The Supply Chain’s Demands

verwhelming air superiority has been a key part of the United States' strategy against terrorist forces in Afghanistan. Navy jets have played a central role, flying more than 9,000 sorties over the war zone as of mid-March. The Navy operates 24 kinds of jets for combat and support missions, and requires elaborate supply chains to support them. After all, the absence of a $500 tire can ground a $20 million fighter.

The way the Navy deals with the tire issue is an example of how federal agencies are revolutionizing their approach to supply-chain management. The service has a 15-year contract worth an estimated $260 million with French tire maker Michelin to supply jet tires to Navy units worldwide. But under the contract, Michelin sticks to what it does best-manufacturing. It relies on a partner, Lockheed Martin Naval Electronics and Surveillance Systems, a unit of Bethesda, Md.-based Lockheed Martin Corp., to manage the supply chain by which the tires are distributed. This approach, known as "performance-based logistics contracting" or "prime vendor support" is "a revolutionary way of doing business," says Doug Nevins, a contracting officer at the Naval Inventory Control Point Philadelphia, the contracting authority for jet tires.

Michelin and Lockheed must meet performance targets to get paid under the contract. For example, all tires destined for locations within the continental United States must be delivered within two days of being ordered. Tires must be delivered anywhere else in the world within four days. Lockheed is required to meet these standards 95 percent of the time. As of mid-March, the company was beating the mark, delivering tires before the deadline 97 percent of the time. The Navy has ordered 25,000 tires since the contract was issued in July 2001. "The success has been stunning," Nevins says.

The secret to that success is the technology behind Lockheed's supply-chain management efforts. Under the new system, the Navy, Lockheed and Michelin are connected by a computer network that enables sailors and contractors to communicate their needs, products and services in real time.

The Navy isn't the only federal operation giving its supply chain management efforts a jolt of new technology. Agencies from the Postal Service to the Defense Logistics Agency are hoping to streamline their processes by implementing the latest in supply-chain technology-Web-based communication, demand planning, electronic procurement and order tracking-to improve efficiency and trim expenses.

PLANNING AND PURCHASING

Paul Litvak, director of supply chain solutions for Oracle Corp.'s federal division and a former supply executive at DLA and the Navy, says supply chains have three parts: planning, procurement and fulfillment. Each segment uses different kinds of technology. Supply experts say Defense agencies have traditionally excelled at planning. Defense logistics gurus understand supply cycles and have contingency plans for times when demand surges during military buildups. Yet critics say the military's procurement and fulfillment processes still rely too heavily on processing paper and warehousing goods. As part of the tire contract, the Navy turned 60,000 tires stored in its warehouses over to Lockheed. Now it's Lockheed's job to manage the inventory and make sure tires are available when the Navy needs them. When this stock is exhausted, Michelin will fill orders with new tires.

The supply-chain system Lockheed uses to serve the Navy relies on automated demand planning and forecasting tools created by Xelus Inc., a Rochester, N.Y., developer of "enterprise service management software," and ViryaNet Ltd., a Southboro, Mass., developer of tracking products. The Xelus software enables Lockheed to look at the Navy's past and present tire requirements and predict future needs. This means the company can keep inventories to a minimum and let Michelin know exactly how many tires it needs to manufacture to keep up with demand.

For the Navy, the jet tire procurement process is now as easy as pushing a button. Sailors on ships or at shore installations simply fill out an online requisition form, which is sent via the inventory control center in Philadelphia to Lockheed. The company fills the order immediately.

The Navy has an advantage in this process because it can buy tires under an existing contract. Not all agencies have this luxury. Furthermore, not all items lend themselves to the sophisticated prime vendor support system the Navy uses. Nevertheless, technology is improving the procurement phase of the process by connecting buyers to sellers more quickly and easily through virtual malls, such as GSA Advantage! and the DLA E-Mall.

The E-Mall gives Defense and civilian agency buyers quick, inexpensive and efficient online access to 17 million items. A purchase on the E-Mall costs DLA a little over $11 to process, while orders placed by hand cost $146, on average. E-Mall purchases cost less to process than orders placed with government-issued purchase cards, which include processing fees of $25 an order, on average. "The E-Mall is an emerging piece of the supply chain," says Donald O'Brien, who manages the E-Mall program. "It is useful when a customer needs to interact with the supply system to either find exactly what they need or get faster delivery."

That may explain why the E-Mall is growing rapidly. In 2001, the E-Mall processed 45,000 transactions accounting for $7 million in purchases. So far this year, it is averaging $1 million in sales a month.

SEEKING FULFILLMENT

With the nation on war footing, experts say fulfillment is more important than ever. The Defense Department alone has supply lines that run to Afghanistan, the former Soviet state of Georgia, the Philippines and Yemen. Since the Sept. 11 attacks, agencies have been relying on new technology to ensure their supply lines aren't interrupted.

The Postal Service's job is all about fulfillment. In the aftermath of Sept. 11, the grounding of all commercial aircraft hit the agency hard: 25 to 35 percent of all First Class mail travels by air. The Postal Service was able to bounce back quickly as a result of a number of well-developed plans to continue delivering the mail. "We had a contingency plan for the complete shutdown of the airline industry," says Paul Vogel, the Postal Service's vice president of network operations. "I never thought we'd ever use it, though." Building on its relationship with the ground transportation firms it relies on to meet temporary increases in demand, the Postal Service quickly called on 6,000 to 7,000 trucking companies to keep the mail moving. "Every organization with a supply chain should have contingency plans that help deal with demand surges and interruptions," says John Rapp, the agency's senior vice president of operations. Vogel says the Postal Service is constantly seeking to improve its contingency plans and is evaluating new supply chain technologies as a result.

The Navy is well aware of demand surges, because it must always be ready for war. The Navy's tire contract requires Lockheed and Michelin to be capable of satisfying twice the service's normal level of tire purchases. The Navy has already relied on the surge capability to help fight the war in Afghanistan, says Nevins. So far, the two firms have met higher-than-expected demand, helping to ensure that naval aviators are prepared for battle.