Improving spares campaign support. (Supply Support).

The genesis of spares and repair parts problems began in the early 1990s with aggressive inventory reductions deemed necessary to size inventories to match a post-Cold War national security environment and force reductions following the Persian Gulf War.

Logistics Transformation Through Supply Chain Integration

If we don't change the direction we are going, we will end up where we are going.

Chines Proverb 

The purpose of these articles is to present the basics of transformation and supply chain integration and discuss in some detail the Spares Campaign--how it came to be, its organization, and the initiatives.

Transformation refers to fundamental change in the way an organization achieves its purpose. It means change in the way we work, interact, participate, and even think about how we get things done. It means bringing new methods and technology to bear, as well as changing our processes. While the mission remains the same, the implementation steps that transform an organization are different and can be difficult as compared to the old ways. (1) Transformation means dramatic change in how we accomplish our logistics mission.

Supply chain management and integration of the supply chain are concepts that have been growing in importance. The commercial sector has embraced them. An integrated supply chain network offers the Air Force a path to logistics transformation. Like many ideas, it seems easy in concept, but realization is the hard part. Supply chain management is complex like the Air Force logistics system. And like any complex system, supply chain management has limited value if it is used in an ad hoc fashion. To employ a concept like supply chain management for transformational purposes, it must first be defined. There are many definitions, all having the same general components. For instance, commercially, a supply chain is: "An association of customers and suppliers who, working together yet in their own best interests, buy, convert, distribute, and sell goods and services among themselves, resulting in the creation of a specific product." (2) The Department of Defense has proposed a definition of supply chain management for the military environment:

... an integrated process that begins with planning the acquisition of customer-driven requirements for material and services and ends with the delivery of material to the operational customer, including the material returns segment of the process, and the flow of required information in both directions among suppliers, logistics managers, and customers. (3)

Regardless of the specific definition, there are standard features of supply chain management. Essentially, it comes down to integrating the activities of all members of the supply chain network to optimize their collective performance to minimize cost, as well as the time between order and delivery of a product. It is the coordination and consistency of activities among the members of the supply chain network that matter. Coordination and consistency require purposeful design and engineering of supply chain networks. Synchronization of all members' activities is key. "Synchronization includes matching the goals of the interdependent parts and linking their priorities with other parts of the organization. When conditions change, synchronization realigns the multiple priorities and reallocates resources." (4) Supply chain management--with its emphasis on product, process, customers, and synchronization of all parties' activities--can transform Air Force logistics, specifically, spares management.

The Air Force Spares Campaign was born of the need to change fundamentally the way the Air Force manages its spares and the parts used to repair them. For the support of fielded weapon systems and major end items, the Air Force relies on the repair of a large inventory of spares, sometimes called depot-level reparables. These spares are the lifeblood of keeping 'em flying. Over most of the 1990s, the Air Force saw its weapon systems' mission-capable (MC) rates drop to unacceptable levels (Figure 1). A significant reason for this drop was spares management process breakdowns. The Spares Campaign was the result of a concentrated effort to reshape spares and parts management to reverse the MC rate decline. What follows is a summary of the development of the campaign and a description of the initiatives selected to return spare parts, along with parts management, to acceptable levels.

The genesis of spares and repair parts problems began in the early 1990s with aggressive inventory reductions deemed necessary to size inventories to match a post-Cold War national security environment and force reductions following the Persian Gulf War. In short, the supply processes in place at the time were not designed for quick reaction to changes in inventory size. There was no efficient way, given the massive quantity of inventory stocks and capability of information systems, to determine which items and in what quantities should be disposed of, particularly in the timeframes demanded. These inventory reductions, coupled with significant personnel reductions--particularly in materiel management--and a mandated change in the management of most consumable repair parts further complicated the situation. Pressure to reduce inventories was unrelenting. However, to most experienced inventory managers and logisticians, absent the information systems and experienced personnel to quickly reduce the inventory ho ldings, these actions held a risk. Important weapon system items would likely be disposed of along with excess items. To cope with this pressure and risk, decisions were made to change the spares and repair parts computation formulas to lower the number of spares and repair parts computed as required by the supply inventory system. In this way, stocks could be drawn down at a fairly rapid rate and not be replaced, and very important weapon system items were less likely to be unwittingly discarded.

