Commercial Logistics Best Practices

by Larry Smith

What are commercial best practices and why does the Army need them to achieve the Revolution in Military Logistics (RML)? Methodologies and applications used in private industry that set a commercial enterprise above the competition are referred to as "commercial best practices." Best practices enable leading-edge organizations to deliver world-class standards of performance to their customers.

These best practices and standards of performance have generated a lot of interest within the Army logistics community, where we constantly are being asked to do more with less. The emergence of commercial best practices took place because of downsizing and a hunger for profitability, or doing more with less, so it stands to reason that there could be a great deal of benefit to Army implementation of these best practices.

The leveraging of commercial best business practices appears frequently in the literature and during presentations concerning the Army of the future, the RML, and the Army After Next (AAN). The RML, as a precursor and roadmap to the AAN, could be accelerated greatly by investigating and embracing many commercial logistics best practices. Integrated supply chain management, industry's changing view of logistics, electronic commerce, automated identification technology, direct vendor delivery, load optimization, outsourcing, and smart simple design are all examples of commercial best practices that could be very useful in helping the Army achieve the RML. This article will briefly discuss the emerging trends, capabilities, and best practices of commercial firms that perform the logistics function and move assets and information throughout the supply chain. The parallels with the RML and the Army's modernization of business practices and information technologies are striking.

Integrated Supply Chain Management

The Massachusetts Institute of Technology defines integrated supply chain management (ISCM) as a process-oriented, integrated approach to procuring, producing, and delivering products and services to customers. In this context, ISCM has a broad scope that includes suppliers, customers, and internal information funds flows. Thus, the scope of supply chain management includes the supplier's supplier and the customer's customer. In recent years, supply chain management software providers and consultants have emerged as multibillion-dollar businesses.

The information technology and software solutions offered by global vendors, many of whom have Fortune 500 client lists, offer the tools, visibility, and connectivity to facilitate supply chain management, integration, and optimization. Supply chain management solutions have been most successful when a holistic, end-to-end approach is taken and processes and information are integrated throughout the enterprise.

Implementation of software to manage the supply chain must integrate many different processes, including supply and demand planning, transportation and distribution management, and advanced planning and scheduling (for asset management or manufacturing operations). This approach can result in inventory reductions, increased on-time deliveries, reduced total product cycle (make-to-sell) time, increased revenues, and better customer service. Together, these factors can mean significant savings and an important gain in competitive advantage.

Communication throughout the supply chain is essential to synchronized, seamless business operations. Collaboration and integration of supply chain partners and their processes, both internally and externally, are produced by system-wide connectivity, near-real-time process monitoring, and dynamic planning and control. Leading-edge supply chain management tools use embedded optimization methodologies to assess optimal inventories and synchronized scheduling of inbound and outbound transportation and can be used to review distribution center locations.

Using models and optimization techniques in business process management has begun to expand recently and will grow rapidly in the future. One big trend is toward intensive quantitative management of supply and manufacturing chains. Just a few years ago, industries that saw tremendous gains by going from 60 percent on-time delivery to 80 percent now must work at 95 percent or higher just to be competitive. Industry leaders and big customers are demanding 99 percent accuracy and efficiency. Supply chain management tools are part of the operational processes used to achieve these high levels of performance.

Changing View of Logistics

Applying tailored, integrated, enterprise-wide business process management software suites when implementing supply chain management techniques is creating a growing revolution in corporate-wide logistics management. Many companies are promoting their logistics chiefs to executive vice presidents and senior vice presidents for logistics. Senior logisticians are being included as members of executive committees. This trend illustrates the institutionalization of the value of logistics to the bottom line. Likewise, using logistics metrics in the corporate suite for planning and policy decision-making also is increasing.

Not only is logistics being managed at the corporate level across one enterprise, but groupings of different business entities representing more than one enterprise now can assemble to form agile enterprises. Agile enterprises are networks of strategically aligned firms that replace individual companies as the unit of competition focused on specific market opportunities. Agile enterprises are made possible by exploiting global near real-time communications and electronic commerce technologies. Use of the Internet for corporate communication is growing at a phenomenal rate. It provides a means to move and retrieve information to and from virtually any site in the world. It allows a "virtual office" environment.

Electronic Commerce and the Internet

The uses of electronic technologies and applications have expanded to affect many aspects of logistics. U.S. companies have used electronic commerce to increase productivity by enabling rapid business transactions, data and information exchanges, business process reengineering, organizational changes, and process automation.

Through the ability to handle tremendous volumes of transactions and the ability to amass, analyze, and control large quantities of specialized data, organizations have improved efficiency and accuracy and reduced costs while providing faster, more reliable, more convenient services. These capabilities and the concomitant benefits will be enabled further by rapidly developing intelligent agent technologies that greatly enhance information filtering, search, retrieval, and off-line delivery. Electronic commerce and the sharing of information among entities and organizations facilitates vendor-managed inventories (VMI), paperless contracting, collaborative forecasting, and workflow management.

Through VMI, suppliers can control inventory and replenishment and manage forecasting for improved customer service and increased inventory rotations. With VMI, suppliers can generate more accurate forecasts, which can lead to better production scheduling and reduced operational costs.

