Part grouping: angioplasty for the supply chain: a part grouping system, however, effectively leverages a supply chain by arranging the production of individual items into groups that are based on common manufacturing processes - Agile Combat Support

Air Force Journal of Logistics, Spring, 2003 by Michael C. Yusi

By working in a part grouping system, a small business (that may depend entirely on a defense contract) struggling with cashflow, since it produces only a few items with low demand density, has an opportunity to broaden its production of items; increase its density of demand; and subsequently, increase its cash-flow. This makes even further sense if this low demand density company has additional production capacity it is not able to fully optimize because of its limited business profile; therefore, risk of entering into a more dynamic part grouping system is even less compared to the potential payoffs in profits. In addition, by leveraging common manufacturing processes through multiple manufacturers, smaller businesses that have some additional and unique manufacturing capability critical to the Department of Defense (DOD) have opportunities to break into and thrive in a competitive supply chain. This is in lieu of just getting by because of their previously limited market share. Peter J. Higgins, a logistics management specialist at the Army Logistics Management College states, "As a result of fewer and smaller DoD contracts, some vital production capabilities unique to the defense industry are in jeopardy. For corporations to remain viable, their individual components must be profitable, or they will be shut down." (8) A part grouping system sweetens the business pot for a supply chain to have more diverse manufacturers, keeps special capabilities that may be unique to support aged weapon systems alive and well, provides more reliable sources of supply for the supplier, and puts vigor back into a cool industrial base.

In 1999, the Pentagon chartered the Defense Science Board (DSB) to look at the health of the defense industrial base. The DSB task force stated, "Unless action is taken soon, the US defense industry will likely be less competitive and financially viable in 5-10 years." (9) One of the recommendations from the DSB was to structure DoD programs to preserve a competitive industrial base. (10) With a $15.2B (in annual sales) supplier like DLA, cash incentives and broader opportunities, using a part grouping system, become exponential and can strategically influence and preserve the industrial base from a national perspective. (11) As a result, hardening of the supply chain arteries can be slowed, stopped, or even reversed.

Smoothing Demand Variability and Reducing Production Lead Times

Figures 1 and 2 show the difference in demand variability between parts managed individually versus by part grouping system. (12)

[FIGURES 1-2 OMITTED]

Why is this important? For a manufacturer, more demand variability with individually managed items (Figure 1) means more opportunity to be in an out-of-stock position if demands unexpectedly spike or if interruptions occur. This is because demand variability is tough to anticipate in a highly dynamic supply chain environment, such as what exists today with aging weapon systems incurring more first time demands for spare parts exceeding life-cycles. So if a manufacturer is managing parts individually, it can attempt to mitigate demand spikes by carrying more inventory, holding reserve production capacity to meet needs as they occur, or producing parts with more shift work (if possible) when demands increase. If it is not able or is unwilling to do any of these actions, a supplier and its customers are immediately a production lead time (PLT) away from getting the part needed once inventory echelons are consumed. This cannot be overstated since PLT, especially for aviation weapon system spares, can average from 6 to 8 or easily exceed a year. (13) The bottom line is a supply chain equation not conducive to agile support in the warfighting business: Nonagile Combat Support (fx)[[up arrow] manufacturer demand variability] * [[up arrow]PLT] * [[up arrow]deferred deliveries to the supplier] * [[up arrow]passed on costs] * [[up arrow] customer back orders]. Results of this kind of algorithm stifle mission capability for warfighters. For a large supplier like DLA, this situation may occur frequently since it supports highly dynamic customers (military services) subject to no-notice and high operations tempo missions. This drives unexpected demand variability into its supply chain, attempting to support more than 1,350 weapon systems.