Dr. John Coyle's Testimony On DOD Business Practices

Mr. Chairman and Members of the Committee:

Thank you for the opportunity to provide the Committee with my views on innovative best practices in supply chain management that could offer opportunities for DOD to improve their efficiency and effectiveness.

During the 1990s, supply chain management became a part of the CEO, CFO, COO and CIO vocabularies. The dynamics of the global market place had changed dramatically. The lexicon of many private and public organizations expanded to include supply chain management and related concepts and strategies such as continuous replenishment, pull distribution systems, reduced cycle times, etc. The Wall Street Journal , Business Week , Forbes , Fortune and other major business periodicals and publications featured articles related to supply chain management and logistics.

The 1990s was obviously a decade of great ¹ change from a global perspective as well as for the U.S. economy. The dim, dire outlook that was envisioned for the U.S. economy in the late 1970s and early 1980s changed as the 1990s turned out to be a decade of great growth and overall economic well being. Employment reached levels never envisioned by macro economists in the 1960s and 1970s as unemployment was reduced below five percent in many areas of the United States economy. The doom and gloom of the early 1980s was replaced to a large extent by perpetual optimism and boundless expectations.

The Changing Business Landscape: Driving Forces

The rate of change has accelerated both in the U.S. economy and globally. Businesses and public organizations have had to respond to the changes and the inherent dynamics of their environment. A key to understanding how to respond, is to have some perspective and understanding of the forces of change.

The Empowered Consumer

Understanding consumer behavior has been a focus of marketing analysis and strategy development for many years. Typically such analyses examine consumers in total and/or major groupings or segments to understand their needs and to respond to them with products and services. Such analyses have some implications for logistics and supply chain management, but they have been viewed at times in the past as being somewhat indirect impacts. Today, the impact of the consumer is much more direct for supply chain and logistics managers.

The consumers in today's marketplace are enlightened and empowered by the information that they have at their disposal from the internet and from many other sources. Their access to supply sources has expanded dramatically beyond their immediate locale by virtue of catalogs, the internet and other media. They have the opportunity to compare prices, quality and service. In turn they demand competitive prices, high quality, tailored/customized products, convenience, flexibility and responsiveness. They tend to have a low tolerance level for poor quality in products and/or services.

The demographics of our society with the increase in two career families and single parent households have made "time" a critical dimension for many consumers. They want and demand quicker response times and more convenient offerings according to their schedules. The five day week with 9 AM to 6 PM service for customers is no longer acceptable or tolerated. Seven days/24 hours is frequently the expectation with a minimum of wait time. The age old axiom of "let the buyer beware" should probably be changed to "let the seller beware". Today's consumers do not have the loyalty of previous periods or much patience with inferior quality in any area.

Why is this consumer revolution so important in a supply chain/logistics content? The reason is that the supply chain/logistics requirements have dramatically increased, to serve the consumers of today. If retail establishments have to be open 24 hours/7 days per week, this places greater demands upon the supply chains that serve them. Also, the pressure from consumers related to price put pressure in turn upon the supply chain to operate as efficiently as possible.

Power Shift in the Supply Chain

Traditionally, manufacturers were the dominant force in supply chains or distribution channels. This was particularly true for consumer products. The manufacturers designed, produced, promoted and distributed their products. Vendors/suppliers and wholesalers, distributors and retailers were usually smaller in size and depended upon the leadership of the large manufacturers. During the post World War II era with the introduction of TV advertising, manufacturer's brands took on increased significance. Distribution and logistics systems were not accorded as much attention as product development, promotion and/or brand management.

During the 1980s and 1990s, a significant change occurred in the relative economic power in a number of supply chains with the trend toward retail consolidation and the emergence of giant retailers such as Walmart, K-mart, Toys-r-Us, Home Depot, etc. For example, in 2001 Walmart was the largest company on the Fortune 500 list in terms of sales with annual sales of over $200 billion. A comparison of the Fortune 500 list during the 1990s shows many retailers of products and/or services have moved up on the list.

What is the significance of this shift in power to the supply chain? The consolidation of economic power at the retail end of the supply chain led to very large retailers whose basic competitive strategy is usually based upon lower prices. This strategy focused attention upon the distribution systems of manufacturers which tended to treat their customers similarly and not pay attention to how their order fulfillment strategies affected the efficiency of the retailers. Such an approach tended to increase operating cost for retailers.

The large retailers were able to exert pressure back in the supply chain to force manufacturers to change their logistics and supply chain strategies to include tailored pallet packs, scheduled deliveries, continuous replenishment systems, etc. Manufacturers found that a small number (15% to 20%) of their customers accounted for a substantial (75% to 85%) of their sales. Such important customers had to be accorded special treatment and that treatment frequently translated into improved logistics systems which had an important and positive impact upon the retailer's efficiency. In other words, the consolidation of economic power at the retail level probably caused more change and focus upon improved logistics systems during the 1990s than manufacturers implemented during the previous three decades.

Deregulation

The infrastructure of many businesses is based upon transportation, communications, energy and financial systems. These four 'legs' of business operations have undergone fundamental change during the 1980s and 1990s because of government deregulation. All four had for many years been subjected to comprehensive regulation which developed in an era when it was felt that businesses needed to be protected from the supposed monopoly power that these industries possessed. The regulations were probably philosophically sound in an earlier era in U.S. industry, but much had changed during the 1960s and 1970s; not only among domestic organizations but also globally. The net effect of the comprehensive and complex regulations affecting these four industries was a system that tended to stymie innovation and result in relatively high prices being charged in these four important sectors of our economy.

Beginning in the late 1970s and into the 1980s, the transportation was deregulated in terms of economic controls such as rates and areas of service. The net effect was that it became possible for transportation services to be purchased and sold in a much more competitive environment. The result was frequently lower prices to users and better service. It became possible for carriers and shippers to negotiate and to make changes in their respective operations to allow carriers to operate more efficiently and lower their prices.

The financial industry was also deregulated and the distinction between commercial banks, savings and loan associations, credit unions, for example, has blurred as these institutions have been allowed to broaden their array of services and make the financial market more competitive; and like the transportation industry, more responsive to customer needs in the new environment for consumers and retailers described in the previous two sections.

The changes have fostered many changes in the ways that businesses can operate. For example, the opportunity to invest cash at the end of the day in the global overnight money market in periods of six to ten hours. This opportunity made many companies more cognizant of the value of asset liquidity and asset reduction, especially inventory. Payment transactions for buyers and sellers have also changed dramatically with the alternatives in financial practices made possible and fostered by deregulation. The purchase cards used by many procurement departments for MRO items are just one example of the efficiencies that were made possible by the deregulation.

