Organization structure servicing partnerships in the defense supply chain

Manomenidis, Ioannis

Introduction

Since the end of the Cold War, the UK has considerably altered the nature and role of its armed forces.’ With an ever increasing emphasis on gaining “Value For Money” and a defense budget that is decreasing year on year, there is a great emphasis on providing effective logistics support to operational forces. Increasing commitments to peacekeeping and humanitarian aid as well as the need for maintenance of numerous bases, in the light of the ever increasing price of technology for modern weapon systems, mean that force projection, maneuver tactics and expeditionary warfare must be supported by efficient logistics strategies, information systems and effective relationships with defense industry.2

Meeting such challenges has meant a massive paradigm shift from the old traditional approaches. No longer are static “just in case” stocks relevant today in the modern operational environment, nor are the large dedicated human and physical resources. Best practice logistics and supply chain management has given many commercial organizations a competitive advantage over their rivals. The UK military is seeking to emulate this within the defense environment (Strategic Defense Review, 1998).

This is not, however, a simple adoption of all and every commercial best practice? It is a careful analysis of more effective logistic strategies that can improve performance. It is an adaptation of relevant practices into the defense context.

This identifies a number of key issues:

The term “logistics” no longer refers merely to transport or storage. Logistics is a total process, developing from identification of need through procurement and manufacture to delivery, support and ultimate disposal. In some quarters this is Acquisition, to others it is Purchasing and Supply, yet others refer to it as Supply Chain Management.

Supply Chain Management could include commercial manufacturers, service providers, contractors and sub– contractors as well as the civil services and armed forces working in a coordinated, integrated manner.

In the Strategic Defense Review of 1998, the UK government introduced Smart Procurement, an approach to the Acquisition process that sought to improve time, cost and performance aspects for the purchase and support of equipment and materiel. The effect of this, which was based upon commercial approaches, has been far-reaching, with impact upon organizations, structures and relationships within many disparate activities.

Underpinning this is the key aspect of customer-supplier relationships. This can be considered both internally, within the Ministry of Defense, and externally, between the Ministry of Defense and its contractors. Vital to this is the strategy known as Partnering, originally developed from “Just-In-Time” concepts and further expounded in “Lean Thinking”. The notion of strategic relationships as a differentiation policy was produced in the mid 1980s by Kraljic with those aspects having greatest impact upon risk, cost and performance being regarded as critical and requiring the partnering approach to ensure competitive advantage. The aim is to design the production and the support in order to achieve immediate response to customer needs and flexible types of contracts in order to decrease the logistics delay.

Formulation of the Supply Chain

Purchasing nowadays is increasingly being considered as a strategic option4 and it is leading to strategic partnerships.5 A strategic contribution of Purchasing and Supply in product development follows specific steps:6

1. Determining which technologies to keep in-house and which to outsource.

2. Monitoring on a continuous basis the suppliers’ technological capabilities, the selection and the attraction of collaborative partners, exploiting technological competencies and assessing performance.

3. Project and product management.

Therefore, the potential of the logistics function is underestimated in those organizations where purchasing is isolated from strategic planning. Purchasing is wrongly considered as a purely financial function. Not only are the costs of equipment and supplies very important in the firms’ budgets, but logistics as a whole is also a function that introduces competitive advantage to the organization (P White and S.Hammer-Lloyd, 1999) and the armed forces by planning, organizing and managing the supply chain.

Integration with Industry Strategic Partnership & Outsourcing

What are the criteria in order to successfully select a partner? Graham and Hardaker’ indicated that the price is no longer the most attractive characteristic of a supplier. On the other hand, exploiting power over a supplier is not a successful strategy in the long run.8 It is expected that in our rapidly changing world, technological improvements are those making the difference; hence high technology expertise firms (those investing in technology and promoting it) are more likely to be selected for long-term relationships, especially when thinking of defense partnerships. Therefore, performance, cost profiles, delivering capabilities and operational flexibility to assist customers should be considered the advantages that a partner should have, as a direct outcome of a technological advance in the market. Although the above are the norm in the private sector, the public is not in favor of organizing the supply chain. The public industry or trading organizations could be considered as an impediment toward the development of a Supply Chain because they do not have the incentive to be involved in commercial practices (Julie Kennet et.al, 1998).