Virtually every supply inventory computation was changed. The outcome was achieved: inventory levels fell. Unfortunately, as with most complex systems, other things also changed. The level of operations increased, and weapon systems continued to age. Several years of budget constraints resulted in underfunding of the now truncated spares and repair parts inventory replacement requirements. The need to better understand the cost per flying hour resulted in a new spares requirement based on annual projected consumption of spares and repair parts by individual weapon systems. Money that had once been centrally controlled was budgeted by cost per flying hour and provided to the major commands (MAJCOM), which employ weapon systems, to buy spares and repair parts from the central logistics system. The processes used by the central logistics system for determining spares and repair parts needed to maintain and replace inventory in response to orders to reduce weapon system downtime became disconnected from the progr amming and budgeting process. So did the process for determining additive levels for readiness spares packages used by deployed units until supply lines were established.

A working capital fund was established in the early 1990s, which added additional complexity. The fund was expected to stay solvent by accurately forecasting sales several years in advance. The prices paid for the forecasted sales included the repair cost (a relatively stable variable cost), a full cost-recovery allocation for business operations, and the cost of replacement materiel (a relatively volatile fixed cost when allocated based on a long-range sales forecast). The MAJCOM units would replenish the fund with buys made in the year they needed the spares and repair parts. Given the changes in operations from the time the forecasts were made to the day the spares and repair parts were needed, rarely did sales forecasts match buys. Adding a full cost recovery for business operations and the cost of replacement materiel to the sales forecast created large price swings during the years units bought the items. This confounded the spares and repair parts financial processes. And it confused field units and th eir financial planning. Costs seemed out of control.

The collective impact of these changes created a situation where too few spares and repair parts were available to support Air Force weapon systems at appropriate mission-capability levels. This became clear in combat operations. The great achievements of the Air Force over the skies of Bosnia, and later Kosovo, were really made on the backs of the maintainers through longer hours and a practice called cannibalization (taking working parts from one weapon system to repair another). The supply system itself was in need of repair. By 1998, the Air Staff and Air Force Materiel Command (AFMC) recognized the underfunding of the spares and repair parts requirement and were able to gain increases. In 1999, a complete review of spares and repair parts processes was initiated, and by 2000, the need to fix spares and repair parts processes hit high gear. In February 2001, the Chief of Staff of the Air Force was briefed on launching a Spares Campaign to fix the process disconnects that had occurred over the previous 10 years.

The Chief of Staff gave his permission to conduct comprehensive planning to correct spares and repair parts deficiencies. Of considerable importance as well was capability to support the new operating style of the expeditionary air force (EAF). Cold War supply processes were not up to the light, lean, and lethal capabilities the EAF demanded. From 23 March to 18 June 2001, teams met to determine the best ways to improve the Air Force spares and repair parts posture. There were several key considerations. Spares and repair parts policies and processes must focus on maximizing mission capability given fiscal realities. Processes must be synchronized with those of suppliers, and all actions must result in a universal commitment of corporate Air Force solutions.

Five teams were established and organized based on processes needed to produce spares. They focused their attention on outcomes to improve mission capability and manage cost. The Programming and Financial Management Team looked at how spares budgets are determined, funding obtained, and cost managed. The Requirements Determination Team reviewed processes for identifying spares requirements. The Requirements Allocation, Execution, and Distribution Team analyzed the processes and policies involved in getting spares and repair parts to the depot repair lines and field. The Spares Command and Control Team studied management control of the spares processes. Given that suppliers outside the immediate control of the Air Force were playing an ever-increasing role, the Supplier Relationships Team explored options for improvement. The key roles suppliers have in the availability of spares and repair parts underscored the need for supply chain management and integration.

A planning management organization was put in place in early March 2001. The five teams had Air Force subject-matter experts, representation from industry and the Defense Logistics Agency, and consultants. More than 70 people ultimately participated on the teams, and a senior uniformed or Air Force civilian expert led each team. To ensure these Spares Campaign teams received full support, the Air Force Deputy Chief of Staff, Installations and Logistics assigned the Air Force Director of Supply full time to manage it. An experienced logistician (GS-15) and a uniformed officer were detailed to assist him in forming a small management team. With the assistance of RAND Corporation and KPMG Consulting, Spares Campaign planning proceeded. The Review (Red) Team was also used to provide an independent Look at the solutions and associated initiatives. It consisted of senior Air Force military and civilian logistics leaders and a retired Air Force general officer. The Deputy Director of Maintenance led the Red Team.

