The New Zealand Defence Force--how does it stack up?
The U.S. Army is experiencing similar logistics support challenges, although on a larger scale. Supporting the Future Force will require a major change in the way logistics is delivered to the soldier. Transformation of U.S. Army logistics began 5 years ago with the "Revolution in Military Logistics (RML)," which provided a clear vision of the logistics changes required. Perhaps coincidentally, many of the core concepts of the RML parallel the logistics changes that have been implemented by the NZDF. How do the NZDF's logistics initiatives compare with those of the U.S. Army?
How Has NZDF Logistics Changed?
In an attempt to find ways to enhance efficiency and effectiveness, the NZDF began an initiative called "Rationalization Reviews" in 1995. Policy guidance for the reviews covered a range of areas, including support functions and services. The objectives of those reviews were to--
* Retain core military activities.
* Achieve an appropriate balance of resources between the NZDF's "tooth" and "tail."
* Identify service agency (Army, Navy, and Air Force) options for conducting core activities.
* Identify options for turning noncore activities over to civilian employees or contractors.
As a result of the Rationalization Reviews, the NZDF logistics organization has made significant changes. Perhaps the biggest change has been the progressive outsourcing of noncore logistics functions.
The U.S. Army began outsourcing logistics support during the Revolutionary War (1775-1783). The Civil War (1861-1865) increased the use of contract logistics to supplement the armies' transportation and subsistence capabilities. This practice continued into the present, with Operations Desert Storm and Iraqi Freedom providing the most recent examples of extensive outsourcing for logistics support. Contractors are now an integral part of the wider Department of Defense workforce that delivers combat support to the U.S. Army on the battlefield.
Outsourcing is a term that is frequently used but often misunderstood. Before looking at the NZDF activities that have been outsourced, it is important to define the term. The Business Executives for National Security organization defines outsourcing as "contracting out for certain services and support formerly accomplished with internal resources." Outsourced providers often are referred to as contractors or third parties. When outsourced work is subcontracted, the outsourcing business still provides oversight and adds value to the customer's supply chain.
In an effort to embrace the best business practices, the NZDF has adopted outsourcing as a key tool in its battle to reduce the cost of military logistics functions. The primary objective of outsourcing logistics functions is to obtain better value for the funds expended. According to the Outsourcing Institute, 85 percent of companies now outsource work previously done in-house. The challenge for today's defense forces is first identifying core logistics functions and then outsourcing those that are noncore.
In the NZDF, contracts are awarded for noncore logistics functions and are managed strategically across the defense force. Within each military service, outsourcing is used primarily for depot-level maintenance activities. The New Zealand Government has credited these programs with saving approximately $115 million over their first 2 years. With a defense budget of $677 million, this represents an annual saving of about 8.5 percent of total spending.
What is the NZDF Outsourcing Strategy?
Because of an increasing operational tempo and a shortage of both financial and personnel resources, the NZDF is seeking to return to its core competencies. Effective logistics outsourcing will enable defense forces to focus on their core competencies while releasing personnel to focus on what they do best--warfighting.
Most logistics functions performed in the military also are conducted in the commercial sector; thus, they are viable candidates for outsourcing. Outsourcing of noncore competencies is based on the notion that an organization seldom can excel at more than a handful of activities and, to achieve maximum efficiency, it should focus on those activities. The defense organization is no exception.
For the military, identifying warfighting capabilities as a core competency is relatively easy. The difficulty lies in identifying the logistics services that should be retained as core military competencies. The NZDF defined core and nonoperational (or noncore) logistics functions in the Chief of Defence Force 1998 Policy on Manpower Required in Uniform. Core activities are those that would be undertaken by the NZDF inside an area of operations. Nonoperational activities are those activities associated with training and support that do not require military skills, are generally commercial or administrative in nature, and are not directly related to operational activity. Drawing from these definitions, noncore logistics functions can be described as nonoperational activities that are not required to be undertaken by military personnel.
What Has NZDF Outsourced?
Although the New Zealand Army, Royal New Zealand Navy, and Royal New Zealand Air Force have begun their own outsourcing initiatives, this article deals only with the logistics functions outsourced by the NZDF Logistic Development Directorate. This directorate, along with the Ministry of Defence Procurement Directorate and the NZDF Strategic Plans Directorate, performs strategic logistics with the assistance of other New Zealand and international organizations and agencies.
The three main drivers of an effective logistics system are technology, processes, and people. The first--technology the key enabler to any logistics system. Therefore, it is not surprising that the NZDF's outsourcing initiatives have concentrated on technology in the following areas.
