How often is the most efficient solution to a business problem also the most cost effective, for both customers and service providers? The answer is, unfortunately, less often than is desirable. When it comes to the storage and distribution for several Performance Based Logistics contracts, however, DLA Distribution has discovered an outcome that is efficient, effective and best value for vendors, customers and the Agency alike.
PBLs are inherently efficient, in and of themselves. By focusing on outcomes, rather than individual transactions, they can motivate manufacturers to produce premium quality products, saving customers money through reductions in rework, which also results in less parts and labor expense for the vendor.
The Department of Defense has been testing out PBL contracts for a few years, with the military services utilizing the contracts to set performance metrics on unit equipment. After discovering the inefficiencies in maintaining multiple service contracts for similar items, DLA has also begun combining item support contracts on weapons system parts into single performance-based agreements, with an end result of lower costs and increased capabilities for the Nation’s warfighters.
Now, DLA Distribution is taking the concept one step further, expanding DLA’s weapons system acquisition strategy to include organic storage and distribution on major end items and repair parts for collocated industrial maintenance activities.
“It was a natural evolution for DLA to expand on the success of PBLs by leveraging existing storage, distribution, and transportation capabilities to drive best value to DoD,” said Joe Faris, director of DLA Distribution’s Business Development Office.
Benefits to all stakeholders
Early PBL models fragmented storage and distribution for industrial customers. Contracts were established mandating items be housed by the manufacturer until requested, and typically a warehouse was contracted from a third-party logistics provider, with that cost passed on to the military service customer.
According to Faris, incorporating DLA Distribution’s infrastructure into PBLs ultimately reduces total weapons system program costs by reducing duplicate storage and distribution costs. By eliminating a PBL’s use of 3PLs and tapping into DLA’s existing storage and distribution network, DoD, and, ultimately, the final customer, avoids paying for a redundant warehousing capability.
Additionally, there are other efficiencies to be gleaned from DLA housing these items, says Faris, such as shortened delivery times. Rather than moving the items from an off-base 3PL warehouse to the maintenance activity, it can simply travel between the on-base, organic distribution center to the maintenance activity or vice versa. It also streamlines maintenance contacts, allowing maintenance activities to deal strictly with DLA, rather than a vendor and/or 3PL.
“The goal is to establish a single storage and distribution belly button for customers,” said Faris.
Finally, the merger provides a single audit-readiness solution. The benefit in DLA holding the government’s items, as opposed to a 3PL, is constant accountability. The items are integrated into DLA Distribution’s warehousing systems, creating a verifiable inventory controlled on a DoD-accountable record that is fully auditable.
Implementation at Oklahoma City
DLA’s first venture into integrating storage and distribution functions into PBLs occurred as part of an agreement between DLA Aviation and General Electric. DLA Aviation and GE had established and implemented a PBL contract to support the Air Force’s F-Series engines at Tinker Air Force Base in Oklahoma City, Okla.
Rather than moving the engines and repair items from a GE-contracted third party logistics provider to the Air Force’s maintenance activity on Tinker AFB, DLA Aviation approached DLA Distribution regarding the storage and distribution of these assets through its Oklahoma City distribution center, also located on Tinker AFB.
To avoid creating a redundancy in warehousing capabilities, the organizations brainstormed how DLA Distribution could provide the storage and distribution piece of the contract, allowing GE to cut the cost of utilizing a 3PL and to take advantage of existing capacity within DoD’s warehouses. With warehouse space available at the distribution center and transportation contracts already in place, the concept was deemed viable.
In November of 2014, a Memorandum of Understanding was signed by former DLA Aviation director Air Force Brig. Gen. Mark Johnson, DLA Distribution commander Army Brig. Gen. Richard Dix, and GE’s general manager of Military Customer Services justifying the agreement. The MOU established that DLA would perform supply chain management, materiel procurement and distribution in support of the F101, F110 and F118-100 engine programs.
Since the initiative’s June 1 launch, DLA Distribution has provided storage and distribution for approximately 140 National Stock Numbers- in this case, more than 23,500 items- in support of the program.
Faris says his team is looking to take advantage of other potential partnerships by regularly meeting with industry leaders and weapons system program managers to encourage DLA Distribution inclusion in upcoming PBL contracts.
“This integrated approach can leverage the core competencies of the services, industry and DLA to deliver cost-effective performance levels. We’re eliminating redundancies in the network and fully utilizing DoD’s existing infrastructure,” said Faris.
On the program manager side, DLA Distribution is partnering with the Marine Corps’ Light-Armored Vehicle program to support maintenance shops at collocated areas such as Barstow, Calif., and Albany, Ga. The initiative is set to launch in fiscal year 2017.
With 24 distribution centers located in seven countries, 16 states and one territory and a reach that extends far beyond DoD, it seems as though DLA Distribution has many opportunities to pursue lower costs for its customers through its inclusion in PBL implementation strategies.