Streamlining links in the supply chain

"In the past, we tended to look at just our piece of a particular supply chain," says Fred Baillie, executive director for business management in DLA's logistics operation division. "If I was getting orders out of the warehouse in two days but it was still taking 60 days to get that order to the customer because the rest of the supply chain was falling down, that's not satisfactory from the user's perspective."

To make the process more efficient, Baillie and his team chose to implement an automated, integrated and more organized method of managing the entire procedure-a process called supply chain management. Simply put, supply chain management is an overarching concept that can include software overhauls and integration and the implementation of state-of-the-art applications like enterprise resource planning and advanced planning and scheduling systems. Goals include faster responses to customers, cost savings and better communication with suppliers. For years, supply chain management has been the bastion of private companies that needed to find ways to save money, improve customer service and increase market share. By and large, they've succeeded, saving money and increasing productivity. Government agencies have taken note, looking for ways to apply these concepts-and sometimes the same technology-to their own business processes.

"It's grown out of the need to know," says Ken Farber, executive vice president for business development at ProcureNet, a Great River, N.Y. business-to-government company that is working with the Defense Supply Center, a DLA organization in Columbus, Ohio, on a supply chain solution. "It's about looking at checks and balances in terms of deliveries, inventory levels and search and sustainment requirements. It's the next level."

DLA learned that lesson the hard way. During Operation Desert Storm, "we didn't have the systems in place at that time, so a customer waiting for a helicopter part didn't know where it was or when it was going to get there. We found a lot of duplicate ordering as a defense mechanism because we just didn't have information available to the customer," Baillie says. "We learned that from the customer's perspective, information is as much-if not more-important to them than the actual receipt of their order." Today, supply chain thinking encompasses DLA's business concepts. It constitutes the first part of an effort to rejuvenate the agency. "We look for velocity-how quickly we can provide parts and services-but we also can tailor our relationships," Baillie says. "In the past, our relationship with our customers was 'one size fits all,' but they have individual needs and concerns. . . . Our job is to tailor solutions to the individual customer."

Since implementing the first stage of its supply chain modernization program, DLA systems can now tell customers when orders were processed, where the items are and when they will get them. The agency jump-started the second part of the plan in August, awarding a contract to six companies for a five-year logistics makeover. It's expected to make the acquisition, processing and distribution of more than 4 million different items much more efficient. Benefits will include the ability to spot trends in the timeliness of filling orders, anticipating future orders and minimizing overpayments and back orders, according to Eric Stange, managing partner for the defense industry at Accenture, one of the six companies taking part in the makeover.

DLA's Defense Supply Center in Columbus is responsible for supplying spare parts for ground vehicles and maritime weapons systems. It also is turning to supply chain management to optimize its operations. Instead of warehousing large quantities of spare parts in anticipation of need-an expensive proposition, officials say-the organization is focusing on strategic suppliers and establishing relationships that allow it to reduce its inventory.

With its new supply chain capabilities, the Defense Supply Center can now operate electronically, accepting requests online and turning them into delivery instructions or orders to contractors.

"We've been on this journey since 1995, and we were prompted by many things, like budget pressures and the agency's desire to function more like a commercial entity," says Frankie Stewart, the Defense Supply Center's supply chain management office chief.

Other factors, such as the 1993 Government Performance and Results Act, also are driving agencies toward the efficiencies that supply chain solutions can bring, says Ron Sullivan, vice president for PeopleSoft's federal sector. "They are all looking at how to improve inventory management, improve relationships with suppliers and connect themselves with their customers, employees and suppliers," he says.

Newly Minted Efficiency

In the private sector, supply chain management enjoyed its first success in the manufacturing world. In addition to helping manufacturers determine whether they were ready for Y2K, the manufacturers began using supply chain management to reexamine their manufacturing systems strategies and develop overarching, integrated systems to run their plants.

So for the U.S. Mint, turning to a supply chain solution made sense. The agency, which produced 27 billion coins last year and is one of the largest metal-stamping manufacturers in the world, has jumped into supply chain management in a big way.

The Mint's journey toward supply chain optimization started back in 1993 when it began transforming itself into a customer-focused organization. "Everything we do is now based on what our customers want-not just knowing what their current requirements are, but using customer relationship modeling and management to anticipate their needs," says Mint Deputy Director John P. Mitchell.

In 1998, the Mint unveiled the first phase of its Consolidated Information System (COINS), which aims to automate and add supply chain functionality to the manufacturing, distribution and sales process. The system consisted of most of PeopleSoft's enterprise resource planning suite, PSDI's "Maximo" plant and equipment optimization scheduling system, Smith Gardner & Associates' Mail Order and Cataloging System and MARCUS, a marketing and customer service database written by U.S. Mint programmers. In December, the Mint augmented COINS by upgrading to PeopleSoft 7.5 and adding Data Collection Systems Inc.'s Automated Data Capture System. Mint employees can use this system to scan bar-coded materials as they get them, so the Mint can better determine what supplies it has in its inventory.

"Our goal is to get to a just-in-time inventory management scenario, which is where you realize a lot of savings in your inventory holding. That way, we can project what we need for our various products like circulating coins and numismatic products," Mitchell says. "That allows us to project the demand for various products at various times of the year and then coordinate with our suppliers and minting facilities." A second but equally important goal is saving money-funds that can be returned to the public coffers. And the organization is well on its way to realizing that goal. The first phase of COINS cost about $40 million and is expected to save about $80 million over its life cycle, Mitchell says. He credits much of those savings to PeopleSoft's "Red Pepper" planning engine, which provides much of the system's inventory management capabilities.

Supply chain management is an important prerequisite to a successful e-commerce site-something that is particularly important to the Mint, whose eRetail site, launched in 1999, is already one of the top 20 e-retail sites nationally with $156 million in sales in fiscal 2000.

"Ideally, you want to get into a situation where your customers can communicate electronically with you and have their order go straight into your database, which is what happens with our e-retail site. It helps us control and reduce costs and speeds delivery of the product to the customer," Mitchell says. "But to do that, you have to have good sales projections, have the product on the shelf ready to go, and have sufficient but not too large inventories ready to go. It also means that at the front end, you need to be working with your suppliers as to what materials you need so they arrive just in time to go into the production of minting and packaging coins.

Although federal agencies are turning to supply chain solutions more than ever before, they aren't private companies but government entities with different rules, regulations and requirements.

"We have to support a different mission from a commercial contractor, because we are supporting military equipment that can consist of unique parts not readily available commercially," Stewart explains. "And we have a different operating environment. . . . We have to be prepared to support our customers through war and deployments."

The budget cycle also can cause problems. Because agencies go through an annual appropriations cycle, "it's a bigger challenge to get multi-year funding for major systems implementations," Mitchell says. But there are many instances where federal agencies have done just that and, with the full support of Congress, received multi-year funding that recognizes what's needed to accomplish large, ambitious projects, he notes. Supply chain systems will proliferate faster than ever. The State Department and the Navy have already joined DLA in implementing supply chain overhauls.

"The President made it very clear during his campaign that he was interested in the government doing great things in the world of e-business, and we think what we're doing and what other federal agencies are doing fits nicely into modeling the kind of government efficiency and services he envisions for our county," Mitchell says. That kind of thinking, he adds, will help take supply chain management in the federal government to the next level.