because contracts with local drivers had not been established during the early days of the operation in Afghanistan, military aircraft had to move a vast amount of supplies into the war zone. Additionally, not enough supplies had been pre-positioned, Transportation Command officials say. Since DLA's shipments take a backseat to soldiers and ammunition, more than half of all supplies missed their required delivery dates, according to the Joint Chiefs' report. "That's probably accurate," says Francis Daniels, a senior operations research analyst at the Philadelphia supply center. Daniels was in Kuwait from February to July, commanding a DLA team sent to lend logistical support to military leaders running the Afghanistan campaign. Setting up contracts in a new region of the world is not easy, he says. It takes time to find the right companies and build relationships with them.

Daniels says that while he was overseas, he did not hear major complaints about supplies being held up or not making it to the troops in time. "How successful we are depends a lot on how much notification we get," he adds. "How good are the requirements? How quickly are the requisitions getting into our systems? Then, what kind of priority does DLA get from Transportation Command to move supplies?"

LISTENING AND LEARNING

Improving lines of communication with military leaders has been one of DLA's top priorities since the 1990-91 Persian Gulf War. At that time, the agency was flying blind. Troops got their boots, tents, food and spare parts, but they weren't always delivered on time and, often, soldiers had to comb through hundreds of boxes to find a particular order.

Lacking intimate knowledge of war planning during Operation Desert Storm, DLA sent hundreds of excess containers of intravenous solutions to the Gulf area, for example. More than half of the IV bags ended up sitting in rail cars, never to be used. Spare parts for weapons and motor vehicles were sent over by the boatload, too.

"We did a lot of guesswork," recalls retired Army Lt. Gen. Henry Glisson, who ran DLA from 1997 until July 2001. During the early 1990s, he worked at the Pentagon as an executive officer to the deputy chief of staff for logistics. Glisson is now director of Pacific operations for BearingPoint, formerly KPMG Consulting. "We always sent excess. We sent more than we probably needed because you didn't want to have the warfighter either have a mission fail or somebody lose their life because we didn't get the right material at the right place at the right time."

It was during Desert Storm that DLA realized things had to change. The agency needed to play a more central role in war planning. To better serve its combat command customers, DLA had to be involved in discussions at the front end, rather than after troops were deployed. So, in the late 1990s, DLA started placing liaison officers at each of the commands. The first liaison officer joined the Joint Chiefs of Staff in January 1999. Others were stationed at the remaining commands over the next two years, the last joining the Strategic Command in July. They serve two masters, on the one hand telling military leaders exactly what DLA can do to support them and, on the other, conducting reconnaissance for DLA's 25 distribution and supply centers.

Having a logistics person at the table with war planners may not sound like a big innovation, but for DLA it's a gigantic step. It not only allows the agency to better prepare for future military operations, but it also helps build trust among the commands that DLA can deliver.

"We don't want to get caught flatfooted," says Air Force Col. Lenny Petruccelli, chief of contingency plans and operations at DLA. With a direct link to military planners, DLA can help shape orders and requirements so they fit the military operation, rather than guessing which supplies are needed when, he adds.

Lippert says that DLA is working with Central Command to determine what supplies need to be pre-positioned for combat in Iraq and where the agency must start working with vendors to ensure that products are available. Pre-positioning supplies clearly is an issue for war planners. The report by the Joint Chiefs says that Transportation Command "is not confident it will be able to meet the airlift requirements in a larger operation unless supplies are pre-positioned closer to the [combat] theaters or contingency plans are developed for theaters with limited commercial hubs."

"The army likes to use the analogy that our boots are muddy with them," Lippert says. "They can tell us exactly what they need and [the liaisons] can get back to DLA to push the button to make it happen. This is a response time issue; it is an effectiveness issue; it is a communications issue that people can know what can be expected of this agency."