Land Force: Logistics lessons learned from the US | ADM Feb 2010
But what worked and what didn't during this upheaval?
And what lessons learned can be applied to the Australian context.
Keith Lippert | Reston, Washington DC
On my recent trip to Australia, I was hearing about the Department of Defence entering a period of unprecedented change.
As I understand it, the Strategic Reform Program (SRP) involves remediating Defence's critical ‘backbone' such as facilities and infrastructure, information communication technology systems, warehousing and distribution systems.
The Australian government expects that this reform with provide savings of up to $20 billion over 10 years.
With this in mind, I thought it would be relevant to share my experience working with the DLA in the US who faced similar change earlier this decade.
The DLA is a huge, complex enterprise with annual sales of approximately $US37 billion.
The agency manages eight supply chains, providing 95 per cent of the US military services' repair parts and 100 per cent of their subsistence, fuels, medical supplies, clothing and textiles, and construction and barrier material.
On any given day, DLA receives 54,000 requests for material, and awards 8,200 contracts.
The agency manages 5.2 million items, 25 warehouses, subordinate commands responsible for cataloguing and technical support, and reutilisation and disposal of material.
These functions are accomplished with the help of approximately 20,000 civilians, 300 active duty military and 700 reserve military.
DLA has outposts in 48 states and 28 countries.
DLA has evolved from its creation in 1962 as a traditional wholesaler-procuring, stocking and selling common items to all the military services-to being an essential provider of material and services to the US military services.
The Burning Platform
During the late 1990s and early 2000s, DLA faced some critical challenges.
The military services complained that it took too long for DLA to get the materiel to them and that DLA was too expensive.
The military customer paid for DLA's overhead rate as an additional charge to the material it provided.
As a result, the military services, in many cases, procured their own material, avoiding DLA.
Senior defense officials threatened to disband DLA and return its function to the military services.
DLA's survival became the burning platform for change.
The legacy systems at DLA were designed in the 1960s, implemented in the 1970s and written in COBOL, an outdated and relatively inflexible computing language.
They were batch processing, could not pass a financial audit and were inefficient and expensive to operate.
Modern enterprise resource planning (ERP) systems, which operate in real time, reduce customer wait time, are financially compliant, less expensive to operate, require data integrity and improve demand forecasting, resulting in reduced inventories.
The business case documented that a $US750 million investment paid itself back in 42 months through reductions in inventory and operating costs.
A major consideration was whether to pursue the ERP/business transformation implementation in the wake of the September 11 attacks.
DLA was preparing for a wartime surge in demand for its materiel and services.
In fact, DLA sales doubled between 2001 and 2006.
Ultimately, DLA decided to continue the implementation with a conservative approach so as not to adversely impact support to the war fighter.
Implementation
DLA hired Accenture as the system integrator for the ERP/business transformation project in 2001.
One of Accenture's most important tasks was to recommend a software product or products that would best fit the needs of DLA.
Accenture recommended SAP as the primary product and Manugistics for demand planning.
Accenture conducted a demonstration of the concept in 2002 for 170,000 of the 5.2 million items DLA manages.
These items were from most of the supply chains and accounted for $US300 million in annual sales.
The demonstration uncovered many problems, including:
• Confusion on passwords
• A need for more SAP system training
• Lack of understanding about procedures, which led to additional process changes necessary to comply with the SAP/Manugistics system.
The difficulty in implementing the concept demonstration led DLA to brief the staffs of several congressional defense committees on DLA's transformation efforts.
Because DLA works with 30,000 suppliers, it was important for congressional staff to understand the new program.
Additionally, the difficulties with the concept demonstration led to modifications to the rollout schedule.
Instead of rolling out a relatively large number of items to the new system, small and frequent rollouts were scheduled because the team had to make incremental modifications as problems were discovered.
The ability to convert back to the legacy system was mandated to minimize potential disruptions to support of DLA's customers.
Key Enablers
There were several key enablers at play to bring the evolution of the change program together:
• Commitment to the Business Case - It was important for all stakeholders involved in the implementation to understand the business case.
DLA assigned personnel to each category of the business case and held them accountable for results.
• Visible, Committed Executive Sponsorship - Success in any ERP/business transformation implementation is dependent on a visible and committed executive sponsorship.
The leadership must deliver constant and consistent messages to the workforce.
If leaders view these implementations as information technology (IT) projects, they will fail.
