The fourth "R": Navy ERP.

In the April 2003 issue of "Proceedings," retired RADM Andrew A Giordano, a former Chief of the U. S. Navy Supply Corps, wrote:

"Historically, military logisticians have struggled to provide support to war fighters in accordance with the time-honored formula of the "3Rs "-the Right material, to the Right place, at the Right time. What was and continues to be missing is the fourth "R": in the Right way."

The purpose of the U.S Navy's "Navy ERP" (Enterprise Resource Planning) program is to create that fourth "R," as a means to ensure the first three.

To fully understand how Navy ERP will do that, it is important to understand the fundamental limitation of current logistics systems. The ostensible goal of any logistics system, or supply chain, to use the more modern term, is to get the user what they need, when they need it and account for it properly. But most traditional supply chains are not designed around that goal, but rather around bureaucratic considerations, and they are further constrained by legacy information systems that are not integrated.

By their nature, traditional supply chains are "stovepiped" by the various functional organizations in the chain. Each function in the supply chain operates as a separate entity, with its own data, its own rules and its own system of checks and balances. Just to illustrate, let's break down the traditional supply chain down into four really basic functions. Of course, every supply chain is more complicated than this, but the same principles apply.

The Basic Traditional Supply Chain

First, every supply chain has a function, whatever it may he called, that takes the order for an item from an end user. Let's call it "order entry" for this example. Order entry is the main interface with the end user and often the sole contact that represents the whole supply chain to the end user. But order entry's scope is limited to processing the order. The information that order entry maintains is only about those orders and the rules for processing those orders. If the end user wants to know about availability of the item, transportation and delivery of the item or alternatives possible if the item is not available, order entry typically cannot help them. Order entry merely takes the order, makes sure it fits the rules and then passes it on. In passing the order on, order entry is effectively relieved of responsibility for the order and further responsibility to the end user. Whether or not the end user actually gets the item ordered, gets it in time, or is satisfied with it, is not order entry's problem.

Second, there is budget and finance. Before this order can be filled, budget and finance makes the order "run the gauntlet." Does the ordering unit have the working capital to pay for the item? Are all the accounting codes properly assigned'? Does the order have the right approvals? If the answer is no, it is not budget and finance's function to sort the problem out. They just send the order back or delay it until they get what they need. Again. whether or not the end user actually gets the item ordered, gets it in time, or is satisfied with it, is not their problem.

Third in the traditional supply chain is some function that determines where to get an item. They ask questions like: Do we have it in inventory? Can we make it? Do we have to buy it? Let's call this function "sourcing." The goal of most sourcing operations is to achieve economies of scale and procuring masses of items as cost effectively as possible. Their primary goal is not to satisfy the end user, with whom they never see or talk. Their goal is to satisfy cost accountants. Yet again, whether or not the end user actually gets the item ordered, gets it in time, or is satisfied with it, is not their problem.

Fourth in our oversimplified supply chain, there is a function we will call "transportation." Transportation in the traditional supply chain is also worried about the accountants, but from a different angle: Their goal is to move the maximum amount of items at the minimum cost. Yet again, if the item delivered is not the right item or the customer is not satisfied with it that is not their problem.

You may be wondering at this point, "Who in this supply chain is actually worried about making sure the end user gets the 'Right material, to the Right place, at the Right time?'" Sadly, in the typical supply chain, most end users are wondering about that also. The answer should be, and the supply chain experts reading this will be way ahead of me, is that the function that should care about the four R's is called supply chain planning.

Unfortunately, most traditional supply chains don't even have a viable planning function and those that do are typically charged with high-level financial measures, not the four R's or the satisfaction of the end users. So the real answer is that in a non-integrated supply chain, those "three R's" are no one's job. In private business, this kind of supply chain inefficiency and ineffectiveness is simply unprofitable. In the Navy, where the end user is the warfighter, it can be tragic.

A Basic ERP Supply Chain

Most ERP experts agree that "Enterprise Resource Planning" is probably not as descriptive of a term as it should be. What it really means is planning and managing those four R's on which RADM Giordano wrote. An ERP is a system of end-to-end-integrated business processes that simultaneously manage the whole supply chain in the "Right way" to get the "Right material, to the Right place, at the Right time," and account for it properly, without the accounting function slowing the process down.

Replacing the four functions (or five, if you count planning) in the traditional supply chain are three basic end-to-end processes and a fourth process that integrates the first three. Again, this is a bare-bones, oversimplified illustration.

