Since 1990, Department of Defense (DOD) supply chain management has been a documented high-risk area on the Government Accountability Office (GAO) High-Risk List. The GAO reports that the DOD “manages more than 5 million secondary inventory items, such as spare parts, with a reported value of approximately $98 Billion.”
To create more effective and efficient supply chain management that is capable and ready to support the U.S. Forces, the DOD has made significant changes. In the past year, the DOD has made noticeable progress in addressing the weaknesses that are associated with three dimensions of its supply chain management: inventory management, materiel distribution, and asset visibility.
Inventory Management
DOD changes to inventory management included implementing a corrective action plan. This plan has several benefits, including:
- Reduction of excess inventory
- Application of inventory management best practices
- Streamlining management tactics
- Creating a more effective management system
In addition to implementing the new corrective action plan, the DOD established a performance management framework. The framework includes:
- Metrics to be achieved
- Short-term and long-term milestones
- Strict adherence to set schedules
- Implementation of measures to track the action plan
Through these new measures the DOD has achieved noteworthy success. The percentage of on-order excess inventory has dropped from 9.5% in fiscal year 2009 to 7.9% in fiscal year 2013. The excess inventory is expected to continue to be reduced as the DOD makes additional inventory management enhancements.
Materiel Distribution
According to a RAND report, Integrating the Department of Defense Supply Chain, DOD supply chain management has improved performance and created efficiencies through process improvement activities. This mentality for continuous improvements was further enhanced when the DOD made significant progress in addressing its materiel distribution challenges. The DOD established the Defense Logistics Agency Distribution Effectiveness Initiative to improve logistics efficiencies within the Agency’s distribution network. This initiative has helped to:
- Reduce transportation costs
- Improve efficiencies
- Strategically leverage Defense Logistics Agency supply sites
- Actively mitigate distribution-related problems
Asset Visibility
In 2013 the GOA recommended that the DOD develop an improved comprehensive strategic plan that would use performance measurements to accurately gauge results. The DOD has made several advances in this area, including:
- Developing the strategy for improving DOD asset visibility; including a corrective action plan, as well as obtainable goals and milestones
- Implementation of new organizational structures
- Introduction of the Asset Visibility Working Group, which monitors the implementation of any asset visibility improvement initiatives
Future Goals for the DOD Supply Chain Management
If the DOD Supply Chain Management is to be removed from the High-Risk List, additional progress must be made in each of the three aforementioned areas. The GAO will continue to assess the following items:
- Progress in the continued reduction of inventory levels and on-order inventory
- Actions that will improve the forecast accuracy of future inventory levels
- Metrics for tracking material distribution performance
- Process improvements in managing materiel distribution
- Refinement of assets visibility metrics
- Strategic goals linked to specific objectives which will meet asset visibility milestones
DOD has made significant progress towards improving its supply chain management. By implementing procedures and a system of continuous improvements that focus on achieving strategic goals and initiatives, DOD supply chain management is one-step closer to being removed from the High-Risk List.