Cousins,9 in his research in strategic oriented businesses, found that the only way to gain a competitive advantage in the market was to share part of the business with suppliers, in a long term relationship, by creating an integrated supply chain. Sometimes, the development of technological advance and systems is dependent upon the establishment of higher technological requirements from the side of the customer,5 which could be the environment set by a dominant customer such as a government in defense procurement.

In addition, Quayle’s” research (1999) on the criteria affecting sourcing decisions from multiple sourcing to single-sourcing, which also leads to Innovation capability,5 indicates that investing in a partnership with a single supplier should be a sophisticated strategic decision. Such a decision demands explicit organizational policy toward single-sourcing and intensive effort to the direction of the integration of the supply chain.

Partnership & Outsourcing Advantages & Disadvantages

Research conducted in the Hellenic Armed Forces (Figure 1) found that opinions are divided between exploiting contractor’s competencies and saving resources to be used elsewhere. The research (Figure 2) also indicates that personnel are conscious of the loss of competencies, capabilities and control over activities.11 According to Berragan,12 “Everything behind fighting power should be considered for outsourcing”.

Offering trust makes one vulnerable. Kumar, in his research exploring the limits of trust between partners, shows that only 12 percent of partners were devoted to the partnership willingly. On the other hand, trust in partnership does not mean a lack of system or organization.

Partnering and Integrated Project Teams in Modern Defense Logistics

Furthermore, in the global environment where private firms could be potential partners in an international integrated supply chain, this cannot be easy for the Armed Forces, for obvious security reasons. On the other hand, Smart Procurement has created a clear direction upon which to follow. The key aspect of it is the potential that provides the Integrated Project Team (IPT) to take control over the supply chain and to bring Industry and Academia into this concept in order to: Create and adopt technological advances into new military acquisition in a whole life cycle approach and to sustain technological advantage by effective supply chain management.

* Change the culture from bureaucracy to an effective public sector philosophy to ensure faster, cheaper and better procurement.

In the same direction, and of more importance, the Armed Forces should be able to cooperate closely and develop and sustain a supply chain with the Defense Industry in order to design and produce the most suitable equipment for their needs. They should also:

* Recognize the similar needs of other countries.

* Undertake initiatives to encourage the creation of an IPT.

* Develop a flexible System Requirement Document (SRD) that could be adjusted to the needs of other ally countries.

The development of a strategic role of the purchasing in the Armed Forces shows more obviously than elsewhere the common obstacles presented by White and Hammer-Lloyd (1999). This indeed demands a more independent, if not purely independent, Logistics Organization responsible for planning strategic purchasing, empowered with sufficient authority and trust to deal with strategic and exclusive relationships, and sufficiently justified and monitored in order to comply with public finance and legislation.

There is a need for a renaissance of logistics in a new organization framework. This is obviously from a change management perspective because the previous structure will impede the necessary changes and innovations (Rangan et.al, 1996). In an old organizational structure, even the most innovative individuals would be less influential,”3 whereas a newly established one would provide the fertile environment for the development of a new master program utilizing current knowledge and practices with no organized resistance to change. The research undertaken in the Hellenic Armed Forces” is in accordance with the above showing that the fragmented tri-service supply function needs to be changed into a Unique and Joint Services Logistics Organization covering procurement of equipment and support through organizing and managing the supply chain.

A Modern Logistics Organization Structure

This follows the Smart Procurement philosophy.

Its major advantage is the development of IPTs and “a project-based structure” that “has received widespread support”.14 An IPT’s power lies in its responsibility over the equipment procurement and support through life, and especially in the co-existence of various specialities and stakeholders necessary to tackle every aspect that should arise.

Although what seems to be the disadvantage in the UK’s edition of the IPT, is actually the predecessors’ fragmented status that does not permit the new system to be integrated in a Logistics Organization responsible to manage both equipment procurement and support.

