CSCMP's Supply Chain Quarterly
March 23, 2019
Reflections

Develop a war plan for supply chain disruptions

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When it comes to handling supply chain disruptions, commercial organizations should steal a page or two from the military's playbook.

As consumers we're accustomed to next-day, or even same-day, delivery with a point and a click. Those expectations are now flowing from the B2C (business-to-consumer) world into the B2B (business-to-business) space. That, all by itself, is a challenge. Then a disruption happens. Strike. Trade war. Flood. Hurricane. Tornado. Wild fire. The list goes on.

When it comes to responding effectively to disruptions, commercial supply chains could find inspiration from a surprising source: the public sector. One good place to start is the Defense Logistics Agency (DLA).

With about US$35 billion in annual sales and 27,000 employees around the globe, DLA is perhaps the largest distributor you've never heard of. Headquartered just outside of Washington, D.C., DLA is the U.S. Department of Defense's (DoD's) logistics support agency. DLA manages a global supply chain—from raw materials to end user to disposition—for the U.S. Army, Navy, Air Force, Marine Corps, Coast Guard, 10 combatant commands, other federal agencies, and partner and allied nations.

If DLA was a publicly traded company, it would be in the Fortune 100, bigger than Coca-Cola. DLA supplies about 85 percent of the military's spare parts and nearly 100 percent of its fuel and troop support consumables (including food), manages the reutilization of military equipment, provides catalogs and other logistics information products, and offers document automation and production services to a host of military and federal agencies.

Earning its keep

What is interesting about DLA—and makes it a relevant comparison for commercial distributors—is the way it's funded. Unlike most U.S. government operations, DLA is not funded directly by Congress. Instead, it earns its keep.

In practice, DLA runs similarly to a commercial business. DLA maintains what is called a working capital fund, originally created decades ago, and it uses this fund to procure inventory. DLA then "resells" that inventory to its government customers with a modest markup and collects the proceeds. Working capital flows back into the fund, with markup used to fund continuing operations.

Naturally, the government has a name for the markup. They call it a "cost recovery rate." Every year, DLA adjusts the recovery rates to keep ongoing operations running at breakeven. DLA runs like a business, and it competes.

And it does so while operating a globally ready and responsive enterprise. After all, answering rapid shifts in demand patterns is an essential part of any humanitarian relief mission, natural disaster response effort, or military operation.

Ready position

The private sector could learn a thing or two from DLA about handling supply chain disruptions. One key part of handling a disruption is simply readiness. Donnie Thompson, chief of Deployment and Training for DLA Distribution's Expeditionary Logistics division, says that it's imperative for operations to be prepared that things might not go according to plan. "Contingencies happen at a moment's notice," he says in an article published by the DLA Public Affairs Office. "We have to be adaptable, flexible, and understand that missions don't always go by the book—we have to be ready anyway."

How DLA does this is spelled out in its 10-year strategic plan: "The speed and complexity of global crises require resilient networks, robust partnerships, and quickly integrated teams. We will position resources for rapid use, build more deployable capabilities, and strengthen our partnerships using integrated logistics and contracting services."

As a case in point, consider what DLA Distribution calls its "deployable capability." For example, DLA Distribution has gone into the field after Hurricane Ike, dropped into two different locations in Afghanistan in 2010 and 2011, and supported Operation United Assistance—a response to the Ebola outbreak—in 2014. It provides a modular, scalable, and fully deployable distribution capability. When activated, the assessment team arrives on site within 48 hours, and the main body deploys within 96 hours. If force protection is required, the military provides it.

Most operations are not able to deploy this fast, but some do. Waffle House has a fleet of mobile restaurants on wheels. The Red Cross can set up in a matter of hours. The U.S. Federal Emergency Management Agency (FEMA) has essential life-support supplies cached around the country, ready to mobilize on demand. 

In each of these cases, the mission defines the operational strategies. DLA's published mission is to "provide an agile, global DoD Distribution network that delivers effective and efficient distribution solutions." That mission means that DLA has to be ready to go anywhere at any time, including inserting into dangerous places. They find a way.

That concept flows down to another pillar of the 10-year strategic plan, a reliance on partnerships to achieve adaptability, flexibility, and agility. Specifically, the plan advises DLA to "work with industry to ensure a capable defense industrial base, generate innovative and efficient solutions, and maintain a secure and resilient supply chain. By building on our strong relationships with industry partners we'll deliver cost-effective, innovative solutions. An agency supplier engagement plan will guide us. We will continuously assess the strength of our industrial capabilities and develop responses to vulnerabilities, reduce single points of failure, and implement best practices." The days of a vertically integrated supply chain are over; we need to work as a team across organizational boundaries.

We all benchmark against our commercial counterparts. Maybe it's time to include capable government operations in the mix. DLA has over 200 locations in the continental United States and another 30 or so dispersed around the world. Go knock on its door; the people there would love to show you around. (I recommend checking out DLA Distribution's Susquehanna facility, located in New Cumberland, Pennsylvania.) They know the warfighter comes first, but they understand that the taxpayer is not far behind.

Steve Geary is the president of the Supply Chain Visions family of companies, consultancies that work across the commercial and government sectors around the world.

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