The communication industry was also made more competitive but the scenario was different since the major cause of change was a Supreme Court decision that split up the AT&T/Bell telephone system into regional companies and separated the 'long lines system' of AT&T and made it accessible to other companies, such as MCI, who wanted to sell telephone services. Like the other two industries discussed, the communication industry has undergone much change and more is coming with the possible integration related services such as cable, telephone, computers, wireless access. Businesses and the general consumer population are all being impacted by the many changes in this industry from cell phones and pagers to email, EDI and the Internet. Communication efficiency and effectiveness has lead to dramatic improvements and opportunities in logistics and supply chain, e.g., inventory visibility, quick response replenishment, improved transportation scheduling, order entry, etc. Supply chain practices have been improved dramatically leading to lower cost and better customer service. Some people argue that the best is yet to come.

The final industry segment is the energy industry, specifically, electric power, which is being deregulated on a state-by-state basis. In the states where deregulation has occurred, businesses and households are able to choose their electricity provider. In other words, there are competitive alternatives which has resulted in lower prices to users. It is likely that as deregulation becomes more widespread there will be more profound effects upon the industry similar to what has occurred in transportation, finance/banking and communication. However, initially the changes appear chaotic or negative as the industry adjusts to deregulation. Such adjustments occurred among transportation companies, financial institutions and in communications, e.g., bankruptcy, scandals, etc. The long run impact will probably be more positive with lower prices and new services for users. It is also likely that the structure of the energy industry will change.

Globalization

It is difficult to single out one of the five change drivers and point to it as having the biggest impact. However, if one were to be selected as being most important, many individuals would argue that it is probably globalization. In the eyes of some individuals, globalization has replaced the so-called 'cold war' of the post World War II era as the dominant driving force for world economics. The concept of the "Global Marketplace" has taken on new meaning for all enterprises (small, medium and large) and to individual consumers. Changes in government policy and the 'new' technologies have made the global economy concept a fact of life.

In the U.S., globalization has evolved from the 1970s when U.S. companies began to practice more aggressive global sourcing or procurement of materials, parts and supplies; to the 1980s when aggressive marketing in international markets became more commonplace among larger companies; to the 1990s when a true global perspective began to be taken and companies sought to rationalize global networks by asking:

• Where in the world should they source?
• Where in the world should they manufacture?
• Where in the world should they market their products?
• Where in the world should they warehouse and distribute from?
• What global transportation strategies should they utilize?

The liberalization of international trade has been aggressively pursued by a number of countries which has opened up new markets and sources of supplies for most companies. Not only large businesses but also small and medium size companies have been able to participate in the globalization. The opportunities have been enhanced by the technology revolution that will be discussed in the next section. The consumer has benefited from the many alternative sources of supply for wholesalers and retailers which has lowered prices, raised product quality and dramatically increased choice alternatives to the consumer.

With the changes occurring from internet and other related technologies, some individuals are arguing that there is "no geography" any more. Products and services can be bought and sold anywhere in the world no matter how large or small the enterprise. Product and service information is available on a real time basis and comparisons can quickly be made. Such openness of markets and sources is both a threat and an opportunity and has profoundly impacted how businesses operate and consumers view their purchase opportunities.

Supply chain management, therefore, usually has to be labeled global supply chain management in today's environment. Globalization presents some special challenges and issues for business organizations. The distance factor alone becomes significant with shipments moving thousands of miles from vendors and/or to customers. In an environment of reduced cycle times, expected higher levels of reliability and emphasis is upon efficiency, the distance factor presents some special challenges to logistics and supply chain managers.

The discussion of globalization provides a convenient segue for the discussion of the fifth change driver, namely, technology.

Technology

Technology can be viewed legitimately as a facilitator of change on a micro basis since it allows companies to implement many of the strategies to be discussed later in this paper. However, technology can also be classified as a change driver on a macro or external basis. The revolution which has occurred in technology, hardware and software, has forced many companies to change the way they "do business".

We live in an era that has been described by some individuals as the "Information Age", but this description does not do our present environment justice. There is no question that businesses and consumers have much more information available today which influences how they buy and sell goods and services. But technology has also changed the modus operandi in the market place. It was traditional for consumers/customers to buy at the business 'place' in accordance with the business time schedule. The time aspect has changed, as previously noted, since it has became more customary for many businesses to be accessible 24 hours a day, 7 days a week. Now, the internet and related technology is changing the place aspect.

Buyers no longer have to go to the seller's place or a 'space' to view and buy products. It can be argued that this is not new but rather an extension of catalog sales, but the internet is so much more dynamic and accessible. It would be analogous to comparing the Model T Ford with a brand new Lincoln or Cadillac. Technology has sparked and enhanced the so-called consumer revolution but it is much more impactful than consumer purchasing practices.

Technology changed how buyers and sellers interact in the market place, both business-to-business (B2B) and business-to- consumer (B2C) and how business operates. Asset visibility, precision logistics, tailored/customized services, etc. are concepts based upon the technology currently available. While not a panacea for success, technology certainly provides the opportunity to improve efficiency and customer service.

The rate of change has accelerated, as previously noted, with consequent negative impacts if organizations do not change also. But such change can also have positive impacts if appropriate actions are taken. For example, deregulation of transportation lead to the demise of some very large, financially successful transportation companies who prospered in an era of regulation but could not cope in the deregulated, competitive market place of the 1980s. On the other hand, some other companies emerged in this more competitive environment, for example, Federal Express, Schneider National and J.B. Hunt, as large and economically viable organizations. They changed in response to the new environment.

The Supply Chain Concept

While reference to supply chain management can be traced to the 1980s, it is safe to say that it was not until the 1990s that the term, supply chain management, captured the attention of senior level management in numerous organizations who recognized the power and potential impact of a supply chain approach to making organizations more globally competitive and helping to increase their market share with consequent improvements in shareholder value.

As stated, supply chain management came into vogue during the 1990s and continues to be a focal point for making organizations more competitive in the global marketplace. Supply chain management can be viewed as a pipeline or conduit for the efficient and effective flow of products/materials, services, information and financials from the supplier's suppliers through the various intermediate organizations/companies out to the customer's customers or the system of connected logistics networks between the original vendors and the ultimate final consumer.

