Building a Cutting-Edge Supply Chain

In a non-descript office park in northern Virginia, there are several unmarked warehouses filled with prepositioned wooden crates waiting to be dispatched to destinations all over the world.  Office personnel are busy processing orders, while warehouse technicians hustle to fill them. Their work, invisible by design, ensures the secure and reliable door-to-door delivery of mission-critical supplies to locations everywhere — often to unfriendly environments. This supply chain process is similar to commercial processes but more specialized due to unique government requirements.

Supply chain management is defined by what happens behind the scenes, where strict processes and procedures are implemented to successfully fulfill order requirements in a timely manner. At both the Virginia warehouse and commercial operations, advanced software makes the system more efficient. Hand-held computers process items faster, but require talented personnel to do it successfully.

The difference between commercial supply chain management and government supply chain management is the need to meet stringent government compliance mandates in addition to customers’ requirements. Commercial vendors focus on low prices and fast delivery. Those who have the government as a customer fulfill requirements that ordinary consumers would never think of: such as opening their books to government auditors, complying with an array of Federal Acquisition Regulations that restrict how, when and where orders can be shipped and by delivering specialty items rarely available to mainstream consumers.

“While the commercial business model is not what we strive to replicate, we can leverage many of the same technologies and approaches they use and apply those to our operations,” says Phil Jones, vice president at General Dynamics Information Technology.

Warehouse shelves are labeled with barcodes defining their locations and products are shelved in bins the warehouse management software determines are most sensible. Handheld scanners instantly update inventory as items are placed on shelves or removed for order fulfillment. The same software calculates the best routes for warehouse technicians moving through aisles to fulfill an order. These are the tools for building a world-class supply chain operation.

But they’re only tools, notes Steve Tracey, executive director of Penn State University’s Smeal College of Business’ Center for Supply Chain Research™. He dismisses the “world class” label as simplistic.

“World class logistics’ is a misnomer, in my professional opinion,” Tracey told GovTechWorks. “There are common best practices in supply chains. There are firms that use those practices, but there will never be any one firm that will be best at all of them.”

Expertise is what makes any organization excel or fail. As with information technology or virtually any other service management business, supply chain management boils down to three essential components: people, process and technology.

“Anybody can go out and buy SAP or Oracle software,” Tracey continues. “But buying it and using it well are not the same thing. If you don’t have the people and processes to use that software, if you don’t understand the specific areas of expertise in your operation, then it’s like giving a five-year old a Ferrari: He can sit in it, but he can’t drive it.”

As soon as they were introduced, computers revolutionized the supply chain process. First, manufacturing operations used statistical process controls to monitor quality and increase yields in the 1970s. Then, they introduced just-in-time delivery in the 1980s to squeeze out warehouses and middlemen, forging closer relationships with a small number of suppliers who repaid the favor with better service and more precise delivery.

“The same factors are in play today as warehouse managers seek efficiency by reducing the time any product sits on shelves – even to the point of having suppliers direct-ship products by bypassing the warehouse altogether,” says Jeff Waller, president of Atlanta-based Waller & Associates LLC, a supply chain consultancy. For some supply chains, especially those directly supporting the federal government, that may not be an option, but the concept holds: The closer the logisticians are with their suppliers, the more efficient their operations and cash flows will be. Similarly, analytics can be used to better understand and anticipate customer needs.

Government is Different
To Penn State’s Tracey, differences between government and non-government supply chains start with the mission and extend all the way to foiling those who might seek to disrupt it.

“For both military and non-military government agencies operating overseas, the risks posed to supply lines by nation-state and terrorist actors are real and persistent,” he says.

Because enemies may have interests in penetrating and disrupting government supply chains, both physical and digital security is essential.

Other differences are no less challenging, Tracey says. Disruptions caused by the political process – from government shutdowns in extreme cases to the long-term effects of spending caps through sequestration – are unique to government.

“Financially, business has a continuity to it,” says Tracey. “We close the books periodically, maybe at year’s end, but it doesn’t typically affect the operations of the business. That’s not true for government agencies, which operate under significant constraints. Even though the fiscal year starts Oct. 1, some entities might not know how much they have to spend until spring.”

A second problem is sequestration, Tracey says, because “it arbitrarily limits what can be spent in certain categories and so, misaligns resources, overspending in some areas and underspending in others.”

“Those differences limit the ability to mimic what private industry does, because they make you make different choices,” he says.

Size and Scale
Though government agencies can be big customers, “big” is a relative term.

Commercial vendors process billions of orders a year. Annual online orders surpass hundreds of billions of dollars. Compared to that, a typical government supply chain contract averages about 10,000 to 20,000 orders per year; a tiny fraction of commercial order volumes.

Scale matters because in business, scale translates to influence. For many commercial firms, the challenges of meeting unique government requirements simply aren’t worth the cost.

Other differences: commercial prices are dynamic, changing constantly throughout the day in response to market movements. Government institutions are somewhat static, preferring firm price schedules that support advance planning. Commercial vendors offer their own wares and those of others in their online marketplaces. If a customer can’t find what they’re looking for in one vendor’s marketplace, they are free to shop for it someplace else. By contrast, government supply chain contracts require contractors to locate and deliver as quickly as possible and at the lowest possible price, anything for which the customer might ask.

Best of Both Worlds
While there are clear differences between a commercial and government supply chain, government agencies can gain some of the advantages pioneered in the commercial sector.

Waller believes government-focused operations can leverage the same technologies that the big guys use. “It’s a hybrid model,” Waller says. “Take the best of commercial practices – cost effectiveness and speed – and bring it into the government context.”

To do that, he says, organizations should not look at the entire supply chain and try to change everything at once. “You have to take the individual chunks of the supply chain and look at each piece individually,” he says. How do you manage inventory? Process orders? Pack and ship? Track performance?

“Start small,” he says. “Tackle your upstream logistics. Then tackle your procurement. Take it one bite at a time. Don’t wait for perfection to implement something. Make the transformation and then tweak it to get where you want to be.”

By breaking it down into pieces, you can see where problems crop up and look for ways to eliminate them – whether adding or upgrading technology, changing business processes or adding, training or replacing people.

“You want to make proactive use of big data,” Waller said. “Predict what you need, where you need it. That’s rapid fulfillment.”

Starting small doesn’t mean thinking small. Waller urges supply chain managers look beyond their own warehouses to their suppliers. How does the material arrive? From where does it come? Can savings in time or cost, be achieved by changing any of that? The bottom line: challenge everything and opportunities are sure to emerge.

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