Debate over logistics reform intensifies: DLA director says merger with Transportation Command would be a mistake.

A merger of the Defense Logistics Agency and the U.S. Transportation Command is not the answer to current shortcomings in the military supply-distribution system, said DLA Director Vice Adm. Keith W. Lippert.

The Pentagon has been reviewing a proposal to consolidate both organizations under a single "Logistics Command." The Transportation Command strongly supports a merger, claiming that it would bridge vexing gaps in the military logistics bureaucracy.

"I disagree with TransCom on this," Lippert told National Defense. Combining the Transportation Command's workforce of 150,000 with DLA's 22,000 employees would result in a "huge organization that in many cases may be unmanageable," Lippert said. "I would much rather work on improving the process together than doing a reorganization."

TransCom is a unified combatant command reporting directly to the secretary of defense, while DLA is overseen by the deputy undersecretary of defense for logistics and materiel readiness.

The distribution system in which these two organizations interact is very complex, mostly oriented to moving ammunition, fuel, construction material, engines and other commodities/supplies, each with unique supply chain characteristics.

TransCom officials have complained that the distribution process is too fragmented, with seams, bottlenecks, lack of synchronization, multiple processes and non-interoperable information systems. They have expressed frustration that efforts to make transportation more efficient are hindered by "stovepipes" in the distribution process.

In presentations and speeches in recent months, Air Force Gen. John Handy, the head of the Transportation Command, has argued that the commercial world has moved from a supply-based logistics system with "just-in-case" inventory levels, to a transportation-based "just-intime" logistics system, with leaner inventories and a reliance on fast transportation. TransCom's position is that, if the Defense Department is serious about efficiency, the management of the supply chain must be in the hands of a single organization, with clear lines of authority and unity of command.

To bolster its case, TransCom also raised several problem areas that it claims a merger with DLA would help solve. The Defense Department, for example, is nor able to gauge the true cost of logistics, because the responsibilities are fragmented.

Further, the Pentagon's goals of having "total asset visibility" over every item it ships around the world will be hard to achieve unless one organization owns the entire supply chain, TransCom argues. As one official put it, the current system "optimizes segments but sub-optimizes the total supply chain."

Lippert does not disagree with TransCom's overall assessment of the situation, but contends that the most prudent course of action is for TransCom and DLA to work together to fix these problems, instead of outright merging.

Transportation, he said, is only one portion of the supply chain. "It doesn't make a lot of sense to have a small piece of the supply chain managing the supply chain."

Lippert cited a two-year-old project, called "strategic distribution initiative," created specifically to deal with the inefficient logistics practices that TransCom officials have complained about.

The strategic distribution initiative, he said, has led to useful reforms, such as the reallocation of supplies among DLA's 22 depots. "The Defense Department has not been very sophisticated in optimally positioning material," he said. "We have to rely on expensive transportation to get the materials to the customer on time." In recent months, he said, DLA has repositioned stocks so that they could be transported to customers by truck, rather than by expensive airlift. DLA gradually has moved more supplies "forward" to locations in Europe, the Pacific theater and the Persian Gulf.

The Pentagon has yet to take a clear stance on whether it supports a DLA-TransCom merger. The assistant deputy undersecretary of defense for supply chain integration, Alan Estevez, told National Defense that the Pentagon was evaluating options. (National Defense, May 2003)

Outside experts speculate that a merger is unlikely. In the early days of the Bush administration, Pentagon officials may have believed that, given the prevailing practices in the private sector, the transportation and distribution functions at the Defense Department could be combined relatively smoothly.

But that thinking was naive said James T. Eccleston, former assistant deputy undersecretary of defense for supply-chain integration. In the commercial sector, he said, "they often look at distribution and transportation together.... A lot of the decisions on distribution are based on optimizing your transportation."

In the Defense Department, however, "transportation is viewed as a separate function from distribution," Eccleston explained. Meanwhile, "there is enough evidence in industry that there should be synergy between the two."