A supply chain is an extended enterprise that crosses over the boundaries of individual firms to span the logistical related activities of all the companies involved in the supply chain. This extended enterprise attempts to execute or implement a coordinated, two way flow of goods/services, information and financials (especially cash). Those three flows are very important to the understanding of supply chain management. The integration across the boundaries of several organizations in essence means that the supply chain needs to function like one organization in satisfying the ultimate customer.

The flow of products and related services, has traditionally been an important focus of logisticians and is still an important element in supply chain management. Customers expect their orders will be delivered in a timely, reliable and damage free manner and transportation is critical to this outcome. Product flow is a two way flow in today's environment because of the growing importance of reverse logistics systems for returning products that are unacceptable to the buyer, damaged, obsolete or worn out. There are numerous reasons for this growth in reverse systems. It is also important to note that networks for reverse systems usually have to be designed differently than forward systems. The location, size, layout of facilities is frequently different and the transportation carriers need to be utilized differently.

The second flow is the information flow which has become an extremely important factor for success in supply chain management. Traditionally, we have viewed information as flowing in the opposite direction of products, i.e., from the market/customer back to the wholesalers, manufacturers and vendors. The information was primarily demand or sales data which was the trigger for replenishment and the basis for forecasting. It is important to note that other than the retailer or final seller, that the other members of the supply chain reacted to replenishment orders. If there were long time intervals between orders, the members of the supply chain were faced with much uncertainty about the level and pattern of the demand which results in a "bull whip effect" in the supply chain.

One of the realizable outcomes of supply chain management is the sharing of sales information on a more "real time" basis which leads to less uncertainty, and therefore, less safety stock. In a sense, the supply chain is being compressed or shortened in the form of time/information flow back from the market place which leads to a type of supply chain compression - inventory compression. In other words, inventory can be eliminated from the supply chain by timely, accurate information about demand. If point-of-sale (p.o.s.) data were available from the retail level on a real time basis, it would help eliminate the bull whip effect associated with supply chain inventories and significantly reduce cost.

It should be noted that there should be a two way flow for information. In a supply chain environment, information flowing forward in the supply chain has taken on increased significance and importance. Forward information flow can take many forms such as advance shipment notices (ASN's), order status information, inventory availability information, etc. The overall impact has been to reduce uncertainty with respect to order replenishment which also contributes to lowering inventory and improving replenishment time. A related aspect of forward information flow has been the increased utilization of bar codes and RF tags which dramatically increase inventory visibility which again helps reduce uncertainty and safety stock. But also, the vastly improved visibility of pipeline inventory makes possible many opportunities for improved efficiency such as transportation consolidation and merge-in-transit strategies. The combined two way flow of timely, accurate information has lowered supply chain related costs while also improving effectiveness/customer service. But, there is more improvement that can be made.

The third and final flow is financials, or more specifically cash. Traditionally, financial flow has been viewed as one directional - backward in the supply chain. In other words, payment for goods, services and orders received. A major impact of supply chain compression and faster order cycle times has been faster cash flow. Customers receive orders faster, they are billed sooner and companies collect sooner. The faster cash-to-cash cycle or order-to-cash cycle has been a financial bonanza for many companies because of the impact on profitability. Dell Computer which has been the focus on much attention compared to other computer companies, especially Compaq, has been a major beneficiary of a compressed supply chain and the related faster cash flows. Dell is turning their inventory 75 times per year compared to ten to twelve turns other computer manufacturers. More importantly for this discussion, since they fulfill their orders in 5-7 days, they often receive payment 15 to 20 days before they pay their vendors. In essence, they have a negative cash flow.

The supply chain perspective is very dynamic and provides an opportunity to reduce the cost of doing business and improve customer service for many companies. However, it is not easy to implement. To gain an understanding of the challenges, we will examine the major characteristics of supply chain management.

Characteristics of Supply Chain Management

The definition of supply chain management presented previously suggested a number of important factors and related characteristics that are key to successful implementation. The key factors are inventory, cost, information, customer service, collaborative relationships. Each of these deserve some special consideration.

Inventory. Managing the flow and level of inventory is a central focus of supply chain management and a major performance metric to gauge success. In simplistic terms, the level of inventory must be sufficient to provide acceptable customer service but low enough to minimize supply chain costs. To maintain the balance between supply of and demand for inventory stock, the supply chain requires integrated management to avoid duplication among members of the supply chain. Visibility of inventory as it moves through the supply chain is important to reduce or eliminate uncertainty which decreases safety stock. This includes visibility of inventory being held in warehouses and other storage facilities as well as inventory in transit. The use of bar coding, RF tags, and other related technology provides the opportunity to reduce safety stock or buffer stock which usually is accumulated at the interface between organizations in the supply chain and frequently duplicated by both organizations which is illustrated in Figure 4 by the bulges in the pipeline.

Another important characteristic of effective inventory management is to attempt to pull it through the supply chain in response to demand as opposed to pushing out inventory in advance of demand which tends to inflate inventory levels and lead to obsolete inventory and lower inventory turnover. A number of companies, such as Dell Computer Company, have been successful in implementing pull systems which has had a dramatic impact upon their inventory turnover. Essentially personal computers which are ordered via telephone, fax or the internet are assembled/produced after the order is received. Dell can frequently produce the customized computer in 48 hours or less and ship it to their customers. Such a strategy has a dramatic impact on finished goods inventory. In conjunction with the outbound strategy, there is a complimentary JIT arrangement with vendors on the inbound side.

While it is not possible for all companies to produce products after they are ordered,(build to order) e.g., consumer food product companies, there are related strategies, such as postponement, that contribute to the same objective, i.e., lower pipeline/supply chain inventories.

Cost. As indicated previously, efficiency or lowering cost is an important objective of supply chain management. However, it is very important to note that the focus has to be upon the cost at the end of the supply chain which is in essence the total cost or what is sometimes called the landed cost at the end of the pipeline. This means the companies that are part of a supply chain need to be cognizant of what impact their approach and activities have upon their vendors and/or customers. Far too often, companies attempt to optimize their own cost which may have a negative impact on their venders or customers. In some instances, companies are just not aware of the impact of their strategies and/or tactics. In today's environment, as indicated previously, it is global supply chains competing against global supply chains. Companies have to coordinate their supply chain activities by sharing information and joint planning to accomplish this objective. In essence, this builds upon systems theory and total cost analysis that was discussed earlier in this chapter. Such an outcome is far more difficult to achieve when you are dealing with several companies rather than one.