• Identification and Commitment of Subject Matter Experts - Another leadership challenge in such implementations is the commitment of adequate resources to ensure a successful implementation.
Leaders must balance implementation resources with those necessary to continue day-to-day operations.
This balancing act requires that the selected individuals step up to new responsibilities.
Furthermore, compensation for leaders must be based on performance incentives to ensure an ongoing push toward improvement.
• Adopt vs. Customise - One of the easiest mistakes in the implementation process is to modify the new IT system to such an extent that it is very similar to the legacy system.
Management discipline is required to prevent this from happening.
Some modifications undoubtedly will be necessary because each business is unique; however, the team first should establish numerical modification goals and implement a formal approval process involving top management to address any modifications beyond the numerical goals.
• Culture Change - Culture change usually is the most difficult challenge organisations face when implementing an ERP/business transformation program.
In DLA's case, the average age of the workforce was 48.
They had used the legacy systems their entire professional life.
Many resisted the change and hoped that new management would stop the implementation.
Change management
Change management training was conducted for those involved in the implementation, including members of the union.
Accenture-developed training measured progress toward the desired end state.
This change management exercise - and its attendant resources - is critical for a successful implementation.
The stresses associated with these implementations can cause difficulties within management.
Thus, it may be necessary to improve overall collaboration among senior management and improve management skill before or during the early stages of these implementations.
In DLA's case, the team hired executive coaches whose efforts focused first on team building among DLA executives to help identify and resolve barriers.
Second, they focused on improving senior executive management skills using Myers-Briggs tests and 360-degree evaluations.
After superiors, peers and subordinates provided management assessments for a senior executive, the executive coaches conducted lengthy one-on-one sessions with those executives to review the results.
The results were so compelling that the team extended the 360-degree evaluations to lower management.
• Training - The team developed new training courses modeled after college-level classes.
The basic course was categorized as a "101-level" course; subsequent courses were labeled 201, 301 and 401.
A "student" had to complete all four courses in order to operate the system.
Accenture also developed and implemented a "graduate-level" course.
• Governance Structure - The governance structure is vital in terms of affecting implementation and accountability.
For DLA, the head of transformation, who reports directly to the DLA director, was in charge of the governance structure.
This leadership decision was necessary to demonstrate that the implementation was not simply an "IT project".
The members of the governance organisation included people accountable for implementation; i.e. supply chain owners from field activities; CIO; CFO; heads of human resources and business operations; and Accenture personnel.
They were charged with solving implementation problems, approving rollouts and staying on budget and on schedule.
As issues arose, the governance organisation was tasked with solving them.
If there was disagreement on the solution, the DLA director decided the issue.
To ensure that a collaborative environment existed, the team established tenets describing how their meetings were to be conducted.
Among the tenets included on a card members kept in their wallets: "Discussions are to be held in a professional manner without shouting or intimidation" and "Once a decision was reached, everyone would support it".
The governing body met as necessary.
• Partnership Model - Accountability was a big factor in the success of DLA's implementation.
DLA had awarded Accenture a firm, fixed-price contract, with profit dependent upon achieving of a series of agreed-upon metrics, including the supply chain costs as a percentage of sales, availability of requested materiel and computer system availability.
This type of contract helps ensure accountability.
Results
The DLA ERP/business transformation implementation is the one of the most successful large-scale SAP implementation in the US Department of Defense.
Key improvements included:
• Reduced customer wait time
• Demand planning accuracy has improved, resulting in significant savings
• Computer system availability is more than 99 percent
• DLA will be able to pass a financial audit for the first time
• DLA has successfully retired its legacy systems
The approach taken at DLA and prioritisation given to different elements of the change program was, to a great extent, a function of the pre-existing capabilities and resultant business case.
For example, Procurement and Warehouse Management, whilst not leading edge, were stable capabilities that did not place significant limitation on the organisation.
By contrast, Demand and Supply Planning was identified as a key opportunity for DLA and a priority for investment.
In my opinion, ensuring that Australian Defence Force has the right foundation capabilities will be critical to the success of the SRP and provide the basis upon which to deliver accelerated savings in future.
Vice Admiral (Retired) Keith Lippert served as the 14th Director of the Defense Logistics Agency (DLA).
He served in this capacity from July 2001 to July 2006, the longest serving director in DLA's history.
During this time he led a significant transformation program that fundamentally improved the operations of the DLA.
He became chief strategy officer for the Accenture Defense group in October 2006.