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Cost pressures driving supply chain upgrades

Cost pressures driving supply chain upgrades

Aug. 27, 2013 - 01:16PM   |  
By SEAN REILLY   |   Comments

As agencies confront budget squeezes and efficiency demands, supply and logistics operations are an obvious place to start.

A few examples:

■ The Veterans Affairs Department is automating its system for tracking medical equipment and supplies.

■ The Air Force last year revamped its tactics for fueling cargo planes flying into Afghanistan.

■ And the U.S. Postal Service is consolidating its asset management systems.

Under a “real-time location system” initiative launched late last year, for example, the VA plans to tag million of pieces of equipment and supplies, not only to let doctors and medical staff know where a particular item is, but when and how they are used.

The tags will be an improvement over the bar codes already in use because they allow employees to track inventory by location, said Kimberly Brayley, the VA official overseeing the project, in an interview.

Instead of counting cardiac stents and other items by hand, “we can start generating alerts for stock and supply levels,” Brayley said. As supplies are pulled for patient care, for example, the system can track stock levels and let staff know that they may want to order more.

HP Enterprise Services won a $543 million contract last year to put the new system in place by 2017. VA medical centers and other facilities in Michigan, Ohio, Indiana and Illinois are already wrapping up implementation, and plans are under way to expand it to almost half of the department’s medical care networks, Brayley said.

“Early indications are that we are seeing good successes,” she added. “It’s bringing us to where we need to be in terms of supply usage.”

For the Air Force, engaged in a long-term campaign to drive down fuel expenses, the scope of the challenge is far-reaching and possible solutions are not always so obvious.

Just in the first six months of this year, C-17s and other cargo planes flew some 2,000 supply sorties into Afghanistan. Until last year, the Air Force followed standard airline practice in loading those planes with just enough jet fuel to let them make it to their destinations. The reason: The heavier the plane, the less efficiently it flies.

But tanking up in Afghanistan — where Defense Logistics Agency prices for jet fuel don’t necessarily apply — costs several dollars more per gallon than at the Air Force’s base near Incirlik, Turkey, said Mel Murray, a business process analyst at DRC, a Massachusetts consulting and information technology firm involved in the operation.

From that perspective, it made better sense to load more fuel on to planes as they headed into Afghanistan even though heavier aircraft burn more gas per mile. The new approach saves taxpayer money “because we don’t spend as much on the fuel that goes into the aircraft,” said Air Force Col. Keith Boone, chief of the fuel efficiency division at Air Mobility Command.

The new approach went into effect in June 2012; as a result, the Air Force spent about $121 million less gassing up planes than it otherwise would have in the first nine months of fiscal 2013, a spokeswoman said later via email.

But the military has struggled with larger-scale logistics upgrades. Last November, the Air Force canceled the Expeditionary Combat Support System after spending more than $1 billion and getting little in return. The life-cycle pricetag for an Army counterpart known as the Logistics Modernization Program is now more than $4 billion, or close to ten times the original estimate, according to a recently released report by the Defense Department’s inspector general.

Driving the cost spiral are constantly changing requirements as the military is unable to settle on exactly what it wants, said Jacques Gansler, a professor of public policy at the University of Maryland who served as DoD’s procurement and logistics chief during the second half of the Clinton administration.

At the same time, Gansler said, the Pentagon has failed to take advantage of IT advances widely used by Walmart and other companies to track inventory and speed up restocking. Although statements by DoD leaders show growing awareness of the problem, he said, “I haven’t yet seen the action to match those statements.”

The task is becoming more urgent as tighter budgets force agencies to search for any available savings.

The pressures are particularly acute for the Postal Service, which gets almost no taxpayer help and is losing billions of dollars annually. One answer is the Solution for Enterprise Asset Management (SEAM), begun about three years ago to centralize inventory management and improve forecasting for future needs.

The Oracle-based approach is replacing multiple systems across the sprawling agency, which has tens of thousands of post offices, processing plants and other facilities, said Myrna Murphy, head of asset management. Vehicle parts and packaging products are among the items already in SEAM, she said, and the Postal Service is looking at adding truck trailers and building equipment.

The system is part of a broader effort to standardize and automate purchasing and other supply chain activities. Already, Postal Service employees can comparison-shop for goods and parts via electronic catalogues that help obtain prices frequently lower than those on General Services Administration schedules, said Donna Schoenbeck, USPS manager of supply management strategies.While the savings are hard to quantify, she said, the strategy has helped the Postal Service keep pace amid a string of employee downsizings.

“That’s how we’ve been able to continue to make our goals and do all the things we need to do with these continuous reductions,” she said.

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