Put Supply Chain On High Alert

Lo-jis-tiks. Whether you're a global manufacturer, distributor, or the U.S. military, logistics is something you should care about. But, to care about it requires a complete understanding of what it is. Logistics involves more than moving stuff from point A to point B. It deals with procurement, maintenance, and transportation of products as well as the facilities and personnel that handle the products. Sound complicated? Well, it is. Just ask Mac McCollough, deputy director of the U.S. Navy ATAC (advanced traceability and control) hub in San Diego. He can tell you stories of logistical nightmares you wouldn't wish on your closest competitor (well, maybe you would)

Broken Parts, Disconnected Supply Chain Yield High Costs
The United States Navy operates billions of dollars worth of planes and ships that are deployed throughout the world. Like anything mechanical, these massive destroyer ships, F/A-18F Super Hornet fighter planes, and SH-60 Seahawk helicopters require maintenance. To replace broken aviation and ship equipment can cost more than a million dollars for a single part. The cost to repair these items, however, is about 1/3 of replacement. The cost of the part itself is not the only concern, however. With Naval units deployed throughout the world, there must be a mechanism in place to collect parts and get them to repair facilities. The Navy has an ATAC (advanced traceability and control) Fleet Industrial Supply Center in San Diego and one in Norfolk, VA, that serve as broken-parts collection points, or hubs. "We exist for the sole purpose of ensuring that items are properly identified and sent to the appropriate repair facilities as quickly and inexpensively as possible," says McCollough. "By consolidating shipments and repairing parts instead of buying new parts, the government - and taxpayers - save millions of dollars a year."

Parts in need of repair were not sent directly to the hubs. A squadron would drop off parts at a civilian-operated shipping and receiving site, get a receipt, and then the sites would ship the parts to the San Diego or Norfolk hub. "Because the initial collection point was not Navy-operated, we often received parts three to four weeks after they had been dropped off for repair," says McCollough. "This delay caused a bottleneck in the supply chain and led to several problems, including delaying credit owed to the sending squadrons and also forcing our ICPs [inventory control points] to purchase new parts to keep their inventory at a safe level."

The way the process worked was that when an aviation or ship component was damaged, the squadron immediately ordered a new part from either the Mechanicsburg, PA, ICP (for ship parts) or the Philadelphia ICP (for aviation parts). Next, the squadron would turn in the damaged part to the nearest civilian shipping site, and the site would send the broken parts to the San Diego or Norfolk hub. After receiving the part, the hub would determine whether the item was repairable. If it was, the hub entered the repair information into its intranet-based TIR (transaction item reporting) application, which gave visibility to the ICP, and sent the part to a repair facility. This event notified the ICP that a credit was due to the squadron. "At that time the squadron's operating account [called OPTAR] would be credited for 50% of the cost they had paid for the new item," says McCollough. "Getting this credit as soon as possible was essential for the ship or aviation squadron to work within its operating budget." Because of delays at the sites, squadrons weren't getting their credits for more than a month. This put a significant strain on their operating budgets - often in the neighborhood of hundreds of thousands of dollars. And, if the part was lost along the way, it was very difficult to track, delaying the credit process by several more months. "In some cases, the squadron would not get credited for turning in the repair item and would have to eat the cost of a new part, which would come out of its OPTAR budget," says McCollough.

A second problem caused by the delay was that the ICPs weren't informed that there were several repairable items already in the pipeline. This forced ICPs to purchase new parts to keep their inventory at safe levels.

A Better Supply Chain System Is Up For Bids
In 1999, a congressional mandate allowed the Navy to compete against private industry for certain government jobs. One of the jobs that went up for bid was the receiving and shipping job that had been handled by civilian contractors for the Navy. "To everyone's surprise, it was a government contractor that won the bid," says McCollough.