Information. Managing the flow of information is a key factor for both efficiency and effectiveness in the supply chain. As previously indicated, it must be a two directional flow to really maximize the potential of supply chain management. A key characteristic is sharing information up and down the supply chain related to the flow and demand requirements. If information is shared, it can potentially be available on a real time basis. If the information also has a high level of integrity and accuracy, then it will significantly reduce uncertainty which in turn will reduce safety stock and obviously lower inventory.

As important as sharing real time information is to the successful management of supply chains, there is some reluctance in companies to share. This reluctance is usually based upon a fear that companies will lose competitive advantage if, for example, demand information or production information will inform competitors of what to expect and perhaps lead to lost sales often, such fears are not founded upon logistical analysis. Even if there is some disadvantage to sharing information, the advantages may far outweigh the disadvantages.

The other barrier to sharing information is the complexity issue. Frequently, there is an abundance of data collected by the technology of optical scanners, bar codes, computers, etc. but turning this plethora of data into useful information for decision making can be a challenge. Consider the amount of data being collected every day at all of the scanners at retail outlets. The amount of data collected is so overwhelming that it is very difficult to summarize, synthesize and manipulate it into useful form in a timely manner.

Nevertheless, much progress has been made with information sharing and more is likely to come in the future as we demonstrate the positive outcomes of such an approach. Shared information of high integrity on a real time basis is an important key to supply chain success.

Customer Services. As indicated previously, the decade of the 1990s has been described in some quarters as the information decade because of the impact that information technology has had on how businesses can operate in terms of efficiency and effectiveness. Some individuals argue that the 1990s was the decade of Customer Service. Actually, a good argument can be made for either descriptor for the 1990s, but we should recognize that there is a synergy between the information and customer service. Timely information of high quality makes possible improved customer service and also lower cost which can mean lower prices to customers.

In the context of the discussion of supply chain characteristics, customer service is a very important attribute of successful supply chains. In the final analysis, the success of today's global supply chains is the value that they add for their ultimate customers in terms of the supply chain's landed cost/price and the related services which are provided. Information technology can play a significant role in facilitating customer service that provides the opportunity for a global supply chain to remain competitive and hopefully, gain market share.

Customer service has three recognized levels from a supply chain and logistics perspective. The minimum level is reliable, on time delivery and accurately filled orders. In today's environment, this basic level of service is necessary to retain customers. To increase sales with customers (especially large customers), it is necessary to be responsive to their special needs and requests. This second level may entail scheduled deliveries, advanced shipment notices, tailored pallet packs, etc., for example.

To sustain and grow market share, the third and highest level of customer service is required, namely, adding value for their important customers. Examples of value adding services may include vendor managed inventory, collaborative planning and forecasting, supply chain visibility of inventory, etc.

The importance of existing and potential customers have to be evaluated to develop priorities for extending the highest two levels of customer service. Many companies find that a relatively small percentage of their customers generate a significant share of their sales. These "A" customers require priority type service which an effective supply chain partner should be able to provide.

Relationships. Collaboration among supply chain "partners" is another important ingredient to supply chain success and to the ultimate goal of integration, i.e., operating the whole supply chain as if it were a single organization. Concepts such as partnerships and alliances have become a part of the vocabulary of logistics and supply chain managers and indicate that the more traditional adversarial basis to business interactions has been changing. The cooperative, collaborative approach is a recognition to some extent of the characteristics discussed above. However, supply chain relationships also need to incorporate more than shared information and a focus upon total supply chain cost. There also needs to be collaboration in planning strategy and tactics among supply chain partners. The collaborative planning utilized, for example, by Chrysler in working with their vendors has lead to significant cost reduction in producing their cars. The cooperative planning for a supply chain approach needs to include an internal, cross function team and external efforts with vendors, carriers, distributors, etc. The reported successes of Collaborative Planning Forecasting Requirements (CPFR) among supply chain members is another example of the power of collaborative planning and information sharing among supply chain members.

In addition to the collaborative planning, there is a need to share risks and rewards. Most organizations have functioned in an environment where they attempt to minimize their own risk and maximize their own rewards which may mean that these outcomes are achieved at the expense of other companies. The more cooperative, collaborative approach defined by a supply chain approach, or the "win-win" outcome is the objective of collaboration strategies.

An underlying dimension of collaboration and partnering is a recognition that in the cast changing environment of today's global marketplace, successful organizations need to focus upon their core competencies and outsource other activities to supply chain partners. Such an approach allows more flexible, responsive, and agile responses to the changing business environment.

The next section provides details concerning four areas in which it is important to develop effective logistics and supply chain strategies. Included are time-based, asset productivity, technology, and relationship strategies.

Time-Based Strategies

Most people have heard the old adage "Time is money". The value of time can be measured in a number of different ways. For example, the earlier discussion of using the adapted EOQ model to make transportation modal choice decisions demonstrated that a choice of transportation with faster, more consistent transit times could help to reduce inventory and warehousing costs. Even though the faster mode of transportation may be more expensive, the net impact of savings in inventory and warehousing costs would be a reduction of total costs. This is an example of an effective strategy that is based on the trade-offs between transportation, inventory, and warehousing costs.

When logistics improvements require a level of investment (e.g., facilities, technology, equipment, etc.), it is important not only that the net savings exist and be positive but also that they represent an acceptable return on use of the firm's investment resources. This means that company measures such as ROI, RAO and economic profit should meet or exceed corporate standards and yardsticks to justify improving investment ideas.

One aspect of time-based strategies that will receive additional attention in the future is the impact of logistics and supply chain improvements on cash flow. As transportation times continue to become shorter and more consistent, for example, there are significant savings in working capital that is tied up in inventories that are moving through the supply chain. Time-based improvements literally "free up" investment and the associated costs of carrying inventory throughout the supply chain. When viewing this from a total supply chain perspective, the objective has evolved to managing what is known as the "cash-to-cash cycle," defined as the time it takes to convert a dollar worth of raw materials into a dollar worth of sales in the marketplace. This metric is becoming one of the more sought after measures of overall supply chain performance. In addition to reduced investment in working capital, shorter, more consistent supply chain performance typically means that participating firms receive payments more quickly than otherwise. This, too, can be a major type of time-based benefit that may result.

Reducing Cycle Time

Reductions in cycle time are based upon three factors: processes, information and decision. The previous discussion mentioned performing logistics-related processes faster and more consistently. If logistics is viewed as a series of processes, then those processes being performed faster will reduce cycle time, with the associated benefits already mentioned.