A concept of operations was developed to guide the work )f the five teams. Each team was to develop a high-level, strategic process map that depicted the way the team believed he area it 'was investigating should be managed to meet the objectives of improving its contribution to weapon systems availability (WSA) and cost management. In conjunction with these functional process maps, an overall spares management strategic process diagram was produced. Each team then identified disconnects or barriers to the processes functioning as desired. Once this was done, the next step was developing solutions to correct the deficiencies. Twelve major deficiencies were noted, and more than 190 corrective actions identified (Table 1). Through a reconciliation process among the teams (the Integration Team made up of the team leads and the Management Team) and Red Team review, a set of 20 initiatives resulted as solutions to the disconnects and barriers.

In mid-June 2001, the Spares Campaign planning results were briefed to the Deputy Chief of Staff, Installations and Logistics. On 13 July 2001, the MAJCOM Directors of Logistics (LG) were briefed via video-teleconference. At that time, the directors were asked to provide their comments and concurrence and to prioritize the 20 initiatives in the order they believed would provide the most impact for improving spares management and contribute to improved weapon systems availability and cost management. The LGs concurred with all the recommendations, with some minor clarification, and ranked the initiatives as shown in Table 2. Interestingly, the LG rank order had the same initiatives in the top six, each in a slightly different order, and all ranked as number one, Improve Depot Throughput. However, this initiative was deferred due to the creation of the Depot Maintenance Review Team (DMRT) in June 200 2001. (5)

Implementation of Spares Campaign Plan initiatives would take more than ad hoc study teams and a small management team. The Deputy Chief of Staff, Installations and Logistics sought permission from the Chief of Staff to temporarily assign a general officer to lead implementation. The Chief of Staff approved the request, and in late August 2001, the position of Special Assistant, Supply Chain Integration and Logistics Transformation was temporarily established. The Logistics Transformation Office, (6) which had been exploring transformational pathfinders, became the Spares Campaign Implementation Team, under the direction of the former Director of Supply.

The need to raise mission capability and weapon systems availability and understand costs better was urgent. Near-immediate impact from the Spares Campaign initiatives was required. Implementing all 20 initiatives would take time and many resources--something not readily available. To gain maximum advantage from the initiatives in the shortest time, a decision was made to focus implementation resources on a subset of the initiatives that would likely result in near-term improvements. As the Implementation Team was organizing itself, the 20 initiatives were closely reviewed to select the first set for implementation. The criteria for this selection were MAJCOM priorities, contribution of weapon systems availability and cost management, time to implement or achieve an initial operational capability, consideration of initiatives currently underway, contribution to spares process improvement and transformation, and the greatest impact and return to the Air Force as a whole.

By late August, the set of initiatives was identified (Table 3), and MAJCOM LGs were briefed on the selection of this smaller set of initiatives via telephone conference on 24 October 2001. They gave their concurrence, and these initiatives were then presented to the senior leadership of the Air Force by the Deputy Chief of Staff, Installations and Logistics on 31 October 2001 at the Corona Fall meeting. They endorsed the entire set of initiatives for implementation.

The first set of initiatives falls into three categories: command and control, financial management, and transformational. There are also information technology components to some of them. Good command and control requires a common operating picture. To take full advantage of demand and workload planning, best practices software systems, like advanced planning and scheduling, are needed. To better manage costs, activity-based cost management models are key. New capability to track execution of weapon systems spares support against an approved plan and budget is required. Such a tool would allow monitoring of the performance of the supply chain, identifying constraints and potential tradeoffs for resolution. The RAND Corporation took on the task of creating such a tool.

Any of these initiatives taken individually would result in some incremental improvement. However, taken together, they begin to provide a significant contribution to improving weapon systems availability and cost management. Implementation, however, is paramount.

The key to any implementation in an organization is to transfer the actual doing of the new processes as quickly as possible to those responsible for the work in order to get the expected outcomes. In other words, ownership and accountability must move to the process owners for oversight of the implementation and action as quickly as possible. The implementation structure for the Spares Campaign was developed to facilitate transfer of ownership and implementation responsibility to process owners.

The Spares Campaign implementation is a top-down-directed activity. Each initiative has an Air Staff team leader, and a project manager from the Spares Campaign Implementation Team supports the team leader. The project manager's role is to help the team leader keep the implementation project schedule up to date and the initiative on schedule.

The team leader is responsible and accountable for bringing together the subordinate activities to work the details of implementation. Many of the implementation actions fall to AFMC. For this reason, the AFMC Directors of Logistics, Financial Management, and Contacting are actively engaged in detailed implementation actions.

Implementation has begun. The air logistics centers (ALC), where much of supply chain management occurs, have a vital role. Purchasing and supply chain management (P5CM) best practice implementations are underway at each of the three air logistics centers, and an APS demonstration is underway at Oklahoma City ALC. The common operating picture's initial operating capability is fielded to the KC-135, F-15, and F-16 supply chain managers. The initial map and performance metrics of the Fl00 engine supply chain, using the Supply Chain Operational Reference model, has been produced.