The friction between DLA and Transportation Command is understandable, in the context of a Pentagon culture that does not "optimize decisions across the entire supply chain," Eccleston said. Handy makes a legitimate argument when he says that if TransCom is responsible for worldwide transportation, it should have influence on distribution. "But that doesn't always mean you have to own the distribution function. ... Merging does not have to be physical. You can collaborate."

A more feasible alternative is to use "enterprise" software that allows companies to coordinate the movement and distribution of supplies more efficiently, said Eccleston. "Rather than muck around on who owns what part, maybe they should just do collaboration--use the tools available in the market to help do the collaboration and, more importantly, the optimization."

Technology also could help the Defense Department achieve "total asset visibility." So far, that goal has been achieved only partially. "There are still holes," said Lippert, "It's not 100 percent."

DLA has improved the visibility of supplies by equipping containers and vans with radio-frequency tags. Cargo can only be tracked, however, when it's traveling in RF-tag equipped vans and containers that travel on ships, trains or airplanes. When shipments are offloaded from those platforms with RF tags and moved to other forms of transportation, DLA is unable to track them.

Partial visibility is not good enough, said Eccleston. "If you lose visibility after a shipment gets off an airplane and on a truck, the [partial visibility you had] doesn't do much good. You need all of it. ... You have to develop your enterprise system to give you total end-to-end visibility."

One technology that shows promise in this arena is satellite-based tracking systems, Eccleston said. The Defense Department deployed force-tracking and vehicle-tracking satellite systems in Iraq. "That gives you connectivity worldwide," Eccleston said. RF rags are useful, but limited by frequency availability and fluctuation, he said. Frequencies, for example, often change from country to country "With satellite technology, once you have a tag, you always have connectivity."

For its part, DLA is spending considerable money and time modernizing its computer systems. Lippert said that, despite significant snags, the so-called Business Systems Modernization program is beginning to show promising results. The BSM was designed to replace 30-year old computer systems that nor only have a tough time keeping up with DLA's voluminous workload but also are incompatible with other Defense Department networks.

Lippert estimates that BSM will cost about $500 million, although outside experts predict it will run close to $800 million. Contractors in this project include Accenture, Manugistics and SAP.

Lippert said that programs such as BSM can be expected to run into roadblocks, especially when the technical specifications are as demanding as DLA's. "There is no commercial software that can manage, that can award 4,000 contracts a day. We manage 4.6 million items and receive 30,000 requests for material a day. ... It rakes a big system to operate all that."

He expects the new system to be in place by 2006. So far, only 170,000 of the 4.6 million items run on BSM. "With the new system, we will pass a financial audit for the first time in DLA's history," Lippert said.

To improve asset visibility, DLA will develop another new computer system, called DPMS, for Distribution Planning Management System.

A contractor has yet to be selected for DPMS. Among the competitors are Accenture IBM and Computer Sciences Corp.

Eccleston said that programs such as BSM and DPMS underscore the struggles that typically plague big government computer programs. The trouble is compounded by the frequent changes in leadership over the life of a program.

The BSM program, he said, marks the first time that the government is trying to implement an enterprise resource planning system. ERP technologies are widely used in the private sector.

Industry observers are skeptical that BSM will be completed by 2006, largely because the agency's top leadership will be turning over within the next one to two years. That is likely to create delays, said Eccleston. "One thing I've learned in the private sector is that if you can't get things implemented quickly, and you are in an environment where the leadership changes every few years, the change in management becomes a very big driver."

In the government, he noted, program officials tend to justify schedule slips and cost overruns by claiming the requirements are "unique and complex," he said. "In the private sector, we would fire people if they said that."

RELATED ARTICLE: Military Logistics Chief Shoring Up Supply Lines

The Defense Department plans to build a new supply depot in Bahrain within the next six months to a year. The intent is to improve the availability of spare parts and other essential military supplies in the Middle East.

A well-stocked logistics supply facility is needed in the Persian Gulf, where the U.S. military is likely to remain deployed in the foreseeable future, said Navy Vice Adm. Keith W. Lippert, director of the Defense Logistics Agency, in Fort Belvoir, Va.

"There is a request that we have a more permanent presence over there, in terms of a forward distribution depot," Lippert said in an interview. "I'm pretty much convinced we need to put the distribution depot in Bahrain."