Workflow management now can be improved by using growing numbers of commercial-off-the-shelf (COTS) transportation and distribution management products. These products use workflow management to automate and streamline supply chain business processes. Among these processes are automatic payments based on delivery, communications between supply chain partners, proactive alerts on out-of-tolerance activities, and in-transit consolidation monitoring.

Electronic catalogs post product information on the Internet. Many sites offer interactive capabilities such as on-line ordering. Internet purchasing and electronic catalogs are being used to streamline order cycle times, cut administrative costs, and speed product delivery to the customer. The ability to order supplies over the Internet can reduce cycle times drastically throughout the supply chain. This means that a low-cost, web-based, distributed procurement and resupply system can be delivered by standard web browsers.

Another use of the Internet is embedded web server technology. Embedded web technology provides a means for remote devices to share and publish data using standard web protocols. By incorporating a web server into any product (for example, automobiles, mobile phones, alarm systems, fax machines, and televisions), these devices can be accessed or controlled through the Internet from a standard web browser. These devices also can post status and sensor information on the web. Embedded web server technology will be used for such diverse applications as remote automobile diagnostics; interactive traffic signals; and remote monitoring of appliances, vending machines, and manufacturing equipment. This is an extremely broad area in which we will see tremendous applications and efficiency improvements in the coming decade.

Automatic Identification Technology

Automatic identification technology (AIT) includes bar codes, radio frequency (RF) tags, satellite tracking, "smart" cards, and laser cards. COTS satellite tracking provides real-time monitoring of transportation assets and customer products. Some examples of the capabilities of COTS satellite tracking solutions are—

· Vehicle-based data, such as driver performance, engine diagnostics, and reefer alarms, can be forwarded to fleet information systems. A number of parameters can be defined as critical. In the event that any of these values are exceeded, an alarm is generated and logged. If the alarm is severe enough, a speech alarm may be sent.

· Two-way communications can link every vehicle in a fleet to the dispatch center, providing vehicle location and real-time position reporting. Host-based data, such as new load assignments, can be transferred automatically to the truck.

Bar codes, the most widely used form of AIT, and the visibility they provide have enabled a great deal of the agility found in today's world-class manufacturers and retailers. The visibility of goods and assets in storage, in transit, and in process has resulted in reduced inventory levels and order and ship times and improved overall responsiveness to customers.

Direct Vendor Delivery

Direct vendor delivery (DVD) means that shipments are sent directly to the customer from the supplier, bypassing unnecessary storage points. DVD reduces inventory levels, order and ship time, and administrative lead time.

DVD is not cost effective for all shipments. An analysis must be performed to determine which shipments could benefit from DVD. Benefits occur only when non-value-added transportation movements, storage, and handling are eliminated.

Load Optimization

Load optimization software plans and optimizes loads for trucks and containers. Use of these tools has increased transport capacity and reduced logistics costs associated with container handling, tracking, and transportation equipment (trucks, railcars, and ships).

Outsourcing

The outsourcing of non-core competencies is a recognized best practice. The reasons for outsourcing logistics functions include lower costs, a streamlined labor force, access to top personnel, and cutting-edge technologies. According to the Outsourcing Institute, 85 percent of companies now outsource work they used to do in-house. Outsourcing expenditures are expected to reach $121 billion by the year 2000, according to the International Data Corporation.

The key reasons to outsource a function are cost and performance. Third-party logistics providers can leverage their core competencies to improve enterprise-wide performance. They provide significant economies of scale through their specialization. By partnering with world-class providers of logistics services, a company can improve its service levels, profitability, and response times dramatically.

Smart Simple Design

Smart simple design can be achieved by designing equipment with fewer, standardized parts, at reduced cost, with higher quality, faster manufacture and assembly cycle times, and better serviceability. The smart simple design initiative encompasses two processes. The first includes using Design for Manufacture and Assembly (DFMA™) methodology in the early stages of the design process to achieve significant benefits in cost and logistics. The second process involves assembling a design oversight and comparison process team to achieve parts reductions and standardization across different product lines.

DFMA software allows designers to analyze a product's total structure (how everything functions and fits together) to come up with a design that can be produced cost efficiently. The underlying principle is to simplify the structure—by reducing the number of parts, either by eliminating or combining them—to simplify the assembly process. Then, determine the best designs for each part to keep material, manufacturing, and total costs at a minimum. Design News Magazine reports that Ford Motor Company has trained thousands of engineers to use DFMA and estimates savings of $1 billion over a 3- to 4-year period.

The key to some of the best practices found in world-class organizations is an integrated information system with total, real-time asset and activity visibility. The technology and expertise currently exists to leverage best business practices into Army operations and execute the RML. Industry has found that, to have successful implementation of these best practices, which would have system-wide impact and/or result in extensive change, it must also have top leadership's commitment, support, and involvement. The Army After Next cannot be successfully supported with the resources and infrastructure that are expected to be available. We need best-in-class logistics practices. The Army must partner with world-class logistics providers when beneficial and become a world class provider itself by leveraging the best industry has to offer. The challenge is to determine where and when to pursue each of these industry-proven strategies.  ALOG

Larry Smith is Chief of the Concepts Development Division, Army Logistics Integration Agency, New Cumberland, Pennsylvania.