Another important source of reductions in cycle time has been provided by faster provision of information. The utilization of faster, more efficient forms of order transmission - EDI or the Internet, for example - can significantly reduce the time needed to complete the transaction. Also, the use of contemporary information technologies is becoming increasingly attractive as the costs of computer hardware and software, as well as overall connectivity, have been declining significantly. Timely, accurate information about sales, orders, inventory levels, transportation service, and so on leads to shorter cycle times and also reduces uncertainty about what is happening, which leads to lower inventory levels by reducing the need for safety stock. Thus, information has become a source of significant savings to many companies.

The final factor in reducing cycle time is decision making. In some organizations, this is the most important of the three factors. The critical issue is to empower individuals to make decisions relevant to their areas of expertise and responsibility. All too frequently, multiple levels of approval must be gone through before a decision can be made. One may refer to this as the approval process or, perhaps more realistically, as "red tape". The important point is that preexisting levels of needed approval slow down the decision-making process, which can in turn lengthen the order cycle. The flat, lean organizations that are becoming more important in today's environment are frequently characterized by delegated decision making, which emphasizes decision making at the so-called "action" level, such as that of the customer service representative. While decision making at the lowest possible level in the company can lead to the making of some mistakes, the experience of companies like Procter & Gamble and others suggests that the risk is justified in terms of the time that is saved and the improvement that often takes place with respect to customer responsiveness.

The combination of improved (faster) logistics processes; faster and more accurate flow of information; and quicker, more responsive decision making can lead to dramatic reductions in lead time or cycle time.

Time-Reduction Logistics Initiatives

Logistics processionals have used a number of important time-reduction initiatives. Among the more popular of these approaches is cross-docking, a concept that emphasizes flow of products through logistics facilities, rather than the use of storage. The relevance of cross-docking in today's logistics environment is clear; the concept typifies the types of initiatives that should be receiving attention today.

In addition, other approaches such as just in time (JIT), vendor-managed inventory (VMI) and continuous replenishment (CRP) are all characteristic of contemporary approaches that help our logistics practices more from "push" to "pull". While these techniques are frequently discussed in the context of inventory strategies, they also have important implications for time reduction of the order cycle because they shorten the total time from vendor to delivery to customers.

Also, contemporary concern for visibility of product throughout the supply chain has renewed our emphasis on the utilization of information technologies for product tracking and tracing, optical scanning and bar coding, stock location, and so forth. In short, the imperative is for firms to develop the ability to know where all products may happen to be at any point in time. This information is needed not for its own sake but, more importantly, to know when shipments may be late, need expediting, and so forth. Approaches like efficient consumer response (ECR), discussed earlier in the text, are also examples of effective time-reduction strategies or initiatives. The basic plan, as you will recall from earlier reading, is to reduce the length of time that grocery inventory spends in the pipeline, between the time it comes off the assembly line and when the final customer purchases the product. For a grocery chain, the average pipeline time was 104 days, and the goal was to reduce it to 61 days, which was quite an important. This initiative is obviously different from the others we have discussed in that it involves a whole group of companies that operate in the same supply chain. In today's business environment, groups of firms in various industries have formed their own, industry-specific organizations to accomplish a number of objective such as these. Examples include Covisint (automotive), Transora (consumer packaged goods), and Converge (high tech).

Finally, there has been considerable recent interest in leveraging the power of effective demand planning and forecasting to more meaningfully move from "push" to "pull". Improved ability to diagnose and even anticipate customers' needs enables the logistics and supply chain processes to make a much more valuable contribution to the achievement of corporate goals and objectives. Recent interest in collaborative planning, forecasting, and replenishment (CPFR) also serves as an example of a highly useful, contemporary technology.

Increasingly, companies are changing from the traditional push approach to a pull approach , which is a demand-responsive system. The switch requires a major change in corporate culture that is frequently difficult to achieve. Not only does the change require a switch to a flexible, quick-change manufacturing environment, necessitating retraining of the manufacturing employees, it also requires that manufacturing operate at a less-than-optimal cost from time to time.

In its purest form, the pull approach requires that products be manufactured only when an order is received. Obviously, this requires a fast manufacturing system. The ability to accomplish this feat essentially eliminates finished foods inventory, which can result in significant savings. Some very large companies are moving in this direction. Chrysler, for example, states that it can manufacture a car to order in fifteen days, which means that it fills a customer's order reasonably quickly. It is hoping to reduce that time to seven days within the near future. Chrysler's intent is to reduce dealer inventories. One of the Japanese auto manufacturers has a goal of being able to produce a car to order in three days. The achievement of these goals will significantly reduce the inventory of new cars.

Sears is moving to reduce the size of its retail furniture stores, which tend to be very large in terms of floor space. It will compensate by being able to produce furniture to order and deliver it within seven days after the order is received. Even some manufacturers of farm equipment, which is a seasonal product, are considering a change to a more demand-oriented manufacturing system. Pull systems are more challenging in such an environment because of the peak demand. These are just some of the many types of companies that have changed or are changing to a demand-responsive manufacturing and logistics systems. Also note that a pull system is consistent with the time-compression strategies discussed previously.

An additional aspect of pull systems is that some companies use the concept of postponement to achieve a system that is close to a pure pull system. As was indicated, postponement involves not completely finishing products until an order is received. An example of this would be the food processor that adds labels to the "brights", or unlabeled canned goods, after the orders are received, enabling it to reduce inventory levels significantly. Even the auto industry is using a form of postponement by assembling basic component packages - for example, the wiring harnesses - in advance of orders and then assembling the auto to final specification. Considering the fast pace of technological change, the practice of postponement is essential to the success of the many businesses in the compute and high-tech business.

Overall, leading-edge companies have used a number of initiatives to improve their competitive position by reducing cycle time, producing significant benefits in terms of efficiency and effectiveness. Time-reduction strategies, because of the potential to reduce costs, improve cash flow, and enhance customer service, have been the focus of much attention and have enabled companies to gain a competitive advantage.

Asset Productivity Strategies

As indicated, companies are deeply concerned about making optimum use of logistics and supply chain resources. Thus, there has been a focusing of attention on return on assets (ROA) as one of the primary metrics that help to evaluate the success of logistics and supply chain capabilities. Companies can improve return on assets by increasing revenue earned or by earning the same level of revenue with a reduced investment in assets. Consequently, companies have been investigating approaches to improving asset productivity, or "doing more with less". Logistics is one of the important areas for improving asset productivity, and during the last ten to fifteen years many companies have been able to reduce logistics-related assets.