#1 Order-to-Cash: This process and the people who are assigned to it are concerned with all aspects of getting the right order to the end user at the right time, including customer service, finance, sourcing and transportation. Order-to-cash has access to all the real-time information required to make that happen. All that information is accurate, up-to-date and real-time. More importantly, order-to-cash has end user satisfaction as their main mission, all the time. Any constraints of finance, sourcing and transportation are already loaded and available in order-to-cash's information system by the next two processes.

#2 Plan-to-Production: "Production" here includes manufacturing, sourcing, inventory and anything else required to ensure that Order-to-Cash has access to the items users will need when they need it. The mission of this process is not only to set up and plan for all sourcing, but just as importantly, to ensure that the system order-to-cash uses has all production information and constraints up-to-date at all times.

#3 Procurement-to-Payment: This process ensures that all items procured and all associated costs, including transportation, are paid for correctly and promptly. The mission of this process is not only to set up, plan and execute all payments, but just as importantly, to ensure that the system order-to-cash uses has all the financial information and constraints it needs, up-to-date at all times.

#4 Integration: The Integration process ensures that the other three processes work together smoothly. Integration also sets up and enforces standards regarding the information systems and databases used for the overall ERP process.

So, in contrast to the traditional supply chain, when an ERP supply chain's order-to-cash process takes an order, they have access to real-time information about funding, sourcing and availability and transportation. They can tell the end user if they can get the item, when they can get it, and where it's coming from. Then they can track the whole process from beginning to end. If the end user is not satisfied, they can immediately process the return, and get the process rolling right away to get the customer the right item. Also, since ERP is an integrated system, all functions in the system work from the same data: the same item numbers, the same cost codes, the same sourcing data and the same shipping data. There are no errors caused by typos, duplicate records, or incorrect or inaccurate data. Finally, all financial information is posted and reported with a system that is compliant with mandated accounting standards, but doesn't slow down the delivery system.

Navy ERP

The Navy ERP Program is one of the explicit parts of the "Sea Enterprise" section of the Secretary of the Navy's Naval Power 21 vision statement. It will provide an end-to-end business management system that transforms and standardizes Navy business processes for acquisition, financial, maintenance, and supply chain operations into a single system.

Integration of these processes will: streamline the organizational infrastructure; maximize synergy in business functions; provide rapid, accurate response to the warfighter; harvest efficiencies available through technology insertion; and recapitalize infrastructure cost to procure and sustain flexible and effective weapons to meet the new war-fighting environments.

The program is supported by SAP, a major commercial ERP software suite that is being used by over 12,000 businesses worldwide and is also being used elsewhere in the Department of Defense.

Navy ERP is not a new or embryonic program. It has been in operation since 1998 and four pilot projects are now live, limited-scope production systems, involving 35,000 Navy personnel. Recently, the program received authorization from the Department of Defense to begin integrating the four pilots as a precursor to deploying it to over 80,000 Navy users.

These pilot programs have already proven key concepts of the program. Let's take a brief look at each one:

* The "Project Cabrillo" pilot has been live since in July 2001. It is led by the Space and Naval Warfare Systems Command System Center in San Diego and is focused on management of the center.

* The NEMAIS (Navy Enterprise Maintenance Automated Information System) pilot has been live since June 2002. It is led by the Navy Sea Systems Command and Fleet Forces Command. Its focus is regional maintenance including intermediate level ship maintenance management and project planning.

* The "Sigma" pilot has been live since in October 2002. It is led by Naval Air Systems Command and is focused on program management, including the linkage of contracting and finance.

* The SMART (Supply Maintenance Aviation Re-engineering Team) pilot has been live since in January 2003. It is led by Naval Supply Systems Command and Naval Air Systems Command, and is focused on national and local supply management and aviation intermediate-level maintenance management.

Accomplishments/Concepts Proven by the pilots:

* 50 percent reduction in annual cost of business systems support

* Cut simplified acquisition requisition-to-order process time from 44 days to 44 minutes for e-catalog procurements

* Reduced average total repair time by 16 percent

* Elimination of job rejection notification delay from 20 days to immediate

* 66 percent improvement in financial statement processing time

* ECP (Equipment Change Proposal) approval time decreased From 87 days to 25 days

* One million plus inventory transactions handled with less than one-half percent error rate

* Reduced warehouse refusal rate from 3.5 percent to 0.5 percent

The Look Ahead

While the results of these programs are very encouraging, the real work, and the real benefits are ahead: The pilots proved the concept, but pilots cannot fully integrate the Navy supply chain. Only when these pilots are harmonized into one ERP system and that system is rolled out to the entire Navy ashore, can the service realize the full benefits of ERR Through Navy ERR the service is well on its way to meet the vision of Naval Power 21 and to ensure that the future warfighter has all four "R's": The Right material, to the Right place, at the Right time, in the Right way.