The warehouse would stock at least 11,000 different types of spare parts and supplies. Even though DLA still is fine-tuning the details, said Lippert, the consensus is that the front-line units need "faster response" so they can more quickly obtain spare parts.

DLA has not yet decided whether the depot will be managed by government employees or out-sourced to a contractor. "We are looking at different options," he said.

Lippert recently visited several Army, Marine Corps and Navy units stationed in Kuwait and Bahrain to learn about their logistics support demands and figure out what DLA must do to help "sustain" the forces in what is likely to be an extended post-war rebuilding phase in Iraq.

While the Pentagon prides itself of its logistics skills in preparation for a war and during the war, when it comes to sustainment Lippert acknowledged, the U.S. track record has been spotty.

"Sustainment is always the most difficult" said Lippert. "when we get ready to go [to war], we usually know what we need, based upon historical trends and past experience." Sustainment is harder to execute, because "you usually don't know how long you are going to be there."

Despite numerous media reports and anecdotal evidence of the scant availability of military spare parts in Iraq, Lippert insisted that these were "isolated instances" and not symptoms of a systemic Crisis.

While visiting units in the field, he said, "I asked repeatedly about spare parts shortages." The response he got from senior commanders was that "across the board, the readiness has really been pretty good."

A military logistics expert who worked at the Pentagon for nearly two decades said that building a new depot in Bahrain surely will help give the troops better support but also underscores how difficult it remains for the Defense Department to adequately sustain forces deployed in foreign countries. It also poses a dilemma for the Pentagon: Can forces be "expeditionary" and still receive sufficient logistics support?

"Once you start building physical storage space, that goes counter to the expeditionary force concept," said James T. Eccleston, former assistant deputy undersecretary of defense for supply-chain integration. "If you start pre-positioning stuff, you are tying up inventory. If you guess wrong it becomes very costly."

Early planning provided a huge advantage in DLA's preparation for Operation Iraqi Freedom. The massive movement of equipment and supplies might not have been completed on time to begin the war in March if DLA had not been clued in on the war plans last summer.

The deputy undersecretary of defense for logistics and materiel readiness, Diane K. Morales, met with DLA officials in July and "told us to start planning for a potential conflict with Iraq," Lippert said. "We needed to develop our requirements and budgets accordingly."

To more accurately estimate the needed supplies, Lippert asked Morales for a breakdown of the forces that would be participating in the conflict. "About a week later she gave us a force structure that was not exactly what we used in Iraq, but wasn't that much different either."

By August, DLA estimated it needed a billion dollars to buy food rations, chemical-biological protective suits, tents, cots, spare parts and fuel. "We ended up spending $924 million before the war started," Lippert said. About $500 million in contracts already had been awarded by September. "Because we had that lead time, we had a very robust supply line. It made a big difference."

Unlike other government agencies, DLA does not receive appropriated funds but draws money from a "working capital fund," a revolving account to which the military services must transfer money every time they place an order for supplies from DLA.

When war preparations got under way in July, the Pentagon controller approved the transfer of a billion dollars to DLA for the extra supplies. A billion dollars represents only a small percentage of DLA's projected $24 billion in sales this year--a significant jump from $17 billion just two years ago.

"As long as sales are strong we have a lot of financial flexibility," said Lippert Approximately 30,000 requisitions a day flow into DLA's working capital fund.

Meanwhile, a prolonged military deployment for the rebuilding phase of the Iraq conflict is creating new challenges for DLA.

In May and June, for example, the agency already was awarding contracts for winter clothing in anticipation of future demand.

"I'm sure we'll be in Iraq and Kuwait during the winter months," said Lippert.

For the time being DLA is working to fill a rush of urgent requests in recent months for cooling equipment for heat-exhausted troops in Iraq. The Defense Supply Center in Philadelphia has been shipping hundreds of small portable cooling devices that soldiers can set up in their tents. The most popular ones are Port-A-Cool evaporative coolers. These units have a large fan that cools the hot air via a water-cooled filter. Requests for larger air-conditioning systems are handled by an Air Force supply depot, the Warner Robins logistics center, in Georgia.