Organization structure servicing partnerships in the defense supply chain

Logistics Spectrum, Jul-Sep 2001 by Manomenidis, Ioannis, Moore, David

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).