Obviously there is a need to keep continuity in the IPT and, at the same time, a very rich set of skills by its IPT members. This could be achieved through a core team of logisticians supported by specialists from the Organization’s matrix structure. Therefore, a modern Logistics Organization should be an “umbrella” matrix organization (Figure 3). It would consist of Specialist (Service) Organizational Departments, embody representation from industry, academia and other stakeholders, and would also be organized in functional structure with the Levels of Approval Authorities (Generals and Ministers). In order to be effective, it should also have direct authority over Support and Operational Logistics Units (Transport, Depots and Repair Agencies) and close cooperation with public and private partners through IPTs, and authority to study and activate partnerships.

An “umbrella” organization will embrace the various IPTs, each one being responsible for the ILS of the various types of equipment, by providing to every IPT specialist from each Specialist Department.

The IPTs should have two main responsibilities: firstly, take every appropriate initiative and prepare rigorous propositions concerning SCM and ILS and forward them to the appropriate level of Approval Authorities; secondly, monitor the implementation of the above decisions within their own budget constraints (under ILS and LCC).

Independence should be considered to be of great importance in the success of the Logistics Organization. This is compatible with the strategic role that logistics has under the modern philosophy of the management of the supply chain. Logisticians in a Logistics Organization should be internally ruled and controlled, and should develop the logistics body of knowledge and practices. This model provides IPTs independence to plan and execute their ILS project away from external influences. Effectiveness should be judged in terms of outcome under their budget constraints and pre-justified effectiveness criteria developed within the organization. Benchmarking, at least “against other armed forces” as Dean15 proposes, should be some evidence. In parallel, there will be an assessment of the Organization from the operational Units it supports.

The support (depots and repair facilities) and operational Logistics Units (transport and logistics in the field) should be able to effectively implement support plans and logistics operations.

The commercial partners will be connected to the Logistics Organization (approval authority) through each IPT.

In order to be successful in a strategic logistics environment, it is essential to take a holistic view.16 Modern logisticians should be able to recognize and gain, on behalf of their organization, the competitive advantage by reinforcing supply management activities and by developing new arrangements of strategic partnerships in the framework of the integrated supply chain.

Conclusions

The establishment of IPTs, not only to deal with Integrated Logistics Support and Life Cycle Cost, but also to introduce and manage the Integrated Supply Chain, with an emphasis on outsourcing and partnering, provides an indication of the way ahead. It very well may be that, for many countries, there is potential to develop from the successes of Smart Procurement. At the same time, it would be possible to ensure a unified, three-service Logistics Organization without the fragmentation that can arise from the structures of the past!

In addition, the most important characteristic of the described organizational structure is the dynamics it enables, to connect the Armed Forces with Industry, by having the ability to implement the ILS principles to all Units that have a specific equipment, even outside the Armed Forces (in the public sector or in other countries). The aim is that this Logistics Organization (or a network of allied Logistics Organizations), through its IPTs, could become the coordination element between all industries, especially if the supported equipment belongs to more than one country. Such an Organization could facilitate an international Command “network” to manage the integrated supply chains with a mission similar, but more modem, to that of the American Foreign Military Sales that for decades now supports the NATO countries.

Vision? If it is a vision of the future… it is one that can be achieved at least to the extent that the existing capabilities will allow!

End Notes

1. Hartley, K., “Defense Procurement in the UK”, Defense & Peace Economics, 6, 1, pp39-61, 1998 and Kirkpatrick, D., “The affordability of defense equipment”, RUSI Journal, pp 58-63, June1997.

2. Markowski, S. and Hall, P, “Challenges of Defense Procurement”, Defense and Peace Economics, 6,1, 1997.

3. Moore, D. and Antill, P, “Contractor logistics support: privatizing the tail to pay for the tooth?” Global logistics for the new millennium, proceedings of 5th int.symp. on Logistics, July, 12-15, 2000, Nottingham University, UK.

4. Carr, Amelia S. and Smeltzer, Larry R., “The relationship of strategic purchasing to supply chain management”, European Journal of Purchasing & Supply Management, Pergamon, vol. 5, No. 1, pp. 43-51, 1999.