Following the congressional mandate and changes in receiving personnel, a government-issued PWS (performance work statement) order went into effect. The PWS was an 80-page document that defined how the Navy needed to comply with MEO (most effective organization) standards. "The MEO requirements told us we needed proof of receipt and proof of delivery for every item we handled, including when items were received and shipped." Previously, the civilian contractors were not required to show much proof of anything, which was a significant contributing factor to delayed repairs and other snafus. The PWS required each receiving and shipping site maintain copies of receipts for each ATAC item received and keep this copy on hand for five years. And, oh by the way, the Navy was going to have to do all this while at the same time eliminating 40 hub-level positions.

For Complicated IT Rollouts, Outsource
The government-operated receiving and shipping sites (called nodes) would play a key role in getting the supply chain up to speed, so integration into the Navy's supply chain was essential. If the Navy could extend its existing supply chain management solution to the nodes, repairable components would be entered into the supply pipeline sooner and repair items could be turned around more quickly. These improvements would reduce the number of new parts purchased and decrease the time it took to credit the squadrons.

McCollough selected supply chain and document management integrator Hershey Technologies (San Diego) to help with the rollout. After a two-month business analysis process, the integrator presented its plan to the ATAC Fleet Industrial Supply Center. By January 2000, the rollout was underway, and it was completed three months later.

Hershey networked each of the 18 nodes to the Navy's FISC (Federal Industrial Supply Center) WAN (wide area network), which was accessed via a Web server located in the data center near the San Diego hub. Each of the nodes was equipped with a Fujitsu scanner, Hershey's ImageNet imaging software, and Cardiff Software's TELEform software, which enables nodes to scan and upload repair forms (DD1348) into the repository over a secure connection.

The ImageNet and TELEform software are able to read bar codes, convert paper forms to electronic images, and automatically populate a Microsoft SQL 2000 database, which is accessed by the hubs and ICPs. "The bar codes include information such as the name of the squadron, the serial number of the part it is turning in, the cost of the item, and the date the item was turned in," says McCollough.

Document Management Improves Supply Chain Visibility
By extending its supply chain to the nodes, the U.S. Navy bridged the gap that existed previously. "Instead of waiting 30 days before we see a repair item for the first time, we are aware of it the day it goes into the pipeline," says McCollough. "Not only are we able to see what parts are coming to us, but the ICP is able to see those same items and they can get an accurate view of their inventory levels and avoid ordering new parts." The squadrons now receive credit when they turn in damaged parts to the nodes. The nodes are able to identify the items as repairable, communicate the credit owed via the intranet, and issue a credit on the spot. "And, if a part is not repairable, we no longer have to ship it halfway around the world just to junk it," quips McCollough.

The Navy's new solution doesn't stop at the node level - it also affects how the hubs interact with the various repair centers. Now, after hubs receive parts from the nodes, they consolidate parts and ship them to the appropriate repair centers. For instance, all the aviation navigation devices (called gyros) may be consolidated and sent to a repair center in Pensacola, FL. Upon receiving the order, the repair facility signs and dates the shipping manifest, confirming receipt of the ordered parts. Then, the repair facility faxes the signed manifest back to the hub. The signature and date information is captured by ATAC's Captaris RightFax Server and uploaded to its ImageNet repository, serving as proof of delivery. This gives the hubs as well as the ICPs further visibility to where their parts are in the pipeline.

The PWS calls for keeping records for five years. To meet this requirement, Hershey Technologies networked the ImageNet repository to a nearline HP optical storage jukebox. Using Legato's DiskXtender software, completed repair item records - including images of the repair forms with signatures and dates - are automatically moved from the online RAID (redundant array of independent disks) 5 storage boxes to an HP jukebox. This helps keep the Navy's storage costs down and keeps its system performance from becoming sluggish.

Three years following the rollout, the Navy has witnessed a significant improvement in its shipping and receiving practices. "Visibility of repairable parts that used to take a month or longer to process are now being handled in 12 days," says McCollough. "What's more, we're accomplishing more now, and we have 40 fewer ATAC personnel." For McCollough and the other ATAC personnel, having the right tools has proven to be the logistical decision.