Inventory Reduction

One of the first assets to receive attention has been inventory, and there is much evidence to indicate that companies have been successful in reducing inventory levels or investment. Some of the proven initiatives that focus on time reduction have the synergistic benefit of reducing investment in inventory. While HIT, QR, and ECR certainly would be among these, there are others that are also very valuable. One strategy that has been utilized in tandem with ECR is vendor-managed inventory (VMI); and the Procter & Game and Wal-Mart relationships provide a useful look at how this works. Essentially, P&G manages the level of inventory of its products in Wal-Mart's stores and monitors their movement through Wal-Mart's distribution cross-docking facilities. For each product stock-keeping unit (SKU), P&G decides when to ship and how much to ship to Wal-Mart. Other companies such as Kraft, have developed similar relations with some of their best customers. One of the major reasons for VMI is reduction in inventory.

Facility Utilization

There are a number of ways to describe logistics systems. For example, the logistics network can be viewed as being composed of a set of fixed facilities connected by links represented by transportation. The fixed facilities are supplier locations, plants, warehouses, distribution centers, and customer locations. Looking throughout the logistics network, it has become apparent that a high priority has been attached to the effective utilization of all of these types of facilities. Regardless of where a product may be in logistics network, the objective is the same: "keep it moving." Only when product is at rest do the major kinds of waste and inefficiency begin to accrue. Along with the priority, all types of firms have subscribed to one way of characterizing the move to lean enterprises: "doing more with less." Many techniques and approaches we have been discussing do exactly that.

In addition, there have been other initiatives that have improved facility utilization or, more importantly, eliminated storage facilities altogether. One such initiative is the movement of shipments direct from manufacturers to retail stores, thus bypassing the traditional shop at or moves through the distribution center. This strategy not only contributes to improved facility utilization but does so by reducing or eliminating the need for certain types of facilities. Many distribution centers, ones that previously were an important link between the manufacturers and retailers, are being bypassed in the interest of improving logistics and supply chain efficiency. When there no longer is a need for such facilities, it is said that "disintermediation" has occurred. While this usually is not good news for those involved in operating the distribution center, it does help to reduce cost and improve service to the customers, the combined effect being improved positioning in the marketplace for the manufacturer. The Amdahl Corporation is a good example of a large, Fortune 100 company that has achieved significant savings and asset productivity through direct shipments to retailers from manufacturer.

Equipment Utilization Strategies

Another area of asset investment for companies is logistics-related equipment such as materials-handling equipment used in warehouses and transportation equipment that is leased or owned by a company. Some reduction in the amount of this equipment has occurred because of the reduction in the number of distribution centers, discussed in the previous section. Companies have rationalized their facilities and improved their throughput, utilizing the initiatives discussed previously. In other words, as companies have reduced the number of warehouse facilities that they operate, there has been a natural reduction in the materials-handling equipment that is necessary. Also, the use of technology-based devices such as handheld computers, bar code scanning devices, and radio-frequency communications in logistics facilities has caused a general reduction in the need for additional assets to move and store product.

In addition, transportation equipment is an important area in terms of asset investment. This has been an area of improvement for many companies. Since deregulation, many companies have reevaluated their position with respect to equipment ownership. Contract rates with railroads and motor carriers, more specialized service and equipment, lower rates, and so on have led companies to turn increasingly to the commercial sector for needed transportation services. As was explained earlier, transportation companies, particularly motor carriers, have become much more service oriented. Motor carriers frequently provide tailored service to shippers in the current, highly competitive environment. With lower rates and better service, for-hire transportation service has become a much more attractive alternative for many shippers. These cost and/or service benefits, combined with a strategy to lower asset investment for increased productivity, can have a synergistic impact that can result in an increased reliance upon for-hire carrier system to provide high-quality transportation service.

In addition to the improvements in productivity and efficiency made possible by the increased use of for-hire carriers, the companies that have continued to use private carriage in whole or in part to connect their nodes or fixed points have become more efficient in the utilization of their equipment. Many of them have duplicated the capabilities of commercial carriers, using software packages to schedule and dispatch their equipment more efficiently; installing direct communication links to drivers, consolidating shipments more effectively through load-planning software, and taking advantage of intermodal rail service for the line hauls parts of their service needs. The net effect is similar to the observation that was made regarding warehouse facilities-companies have been able to do more with less. In summary, there has been significant improvement in asset productivity with respect to transportation equienpmt. The improvement has been made possible by increased reliance upon for-hire carriers and better utilization of companies' own equipment through the use of technology, computer software, and better management planning.

Third-Party/Contract Logistics Services

Another key area of decision making that has had a dramatic impact on asset productivity is the use of third-party logistics (3PL) services. This increasingly popular alternative has led many firms such as DuPont, Nabisco, Procter & Gamble, General Electric, General Motors, and others to use the services capable 3PLs. The decision to utilize third-party or contract logistics companies has been fostered in part by the interest in reducing asset investment to improve asset productivity. An interesting aspect of 3PL use is that, while a customer may use a 3PL to help reduce commitment to its assets, the 3PL may focus its activity on "managing" the provision of logistics services and actually procure the "asset-based" services from selected contractors. While it is true that there must be some firms that actually provide the asset-based services, the response to this matter is more of a strategic and financial matter than one related to logistics operations.

The move to utilize a 3PL may be even broader than the reasoning discussed heretofore. Another rationale is the trend mentioned earlier of focusing upon core competencies as a strategy to operate more effectively and efficiently. Essentially, a company may feel that its expertise or core competency may, for example, be producing and marketing cookies and crackers. While it may be very capable of producing necessary inbound and outbound logistics services to support its products, the company may be even more effective if it focuses upon its two core competencies. While the rationale is commonly used to support decision to use a 3PL, the move can be even more attractive if it can be demonstrated that, additionally, there will be a cost savings and or improved asset productivity.

A good example of a large company that has used a third-party logistics to its advantage is Frito-Lay, a subsidiary of Pepsico. Frito-Lay is a producer of snack foods, and it had traditionally relied upon its own fleet of trucks to ship products from its thirty-eight plants to its twenty-seven distribution centers. As the company expanded, the management decided that is was not economical to produce every product at every plant, and so the company started to specialize production at plants. However, it did not fully understand the impact of the new strategy upon the logistics system. Shipping distances grew increasingly longer from the specialized production facilities to warehouses, and the company's private trucks usually had to return to their origin empty. Subsequently, Frito-Lay began to utilize an increasing number of common carriers to distribute its products to its distribution centers, but this did not go smoothly. Therefore, Frito-Lay decided to outsource the responsibility for managing its transportation operations to Menlo Logistics. Menlo has been able to reduce the carrier base by 50 percent and to negotiate discount rates for the remainder of the carriers on a national basis. The routing of trucks is handled by Menlo Logistics, which has a staff member on site at Frito-Lay's headquarters in Plano, Texas. Frito-Lay's transportation savings exceeded 10 percent the first year, which was significant in this highly competitive market arena.