5. Hall, Richard and Andriani, Pierpaolo, “Developing and managing strategic partnerships”, European Journal of Purchasing & Supply Management, Pergamon, March 1999, vol. 5, No. 1, pp.5365.

6. Wynstra, Finn, van Weele, Aran, and Axelsson, Bjorn, “Purchasing development in product development: a framework”, European Journal of Purchasing & Supply Management v.5, n3/4, pp. 129-144, 1999.

7. Graham, G. and Hardaker, G., “Defense Sector Procurement and Supply Chain relationships”, Supply Chain Management, 0, n.3, pp. 142-148, MCB University press – ISSN 13598546, 1998.

8. Nirmalya, Kumar, “The power of Trust in Manufacturer-Retailer Relationships”, Harvard Business Review, Nov-Dec 1996, pg. 92-106.

9. Cousins, Paul D., “Supply-based rationalization: myth or reality?”, European Journal of Purchasing & Supply Management, Pergamon, vol. 5, No.3/4, Sep.-Dec.1999.

10. Quayle, Michael, “Industrial procurement: factors affecting sourcing decisions”, European Journal of Purchasing & Supply

Management, v.5, n.3/4, pp. 199205, 1999.

11. Manomenidis, Ioannis, Captain, “The attitude of Hellenic armed forces logisticians to current logistics trends”, Master’s Dissertation, Cranfield University, RMCS, Shrivenham, 2000.

12. Berragan, Nigel, Major, “Outsourcing activities at Doddington”, Cranfield University, RMCS/DLM Dissertation presentation, Vincent Centre, July 20, 2000.

13. Fynes, Brian and Antii, Ainamo, “Organizational learning and lean supply relationships: the case of Apple Ireland”, Supply Chain Management, v.3, n.2, p.96-107, ISSN 1359-8546.

14. Amisson, D.P, Major, “IPTs: a study of team effectiveness”, Cranfield University, RMCS/DLM Dissertation presentation, Vincent Centre, July 20, 2000.

15. Dean, Mark P, Captain REME, “Technical trends and best practice in respect of maintenance and lean logistics in the commercial sector will facilitate change in the Organization of REME”, Cranfield University, RMCS/DLM Dissertation presentation, Vincent Centre, July 18, 2000.

16. Cooper, Robin and Chew, W.Bruce, “Control Tomorrow’s Costs Through Today’s Design”, Harvard Business Review, vol. 1, Jan.-Feb 1996, pp. 88-97.

Authors’ Biographies

Captain Ioannis Manomenidis is a

Hellenic Air Force officer He graduated the Hellenic Air Force Academy as a Supplier (1988) and continued his studies in Business Economics obtaining a BSc Degree (1993) at Aristoteleion University, an MSc in Economic Theory (1996) at University of Macedonia, Thessaloniki, Greece and the MSc Defense Logistics Management at Cranfield University, RMCS, UK.

In his carrier in the Hellenic Air Force, he served at 1OCW and 113CW as a stores manager, equipment manager, a logistics staff officer and finally as a director of provisioning. He is currently appointed at the 201 Logistics Centre.

He has been a member of SOLE, Thessaloniki Chapter, since 1999, and is currently responsible for developing defense logistics in Greece.

David Moore has a managerial background in purchasing and supply, having operated in the public and private sectors in organizations such as British Gas, the Post Office and 3M. In an academic role since 1988, he has developed Chartered Institute of Purchasing and Supply and MBA programs in a wide range of delivery modes, including in-company and directed learning courses.

Until recently, he was a Lt Colonel in the Royal Logistic Corps (TA) where he commanded a Supply Regiment and held an SO] appointment. He regularly undertakes training and consultancy assignments, and has worked in the USA, Europe, the Gulf, Singapore, Hong Kong and the UK. He contributes to Masters programs, and is an external examiner at a number of universities.

He is now course director of the MSc Defense Logistics Management program at RMCS Cranfield University.

He is currently working toward a Doctorate in Education where his focus is on the training and education of acquisition and logistics professionals.

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