Supply and finance. In 1994, the NZDF initiated Project Fusion, which was the implementation of SAP Enterprise Resource Planning system supply and finance software modules across the NZDE This was an ambitious project to replace legacy customer-developed systems with a single commercial off-the-shelf system that would bring the NZDF into the 21st century. NZDF supply and finance services had been provided in-house previously, so purchasing the SAP system was a revolutionary change. SAP required a radical change in the way the NZDF conducted business, because NZDF processes had to be changed to fit the SAP solutions.
Through the use of the enabling SAP technology, the NZDF has adopted the best business practices for logistics management, thus improving the entire NZDF business process. The implementation of SAP in 1998, combined with an improved information technology (IT) environment, provided a robust platform for further supply chain initiatives. The NZDF saved $3.06 million in the first year that the SAP system was used, surpassing the original estimate by 22 percent. This figure does not include an additional saving of $700,000 in personnel costs.
Reprographic equipment and multifunctional devices. The upgraded IT environment required to implement the SAP technology provided an opportunity for the NZDF to outsource the purchase or lease of reprographic equipment and multifunctional devices. Previously, each service arranged for the purchase or lease of its own reprographic equipment. The introduction of digital technology and multifunctional devices into the performance of this function has enabled the NZDF to realize a significant cost saving. The contract, signed in 1999 for 5 years, has saved at least $1 million a year through reductions in staff and lower costs for photocopying and printing. Equipment previously owned by the NZDF has not been replaced, making substantial capital resources available for other purposes.
Office products and stationery. A contract signed in 2000 eliminated the need for stationery stores in the NZDF by providing personnel the capability to order items electronically. Supplies are delivered directly from the vendor to the customer within 48 hours.
Uniforms and other apparel. In 2001, the management, development, and manufacture of NZDF clothing were outsourced to a prime vendor contractor. The contractor procures, manages, warehouses, and distributes apparel, footwear, and personal support items used by NZDF service personnel. The contractor's IT system is linked to the NZDF SAP system, which enables NZDF personnel to order on line. All orders, invoices, and payments are managed electronically. The contractor, Yakka Apparel Solutions, won a 2001 New Zealand Logistics Excellence Award for its NZDF contract. By outsourcing this function, the NZDF realized an initial saving of $3 million with the closure of the defense uniform stores.
Consumables. In September 2002, the NZDF signed a contract with a prime vendor to deliver consumable items directly to the customer. Consumable items are defined as nonspecific military materials purchased to meet both nonstock and stock requirements. Each year, the NZDF buys approximately 50,000 consumable items with a purchase value exceeding $20 million from more than 1,700 suppliers using contracts, standing offers, and casual purchase agreements. The reductions in personnel and inventories resulting from contracting with a prime vendor for consumable items and the attendant use of electronic procurement will accrue significant savings for the NZDE
The use of the SAP technology has enabled the NZDF to apply the best business practices to logistics processes while modernizing its IT delivery platform. With information from SAP, the NZDF supply chain initiatives identified noncore areas of logistics that were candidates for outsourcing.
Although the benefits of outsourcing noncore logistics functions may appear obvious, the changes required to adopt the best business practices and outsource functions previously performed by the military should not be underestimated. All of the contracts required a radical shift in the way business was conducted, as well as active change management to bring commanders and support personnel on board. The NZDF adopted a deliberate strategy of first getting the IT platform right, then progressively working through the "low-hanging fruit" logistics areas to ensure that the change strategy and implementation were managed appropriately. Obviously, the small size of the NZDF--10,000 personnel--and the fewer functions it performs permitted a degree of flexibility and responsiveness that is more difficult to achieve in an organization the size of the U.S. military.
The NZDF has managed to achieve savings and gradually restore the balance of resources between the NZDF's "tooth" and "tail" through an aggressive strategy of forcing change from the top down into the services' logistics chains. How does this strategy compare to that of a major defense force, and is the NZDF on the right track? Do the changes implemented by the NZDF parallel the concepts embraced by the U.S. Army?
How Do the NZDF and U.S. Army Compare?
The RML included six tenets on how the Army will be supported in the future: Seamless logistics systems, distribution-based logistics, agile infrastructure, total asset visibility, rapid force projection, and adequate logistics footprint. Those tenets are inherent in the current transformation of U.S. Army logistics. To meet the operational requirements of the future, a revolutionary change in the delivery of logistics is required. Thus, a logistics transformation that includes "looking outside the box" to commercial industry and identifying the practices that enable companies to remain competitive is needed.