As a concluding comment regarding the use of 3PL providers, there is a current trend toward the involvement of 4PL providers, to help manage a number of 3PLs that may be involved with a company's operations, a 4PL is looked to for provision of competencies relating to knowledge availability, information technology, and skills in forming and sustaining successful supply chain relationships.

Technology-Based Strategies

It has been evident for some time that the realization of future logistics and supply chain goals will depend significantly on the further development and utilization of information technologies. Whether is be in the form of hardware, software, or connectivity, these technologies will be the springboard for progress and innovation.

A notable trend in the technology area is the increased utilization of e-commerce and the further development and refinement of synergies between e-procurement and strategic sourcing.

There are already significant shifts underway in terms of online capabilities to facilitate direct materials purchasing, For example, there are significant shifts from capabilities such as phone/fax and EDI to more contemporary technologies such as E-mail, Extranets, and E-marketplaces.

Strategic sourcing helps to simplify and streamline E-procurement activities. Alternatively, E-procurement assists strategic sourcing by fostering a more rational buying environment and by making more efficient and effective use of procurement-related resources.

Last, the movement toward electronic marketplaces will help to better distinguish between and enhance the capabilities of transactional versus collaborative capabilities. Among the activities included in the transactional category are: identifying new materials suppliers, finding and establishing prices for products and materials, and purchasing materials from suppliers. Examples of collaborative capabilities include: communicating delivery requests to suppliers, communicating production requirements to suppliers and optimizing production schedules, and managing and communicating engineering changes.

Relationship-Based Strategies

An area of significant strategic interest is that of relationships and relationship for information in the logistics and supply chain processes. Although the proceeding chapters have provided a number of perspectives on this topic, experience to date suggests that major challenges lie ahead with respect to our ability to develop and sustain effective relationships. As indicated earlier, one of the major attributes of using the services of 4PL is that this type of firm specializes in a number of areas, including relationship management. Thus, this area represents a critical challenge for future logistics and supply chain mangers.

Collaboration

The contemporary topic of importance is "collaboration." Most simply, collaboration occurs when companies work together for mutual benefits. Since it is difficult to imagine very many logistics or supply chain improvements that involve only one firm, the need for effective relationships is obvious. Collaboration goes well beyond vague expressions of partnerships and aligned interests. It means that companies leverage each other on an operational basis so that together then perform better than they did separately. It creates a synergistic business environment in which the sum of the parts is greater than the whole. It is a business practice that requires

• Parties involved to dynamically share and interchange information
• Benefits experience by parties to exceed individual benefits
• All parties to modify their business practices
• All parties to conduct business in a new and visibly different way
• All parties to provide a mechanism and process for collaboration to occur

There are three important types of collaboration: vertical, horizontal, and full. Descriptions of these are included here:

• Vertical collaboration refers to collaboration typically among buyers and sellers in the supply chain. This refers to the traditional linkages between firms in the supply chain such as retailers, distributors, manufacturers, and parts and materials suppliers. Transactions between buyers and sellers are automated, and efficiencies can be significantly improved. Companies can share plans and provide mutual visibility that causes them to change behavior. A contemporary example of vertical collaboration is collaborative planning, forecasting, and replenishment (CPFR), an approach that helps buyers and sellers to better align supply and demand by directly sharing critical information such as sales forecasts.
• Horizontal collaboration refers to a relationship that is buyer to buyer and/or seller to seller, and in some cases even between competitors. Essentially, this type of collaboration refers to business arrangements between firms that have parallel or cooperating positions in the logistics or supply chain process. Horizontal collaboration can help find and eliminate hidden costs in the supply chain that everyone pays for by allowing joint product design, sourcing, manufacturing, and logistics.
• Full collaboration is the dynamic combination of both vertical and horizontal collaboration. Only with full collaboration do dramatic efficiency gains begin to occur. With full collaboration, it is intended that benefits accrue to all members of the collaboration. The development of agreed-upon methods of sharing gains and losses is essential to the success of the collaboration.

Dell Computer: Supply Chain Excellence ²

In the high-tech universe, Dell Computer Corp. is a force of nature. In less than 20 years, company founder Michael S. Dell built a $25 billion company, besting the likes of IBM, Hewlett-Packard, and Compaq Computer in the process. Along the way, his build-to-order model has blossomed into a new manufacturing paradigm. Impressively, the Austin (Tex.) company also has weathered the technology meltdown. Rival Gateway Inc. has posted consecutive quarterly losses, and Hewlett-Packard Co. has eliminated over 3,000 management jobs. Outside the PC sector, things are worse: Cisco Systems Inc. eliminated up to 8,500 jobs after writing off $2.5 billion in unsold inventory.

What insulates Dell from these troubles? The difference comes from Dell's super-efficient supply chain. Dell focuses relentlessly on driving low-cost material from the supplier through the supply chain to our customers. The low-cost producer will be the ultimate winner, and that's reflected in Dell's steadily rising market share. They are the top PC producer.

Dell's success is based upon the efficiency of its supply chain. Materials costs account for about 74% of its revenues. They spend over $20 billion on materials. Shaving a 0.1% off that cost can have a bigger impact than improving manufacturing productivity by 10%.

Dell is known for operating lean. They carry about five days' worth of inventory. Their competitors carry 30, 45, or even 90 days' worth of inventory. This is critical because of the PC industry. Prices fall by about 1% per week. So if a competitor has four weeks' worth of inventory and Dell has one week of inventory, then Dell may have a 3% cost advantage. This can mean a 2% to 3% advantage on the bottom line to Dell.

Dell schedules every line in every factory around the world every two hours - they usually only bring into the factory two hours' worth of materials. Typically, they run a factory with about five or six hours' worth of inventory on hand, including work in progress. This decreased the cycle time at factories and reduced storage space. Dell replaced this space with more manufacturing lines. It takes a tightly knit supplier base to deliver on such a schedule. Their top 30 suppliers represent about 75% of their total costs. Add in the next 20, and that represents about 95%. They deal with all of their top 50 suppliers daily, and some many times a day.

