As Defense Secretary Leon Panetta’s efficiency initiatives and Defense Logistics Agency Director Navy Vice. Adm. Mark Harnitchek’s “Big Ideas” push the agency to find ways to provide superior support at lower costs, a joint program between DLA, U.S. Transportation Command and the military services is looking at ways to make better use of the storage nodes and transportation lanes that comprise the Defense Department’s distribution network.
Strategic Network Optimization, an Office of the Secretary of Defense program being led by DLA, is taking in data from across DoD’s logistics network to find where and in what amounts consumable items – items that aren’t reused like ammunition, paint, fuel and bandages – and depot-level reparables – items like vehicle transmissions that can be repaired and refit and then put back into service – should be kept around the globe, said Navy Lt. Cmdr. Manuel Ganuza, operations research lead on the SNO team. The program’s goal is to make more efficient use of the network’s transportation and storage capabilities to minimize inventory requirements.
“What SNO is doing in essence is looking to reduce total supply-chain costs while increasing warfighter readiness related to supply,” Ganuza said. “We want to find that balance between being effective and being efficient.”
Another effect of SNO will be reducing the number of warehouses DoD uses to store its inventories, said Bret Nichols, the program’s business manager.
“We’re looking at eliminating warehouses where it makes sense,” he said. “We’re looking at individual buildings. In the continental United States, there are 256 distribution sites with significant capacity. We’re trying to whittle down that warehouse capacity where appropriate.”
Ganuza said budget constraints and the need to transform the supply chain to support a variety of future operations, from contingency to humanitarian assistance, are the compelling reasons for SNO.
Lynne Allen, SNO’s program manager, said the program is also looking to reduce redundancies brought about by DLA, USTRANSCOM and the services performing the same or similar functions.
“There is a lot of duplication across DoD between the services and DLA and a lot of redundancy,” she said. “That’s part of the transformation as well: to consolidate and reduce redundancies. That’s sort of the underlying foundation that gets us where we need to be to support the current and future environment. In view of the coming budget constraints, it would make sense to leverage what we have because we can’t afford to go out and make the investments in inventory that we’re used to making.”
In order to do that, SNO is planning and implementing in three phases. Phase 1 is transportation-focused and configures the supply network, including the number and location of strategic distribution depots, the transportation lanes used to get supplies where they need to go, and the anticipated flow of materials.
“In Phase 2, we looked at DoD-wide inventory. Many will say we have too much stuff across DoD,” he said. “We may be short of something we do need but, in totality, we have too much stuff. The goal is to get rid of $10 billion of material across all of DoD, not just DLA.”
Nichols said that in addition to reducing the investments required for a larger inventory, Phase 2 will also eliminate other costs involved in keeping that inventory.
“There are also carrying costs to keeping things in our inventory,” he said. “There’s spoilage, obsolescence, handling fees and more. Eventually, if you keep something on the shelf long enough, you don’t need it any more. That piece of equipment is gone from our inventory, we don’t service it any more, we don’t issue it anymore, but there are still warehouses full of it.”
That leads directly into Phase 3, in which the Defense Department will reduce the excess warehouse capacity that results from the reduction of inventory, Nichols said.
“Once you clear the attic out, our model has allowed us to equate the value of those items in cubic feet and square feet,” he said. “We take that out and that’s how much warehouse space we anticipate being able to eliminate.”
The order of the initial phases is purposeful, Ganuza said.
“Phase I basically reconfigures your network. It focuses on items that are moving within the network,” he said. “Once you’ve established the network, how you’ll use it and the conditions under which you’ll be operating, then you look at the inventory portion. That’s where we have things in excess. Once you get the entire picture of the inventory with the network reconfigured and operating the way you want it to, you can look at infrastructure. Then you scale the infrastructure to the new demand and functions you’re going to assign to a specific site.”
Ganuza said that while a net decrease in warehouse space is anticipated, some individual sites may see the opposite due to various causes and missions.
“Some sites might need an increase, and others will be reduced significantly,” he said. “You still need to provide support to industrial activities. You still need a storefront. Someone still needs to manage it.”
These three phases are anticipated to reap more than $7 billion in network-, inventory- and infrastructure-related savings across the Defense Department from fiscal 2014 to fiscal 2018, Nichols said. DLA itself is expected to save more than $76 million from Phase 1 alone. Savings to individual partners for phases 2 and 3 haven’t been calculated yet.
“By optimizing the network, we’re able to use lower-cost forms of transportation,” he said. “We can go surface versus air. There’s a huge difference in the cost of moving something by truck or boat versus moving it by plane.”
The optimized network will also allow planners to send consolidated shipments to customers, Ganuza said. Regular shipping schedules, with many shipments going to multiple customers, will allow for reduced transportation costs and inventories.
“Among all the services, we’re consolidating all the shipments,” he said. “With SNO, you’re setting the schedule of dedicated trucks to be more effective. Now you have a high volume of material moving through a lane to customers that are near each other.”
“It has an impact on inventory,” Ganuza continued. “If my analysis tells me I’m going to hit you every two weeks with a truck, you might estimate you need more on hand. That goes hand in hand with phases 1 and 2. We can assess the responsiveness of the supply chain and the network to the consumer, which impacts inventory. Now that we can assess that responsiveness, those parameters the services use to calculate inventory levels will have impacts on retail operations. They tell us what they need. If we can service them every day, they need less.”
The SNO team is using a modeling and simulation program called Supply Chain Guru to help it decide how to most efficiently manage the worldwide supply network, Allen said. The program allows DLA, USTRANSCOM and the services to input data on infrastructure, inventory and transportation into one database from which they can assess individual changes to the network, she said.
“That’s one of the more unique things about what we’ve done,” Allen said. “We’ve gotten actual cost data from each of [the partners], put them together, and done some optimization and modeling. We’re going to simulate the network to make sure. We’re going to test it to make sure the new network can respond with current or improved performance. This will validate that we won’t degrade any response times. We’re doing that now.”
Ganuza said the team expected initial results from the simulations in early August, but that the analysis of those results would take time.
Phases 1, 2 and 3 of SNO will reach implementation in 2014, 2015 and 2016, respectively. Further phases are already beginning, Allen said. Phases 4, 5 and 6 will look into how to use the network to support geographic combatant commanders and humanitarian assistance and disaster response operations, as well as add classes of supply beyond repair parts.