Two of the RML tenets that are intrinsic in the U.S. Army's logistics transformation have been embraced fully by the NZDF: the adoption of seamless logistics systems and the implementation of agile logistics infrastructures.
Seamless logistics systems. The U.S. Army has myriad Army-specific logistics systems that operate at different levels of support. The seamless logistics concept is focused on a single, integrated, enterprise-wide information system. Any new information system must operate within the entire military environment, including other defense agencies. It also must have connectivity with the commercial sector so contractors can support the deployed Army.
Achieving a seamless logistics system will require massive organizational and business process changes within the Army. It will mean a new way of thinking and conducting business for the Army logistics chain, including the adoption of best business practices. Some of the best business practices include outsourcing logistics functions, partnering with world-class providers, implementing direct vendor delivery, and using electronic commerce. All of these practices are applicable to the Future Force and depend on an integrated information system that provides total, realtime asset and activity visibility.
Within the NZDF context, the seamless logistics system concept has been implemented through the introduction of the SAP system across all three services, which has required organizational and business changes both within the NZDF and among external suppliers.
Agile infrastructure. A common theme of Joint Vision 2010, the Quadrennial Defense Review, and the National Defense Panel is that defense needs an agile infrastructure that is flexible and can adapt to rapid changes from peacetime to wartime. Many themes recur in these documents. Key among them are competitive outsourcing and prime vendor support. The agile infrastructure is designed to improve combat capability by reducing the mobility and logistics footprints. These logistics concepts directly impact the force's ability to execute combat operations.
During Operations Desert Shield and Desert Storm, the more than 3,000 contractor personnel deployed to perform functions such as weapon system maintenance were an integral part of military operations. The U.S. Army's Logistics Civil Augmentation Program (LOGCAP) formalized the contingency contracting support required for logistics in theater and is now an integral part of the force. Outsourcing for contingency support services is a flexible and effective way to provide logistics support to forces and is conducive to partnering with a prime vendor. According to U.S. Army Field Manual 100 10-2, Contracting Support on the Battlefield, "Contingency contracting can be an effective force multiplier for deployed forces by providing supplies, services, and construction support to augment their intrinsic capabilities."
The agile infrastructure concept has been employed extensively in the NZDE Outsourcing of noncore logistics functions is now commonplace. Based on the best business practices, selected prime vendors provide consolidated logistics support to the NZDE Through partner sharing practices and extensive use of technology, the NZDF also has streamlined and expedited delivery of services to the operational users.
However, with the modernization of force firepower and the proliferation of technology on the battlefield, the NZDF may need to adopt contingency contract concepts similar to those used by the U.S. Army to support its forces in theater. This ultimately may require the NZDF to reexamine its current definition of noncore functions.
Contractors now play a vital role in delivering logistics support on the battlefield and are indeed force multipliers for the U.S. Army. Despite the difference in size between the U.S. Army and the NZDE there are definite parallels in the NZDF's logistics direction and the U.S. Army's strategy for logistics transformation. The NZDF's small size permits flexibility and responsiveness that allow it to implement change progressively across the three services on a scale that would be infinitely more difficult to accomplish in a large and complex organization such as the U.S. Army.
A comparison of the NZDF's logistics strategy with the U.S. Army's logistics transformation indicates that the NZDF is indeed on track to deliver logistics in the 21st century. However, the NZDF cannot afford to be complacent and must continue to seek to modernize and, where necessary, revolutionize logistics functions, processes, and delivery methods to ensure effective logistics support of its military forces. The U.S. Army's logistics transformation provides a sound logistics strategy for NZDF to emulate in the future.
SQUADRON LEADER LEANNE J. WOON IS THE OFFICER COMMANDING THE LOGISTICS MANAGEMENT SQUADRON AT ROYAL NEW ZEALAND AIR FORCE (RNZAF) BASF AUCKLAND, WHERE SHE MANAGES AERONAUTICAL SPARES SUPPORT FOR RNZAF WEAPON SYSTEMS. SHE I5 IN THE LOGISTICS BRANCH AND HAS A BACHELOR'S DECREE IN BUSINESS AND A MASTER'S DEGREE IN MANAGEMENT STUDIES FROM THE AUSTRALIAN DEFENCE ACADEMY. SHE IS A GRADUATE OF THE U.S. ARMY LOGISTICS MANAGEMENT COLLEGE'S LOGISTICS EXECUTIVE DEVELOPMENT COURSE, FOR WHICH SHE COMPLETED THIS ARTICLE.