Defense Supply Chain Management and Best Practices

Introduction

Distribution managers need to recognize that defense supply chain management is a worldwide phenomenon characterized by speed and significant overlap across management levels — from strategic national stakeholders down to sustainment units. Changes in strategic distribution decisions can have profound tactical implications. This paper seeks to support globally responsive logistical decisions. Material and distribution managers should study and internalize the defense supply chain model early in their careers. Distribution is a complex process; therefore, material distribution managers should incorporate electronically sustainable information systems in order to achieve true synchronization (Velasquez et al., 2015).

Problem Statement

To safeguard efficiency and ensure operational effectiveness simultaneously, members of the armed forces should focus on their core competencies and make use of modern forms of financing and cooperation. Initiatives such as the Public Private Partnership have expressed such trends, with broad application across a variety of systems around the globe (Hartley, 2002). It is clear that defense equipment carries significant potential. Nevertheless, the armed forces lack sufficient management tools to inspire the pursuit of long-term relationships that traditionally characterize the market for defense equipment.

Literature Review

According to Melnyk et al. (2010), an effective supply chain management system should incorporate one or more of the following six strategic outcomes: responsiveness, security, cost, resilience, sustainability, and innovation. The investment that firms make is driven by their desired outcomes, which are applied at various levels across most supply chains. Defense supply chains are unique and typically base their primary outcomes on responsiveness — the capacity and ability of a supply chain to react effectively to changes in demand, customer location, and product mix. This maps directly onto the central objective of defense teams: readiness.

Research on closed-loop supply chains, according to Guide and Van Wassenhove (2009), employs one of two key methods: profit maximization driven by the market, or waste-stream cost-of-compliance reduction. These perspectives reflect the regulatory and economic realities in the United States and most European countries, respectively. It has also been observed that an organization solely focused on profits develops a different pattern of sourcing and supply relationships (Fleischmann et al., 2001), compared with an organization focused on compliance with environmental regulatory restrictions.

This paper introduces and explores a third closed-loop supply chain objective as defined by defense forces, illustrating how a focus on readiness influences the final design of the supply chain. Readiness, from the military's perspective, is the ability to fight and to satisfy the demands of national military strategy (U.S. Department of Defense, 2010). This requires enhanced manpower training capabilities, sustainable equipment, and reliable weapon systems. The paper combines this central strategic outcome with the strategic options regarding the capabilities necessary to achieve it (Wilhite et al., 2014).

Much of the closed-loop supply chain literature originates from military practices involving the stocking of aircraft components. Some of these items could be repaired at the field unit level, while others were sent to a central depot for repair or disposal (Guide and Srivastava, 1997). A system for managing repair-parts inventory for the Air Force was developed by Sherbrooke (1968), referred to as METRIC. Subsequent research refined his estimation model for a multilevel echelon system that facilitated transshipments. A study by Fisher and Brennan (1986) concerning the cannibalization of equipment for spare parts found that, while cannibalization is acceptable under certain conditions, complete cannibalization is not.

Multi-echelon inventory theory was examined by Demmy and Presutti (1981) in the context of limited repair funds, with a clear motivation drawn from Air Force Logistics Command practices. Closed-loop supply chain concerns in private markets have also been informed by these studies. A broader study on returns, policies, and their impact on overall performance was conducted by Ostlin, Sundin, and Bjorkman (2008). Lieckens and Vandaele (2012) explored the complex aspects of supply chain design with respect to collection, production, transportation, and uncertain supply. Uncertain and unknown process times translate to quality decline, while matters relating to sourcing manufactured parts and the corresponding investments in repair capacity have received comparatively less attention.

Drawing on the guidelines outlined by Guide and Van Wassenhove (2009), this paper applies economic methodology to establish the strategic importance of supply chain design and the incentives that accompany military supply chains. Three key observations follow. First, the military does not face market competition; therefore, market-based incentives are irrelevant. Second, the military controls the returns process, meaning spent costs are returned to base and subsequently directed to manufacturing units. Third, the military is itself part of the manufacturing process.

Conclusion

There are steering tools designed primarily for the private sector that become apparent when examining classic supply chain management frameworks. The armed forces, however, possess specific and unique characteristics that render the direct adoption of prevailing supply chain tools inappropriate. Literature gaps therefore exist with respect to the tools, procedures, and approaches required for defense transportation systems and for the efficient and secure management of military supply chains.

It would be imprudent to leave supply chain capabilities to chance. While emergence plays a role in supply chain outcomes, focused and purposeful action is central to achieving intended design results (Rungtusanatham, 2001). Leveraging the positive outcomes of supply chain design can present strategic advantages to an organization. Long-life systems such as weapons within defense supply chains face a specific and unique set of challenges. Total Ownership Cost (TOC) in these environments is related to product development, deployment costs, and long-term sustainment — determining at what level is sufficient to maintain systems over time in a closed-loop supply chain mode. These costs are typically high, the pool of qualified suppliers is limited, pricing competition is reduced, and TOC is correspondingly elevated. This study highlights the point at which it is in the best interest of an organization such as the defense forces to develop internal capabilities to compete with external suppliers, with the purposeful aim of reducing TOC.