The need for supply chain thinking and integration became clear early in the Spares Campaign planning. The importance of commercial suppliers must be explicitly recognized in the Air Force supply chain. This extended enterprise is essential to the success of the air and space expeditionary force. Synchronizing activities and managing materiel, information, funds, and knowledge flows among members of the supply chain network lead to optimization--the ability to get the best mission capability possible, given fiscal realities. This optimization will maximize mission capability, minimize costs, and reduce inventory "locked up in the logistics pipeline." (7)

Also, in the course of the planning phase of the Spares Campaign, the need to differentiate among customers became clear. In general, the customers of the spares processes are the warfighter's weapon systems and related major assemblies. These customers fall into three customer lines of business--the flight line, programmed depot maintenance and overhaul line, and component repair line. Each of these customer lines has distinguishing characteristics, and the supply chains that support them must recognize them. One size fits all does not serve these lines of business well. (8)

The Spares Campaign embeds the supply chain integration and customer-centric thinking in the initiatives currently being implemented. Bringing supply chain integration to reality will transform Air Force supply management.

General Mansfield is Special Assistant for Supply Chain Integration and Logistics Transformation, Air Force Deputy Chief of Staff Installations and Logistics.

FIGURE 1

MC Rates

ANNUAL MC RATES

                             Air Force
                              Reserve
                            Command/Air
    All Air Force  Active  National Guard

91      83.4        86.1        78.1
92      82.7        86.8        76
93      80.8        83.1        76.5
94      79.3        83.2        73.5
95      78.7        82.9        72.7
96      78.5        82.5        72.6
97      76.6        80.5        70.7
98      74.3        77.4        69.8
99      73.5        76.5        69.1
00      72.9        76.2        67.9
01      72.9        76.8        67.1

Note: Table made from line graph

ANNUAL NMCM RATES

                            Air Force
                             Reserve
                           Command/Air
                            National
    All Air Force  Active     Guard

91       8          7.1        9.8
92       7.8        6         10.7
93       9          7.9       11.1
94      10.4        8         13.9
95      10.5        8.4       13.5
96      10.5        8.5       13.4
97      10.8        9.3       13.3
98      11.8       10.6       13.4
99      12.5       11.3       14.2
00      12.8       11.4       15.1
01      13.2       11.4       15.8

Note: Table made from line graph

ANNUAL TNMCS RATES

                             Air Force
                              Reserve
                            Command/Air
    All Air Force  Active  National Guard

91       8.6        6.8         12.1
92       9.5        7.2         13.3
93      10.2        9           12.4
94      10.3        8.8         12.6
95      10.8        8.7         13.8
96      11          9           14
97      12.6        10.2        16
98      13.9        12          16.8
99      14          12.2        16.7
00      14.3        12.4        17
01      13.9        11.8        17.1

Note: Table made from line graph

ANNUAL CANNS

                             Air Force
                              Reserve
                            Command/Air
    All Air Force  Active  National Guard

95       7.8         9.6        4.5
96      10.6        13.1        6.0
97      12.7        15.7        7.2
98      12.4        15.0        7.8
99      12.3        15.1        7.2
00      11.6        14.3        6.8
01      11.7        14.1        7.2

Note: Table made from line graph

Table 1

Supply Process Disconnects

Major Problem Area                Disconnects

Nonresponsive execution proces  * No process to allocate and execute
                                  limited funds to maximize weapon
                                  system goals.
                                * Lack of a process to manage and reduce
                                  demands.
                                * No corporate process for identifying,
                                  resolving, and preventing constraints
                                  on depot repair.

Disconnected requirements,      * Total spares requirement not computed
determination, and financial      and considered in planning,
processes                         programming, and budgeting (PPBS)
                                  deliberations.
                                * No ability to identify the effects
                                  of limited funding on WSA, perform
                                  weapon system tradeoffs, or provide
                                  corporate view of overall impacts.
                                * Operations and Maintenance, Supply
                                  Maintenance Activity Group, Depot
                                  Maintenance Activity Group, and
                                  PPBS processes proceed independently.

Disjointed command and control  * Lack of authority and accountability
                                  to balance supply chain priorities.

Underdeveloped supplier         * Suppliers and supply base not
relationships                     strategically viewed or managed for
                                  effective and efficient cradle-to
                                  -grave weapon system support.