They monitor practically every part, every day. If they are running out of a part, it might be because demand is outstripping supply. They try to solve the supply problem first. They may call the supplier to see if they can increase the next shipment. If it's a generic part - like a hard drive, they may check alternate suppliers. Once they have exhausted their supply options, they go to the sales and marketing group to help shift the demand to something else. This all happens within a few hours.

Dell interacts with 10,000-plus customers every day. That gives them 10,000 opportunities to balance supply and demand. If they are running out of a part, then they know ahead of time. They can communicate with the sales department and move demand to items that they have.

They can alter lead times. For example, they may extend the lead time on a high-demand item from the standard 4 to 5 days to 10. In this case, they know statistically how much demand will move. They may do a promotion. If they are short on Sony 17-inch monitors, they might offer a 19-inch model at a lower price, or even at the 17-inch price. They can alter pricing and product mixes in real time via Dell.com. Their competitors that are building to sell through retail channels cannot do that.

Perpetual balance of supply and demand is their main goal. If they are in perpetual balance, they can always meet customers' delivery expectations. It also helps to minimize excess and obsolete inventory. Dell writes off between 0.05% and 0.1% of total material costs in excess and obsolete inventory - that's about $21 million across their global business in a year. In other industries, that figure is probably 4% to 5%. Their competitors probably have to write off 2% to 3% worth of excess and obsolete inventory.

They coordinate their suppliers via the internet. All of the data goes back and forth on the Internet. From the long-term planning data (volume expectations over the next 4 to 12 weeks) to the two-hour execution systems, which are making automatic requests for replenishment, every supplier can view order information via the Web.

Their goal is to get suppliers to connect their machines to Dell's machines to eliminate manual intervention to get the data. Their goal is to replace inventory with information. The more information they get to their suppliers quickly, the faster they build the product, the faster they receive materials from suppliers, the faster they alleviate a problem.

DoD versus Private Industry

There appears to be a high level of interest in the Department of Defense in embracing many of the innovative best practices in supply chain management being utilized by the private sector. The Army, for example, has initiated a program called Velocity Management to decrease lead times and lower inventory requirements. The Marine Corps has established an Integrated Logistics Capability Office to study and implement best practices. The Marines are in the final stages of defining their business processes which will ultimately allow sharing information from OEM to the Using Unit. To achieve this objective, the Marine Corps will require a new operational architecture which they hope to implement in the near future.

One of the keys to change is education. Various parts of DoD including DLA, the Marines, the Army and the Navy are investing in educating their personnel about industry's best practices. This effort is being directed at both active duty logisticians and senior civilian employees. These educational programs teach and demonstrate best practices across the entire spectrum of logistics and supply chain education - information technology, performance measurement, inventory management, collaboration, strategic purchasing, etc. The heightened awareness of industry best practices should have a major impact on implementing change.

The Department of Defense has some unique challenges when compared to a private sector company. DoD supply chains are very complex. For example, the Defense Supply Center in Columbus, Ohio (DSCC) manages 1.8 million unique inventory items (nsn's) for distribution compared to the typical Home Depot store which has 70,000 to 75,000 items. DSCC has 22,000 customers of which 450 (about 2% account for 80% of their sales. They receive 3.2 million requisitions a year with an average value of $185 per order and 75% of the requisitions are under $100. These small, low value orders present a special challenge to efficiency.

The 1.8 million items of inventory at DSCC have a value of over $3 billion. About one-third (600,000) of the inventory items are obsolete or discontinued items. However, they must be maintained for aging weapon systems. For example, the Minuteman Peacekeeper ICBM's are 30-40 years old but inventory items to support this system must be maintained. As demand goes down, lead times go up and some suppliers are not even in existence any more or have problems supplying the parts.

The Department of Defense is challenged by its annual budgeting system and various government regulations regarding acquisition and contracts. So in addition to the inherent complexity, there are barriers to the flexibility often enjoyed in private industry. However, there is opportunity for improvement.

The Military Services need to improve their transparency of supply and maintenance information. At present, there is very little information sharing between the using unit and supporting unit. As the private sector has learned - information is power for improved efficiency and effectiveness. As indicated in the description of WalMart, information can be a substitute or trade-off for inventory. Information reduces uncertainty which in turn reduces the need for safety stock which is often a major component of inflated inventory levels.

Inventory visibility is a missing ingredient in many parts of DoD. Inventory is difficult to track and trace which often leads to having too much of the wrong types of inventory (low demand or obsolete) and not enough of the right type (high demand). Inventory visibility and information transparency have contributed significantly to the successful supply chains in the private sector.

Another area for improvement is horizontal sharing of information and integration across the Military Services. Within a particular service, there are frequently "functional stovepipes" which contribute to inefficiency and reduce effectiveness. For example, acquisition, supply, logistics, distribution and transportation may be acting independently and suboptimizing the overall performance. In fairness, it should be pointed out that some private sector companies have similar problems or shortcomings. However, there is much opportunity to eliminate the stovepipes and resolve the turf issues.

Process definition and software integration can play a major role in resolving the issues identified above. Efforts are under way in various parts of DoD to move in this direction. The DoD supply chains are complex which makes the process mapping and definition a challenge. However, a bigger challenge is the technology integration. There are so many old, obsolete legacy systems in DoD that it almost defies integration. However, significant initiatives appears to be underway using ERP systems and related software to move aggressively ahead on system integration.

Summary

The 1990s was a decade of great change for private and public organizations. There were major external forces driving this change including an "empowered" consumer, wholesaler and retailer consolidation, deregulation, globalization and technology development. The more intensely competitive marketplace led private companies to aggressively look for methods and approaches to improve their efficiency while also becoming more effective in serving their customers.

Supply chain management has developed as a significant approach for such efficiencies and improved effectiveness. Reduced cycle times, more efficient asset utilization (inventory, facilities and equipment), collaboration among supply chain members, effective use of technology, etc. were all outcomes of the supply chain management strategies that private sector companies put in place to drive lower costs and better customer service.

The Department of Defense has embraced many of the supply chain concepts, and some organizations within DoD have moved ahead aggressively with educational and implementation programs to take advantage of what the private sector has developed. However, there is still much opportunity for improvement.

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¹ This paper is based in part upon The Management of Business Logistics: A Supply Chain Prospective , by John J. Coyle, Edward J. Bardi and C. John Langley, Thomson/Southwestern, 7th Edition, 2002.

² Based upon "How Dell keeps from Stumbling", BusinessWeek , May 14, 2001.