Ineffective enablers            * Lack of proper metrics drives
                                  suboptimized behavior in supply
                                  chain.
                                * Lack of training and education for
                                  supply chain management inhibits
                                  system performance.
                                * Lack of common operating view and data
                                  inaccuracies in automated systems
                                  limit capability to manage
                                  the supply chain.
                                * Lack of an accepted definition of core
                                  supply functions may result in
                                  misalignment of functions between Air
                                  Force and private sector.

Table 2

Spares Management Initiatives

 Raw   Priority  Solution
Score

  35      1      Improve depot-level
                 repair (DLR) throughout

  37      2      Centrally prioritize
                 spares and funds
                 allocation

  58      3      Restructure PPBS spares
                 determination process

  62      4      Improve item demand and
                 repair workload

  77      5      Develop alternative
                 stockage policies to
                 support EAF

  78      6      Ensure a competent and
                 skilled workforce

  85      7      Implement multipart
                 pricing for DLRs

  88      8      Track execution versus
                 plan adjust and
                 feedback to PPBS

  88      9      Create common operation
                 view and improve data

  90     10      Designate a single
                 authority for spares
                 management

 101     11      Implement integrated
                 supply chain management

 102     12      Develop process to manage
                 and reduce demands

 105     13      Align supply chain
                 managers' roles with a
                 WSA/MCS focus

 108     14      Improve and restructure
                 working capital fund

 116     15      Develop appropriate
                 metrics

 118     16      Actively manage suppliers
                 and supply base

 120     17      Enable single logistics
                 proponent

 124     18      Expand regional supply
                 squadron
                 responsibilities

 131     19      Adopt purchasing and
                 supply management

 150     20      Develop an e-business
                 strategy

Table 3

Spares Management Initiatives Subset

Solutions

Purchasing and supply chain         Adopt PSCM best practices in
management                          working with Air Force supplies

Demand and repair workload          Improve demand forecasts; enhance
forecasting                         workload planning

Virtual inventory control point     Centralize buy-and-repair
                                    priorities to meet mission
                                    capability

Weapon system supply chain manager  Focus supply chain manger on
                                    meeting weapon-system MC goals

Regional supply squadrons           Extend centralized supply Air
                                    Force wide and expand
                                    responsibilities.

DLR pricing structure               Set stable price and manage costs

Sparers forecast                    Forecast and budget spares
                                    requirements (integrated models)

Financial management                Track execution of weapon system
                                    support to approved plan and budget

Notes

(1.) Joyce Wycoff, Transformation Thinking, New York: Berkley Books, 1995, 3.

(2.) National Research Council, Surviving Supply Chain integration, washington DC: National Academy Press, 22.

(3.) Logistics Management Institute, DoD Supply Chain Management implementation Guide, Logistics Management Institute, McLean, Virginia, 14.

(4.) Larry Bossidy and Ram Charan, Execution: The Discipline of Getting Things Done, New York: Crown Business, 2002, 234.

(5.) The DMRT reviewed deport maintenance processes and organization from June to November 2001, which resulted in initiatives in eight focus areas: workload and Production, Financial, Workforce, Materiel Support, Infrastructure, Organizational Structure, Information Technology, and Metrics. Materiel Support borrowed heavily from the Spares Campaign work, Two additional Spares Campaign initiatives were added, Improve Air Force Materiel Support Policies and Improve Stock Level Process, to fully implement the DMRT Materiel Support action items as part of the Spares Campaign.

(6.) The Logistics Transformation Office was established in March 1999. Its purpose was to develop transformation initiatives to fundamentally reshape Air Force logistics. Many of the pathfinder initiatives underway at the time of the Spares Campaign planning were spares related and showed great promise. These were reviewed by the Spares Campaign planning teams, and some were incorporated. Given this, changing the focus of the pathfinders to implementation and using the team personnel was logical.

(7.) Martin Christopher, Logistics and Supply Chain Management, [2.sup.d] ed, London: Financial Times/Prentice Hall, 1998, 217.

(8.) Charles Fine of the MIT Sloan School of Management expresses this well in his book Clock Speed. He makes two very important points (among many) related to supporting customers and supply chain management. His notion of clock speed--that products, process, and organizations operate at different speeds--is very germane. These speeds are influenced by technology and the characteristics of customers and their expectations. Second, Fine discusses the integration of supply chain thinking and design as a core competency. The design and engineering of supply chain networks should be considered as a future core competency of Air Force supply chain managers.

General Mansfield is Special Assistant for Supply Chain Integration and Logistics Transformation, Air Force Deputy Chief of Staff, Installatios and Logistics.