DLA's New Inventory Management Strategy

by Major General Hawthorne L. Proctor and Captain Aaron J. Cook

A Defense Logistics Agency initiative in partnership with the services will combine consumable inventories into a single national inventory.  For the Army, this will mean DLA ownership of Army assets in forward stockage locations.

    The Defense Logistics Agency (DLA) is working closely with the Headquarters, Department of the Army (DA), G4 and elements in the other armed services to construct a new inventory management strategy that will revolutionize today's military logistics. This new strategy, called the National Inventory Management Strategy (NIMS), will comply with and enhance the Single Stock Fund (SSF) initiative by eliminating redundant asset management operations and the costs associated with them.

    DLA and the Army have partnered to examine the application of this initiative to the Army under the title of Consumable Supply Chain Management-Army (CSCM-A). The partnership's goal is to reduce the amount of Army funding tied up in consumable inventories and enable Army procurement activities to spend money on repair parts and specific mission requirements. With the successful implementation of NIMS and CSCM-A, the Army will gain increased flexibility and expand its opportunities for stock positioning in peacetime and on the battlefield.

DLA and other agencies have worked for several years to create a supply system that will realize the benefits of a single point of management, from the point of acquisition to the point of consumption. The linear concept of the Army SSF—using a single fund to manage money through the entire chain of execution—created the template for NIMS and CSCM-A to follow.

National Inventory Management Strategy

    NIMS is DLA's strategy for extending supply chain management of consumable items beyond the wholesale level in order to provide products and services to the point of consumption. This new inventory management approach will combine the consumable inventories of DLA (the wholesale level) and the armed services (the retail level) into a single national inventory that can be managed in a more integrated manner (see chart at right). In coordination with the services, DLA will manage this national inventory to increase the efficiency, productivity, and effectiveness of the entire consumable supply chain.

    NIMS will result in DLA owning and having accountability for the national inventory for consumable items, from procurement to the supply support activity. This single owner-manager concept will improve supply efficiencies by reducing inventories, improving the responsiveness of logistics support, and providing complete visibility of the supply chain.

NIMS and Improved Responsiveness

    DLA's oversight of a national inventory will enable it to manage a commodity from the point of acquisition to the point of consumption for all of the armed services. Reducing the number of layers of inventory management will improve demand forecasts and stock efficiency.

    NIMS will provide a larger total inventory for the Defense community, which will improve cross-leveling of supplies and better meet demands across the services. The consolidation of consumable inventories under a national manager will improve the effectiveness of total asset visibility for all of the services. It will provide the

 
NIMS will combine separate DLA and service inventories into one national inventory owned and managed by DLA from the point of procurement to the point of consumption.

          Old Way                                                       NIMS Way

NIMS will combine separate DLA and service inventories into one national inventory owned and managed by DLA from the point of procurement to the point of consumption.

 flexibility to customize logistics requirements, thereby achieving tailored support for every type of customer and unit. Stock positioning initiatives also will benefit from this improved visibility, which will increase distribution efficiencies.

Changes at the Unit Level

    One of DLA's primary objectives is to make the transition to a national inventory as transparent as possible to the customer so the customer sees minimal changes to legacy systems. A number of information technology options are being reviewed and considered. As these new management strategies transform the current supply system, the end users of the management information systems will see very little change.

    The most significant change end users will see after NIMS implementation is improved efficiency. A considerable benefit of NIMS will be the single point of access it provides for system users and warfighters in place of the multilayered management of the current supply system. Having DLA function as the national manager will allow the services to focus more on warfighting than on submitting requests and inquiries to today's fragmented materiel support system.

NIMS Status and Timeline

    Today, DLA has successfully accomplished a national inventory approach for energy, medical, and subsistence commodities and continues to make progress with clothing and textiles. Class IX (repair parts) is the next step, and by far the most challenging, because of the diversity of items and multitude of suppliers involved. The chart on page 4 depicts the phases of NIMS implementation and the timeline for these phases to be completed during fiscal years 2002 and 2003.

    The Navy is testing the NIMS concept successfully at Defense Depot Yokosuka, Japan, where DLA has assumed the ownership of intermediate stocks for 11,000 items previously owned by the Navy. Another test program is underway at Naval Air Station Sigonella, Italy. Based on the results so far, the Navy and the other services are pursuing new initiatives to reduce service working capital funds.

    The Marine Corps has designated Marine Corps Base Camp Lejeune, North Carolina, as its NIMS test site. Approval of the test site was granted after a series of briefings to the Marine Corps Logistics Advocacy Board at Headquarters, Marine Corps; the commander of Marine Forces Atlantic; and the commanding general of the II Marine Expeditionary Force. The Intermediate Supply Support Activity at Camp Lejeune

 
NIMS will be implemented in these phases during fiscal years (FYs) 2002 and 2003.

NIMS will be implemented in these phases during fiscal years (FYs) 2002 and 2003.

 stocks approximately 4,000 line items worth over $10 million. A memorandum of agreement between DLA and the Marine Corps currently is being staffed for signature, and representatives are being identified to form the DLA/Marine Corps NIMS Joint Working Group. DLA is working closely with the Marine Corps to identify and develop information technology to support the NIMS concept that can be integrated into the Marine Corps logistics enterprise. The Marine Corps plans to implement NIMS testing by 1 October.

    The Air Force is working to finalize the selection of a pilot site. DLA and Air Force discussions indicate that an air logistics center may be the leading candidate. The Air Force has numerous supply initiatives ongoing at this time but has acknowledged that NIMS may provide additional benefits.

    The Army has selected Fort Carson, Colorado, as a pilot site to begin testing by 30 September. CSCM-A, the Army component of NIMS, has undergone intensive planning and coordination among DA headquarters, the Army Materiel Command (AMC), and DLA. After a successful pilot of CSCM-A at Fort Carson, NIMS will be phased in across the Army, transforming the current supply system into a streamlined structure that better supports the future warfighter.

CSCM-A

CSCM-A is a joint Army-DLA initiative to evaluate and implement DLA ownership of assets in Army forward stockage locations. The CSCM-A initiative affects supply class II (personal demand items), packaged class III (petroleum, oils, and lubricants), class IV (construction and barrier materials), and class IX consumables. It will allow business to be conducted directly between the Army customer and DLA, thereby minimizing Department of Defense costs.

    The CSCM-A initiative envisions DLA fully implementing supply chain management responsibility for those DLA items in installation, corps, and theater Standard Army Retail Supply System (SARSS)-1 accounts, AMC Installation Supply System (AMCISS) accounts, and non-Army-managed items (NAMI) in all nondeployable, nondivisional operations and maintenance retention stocks. This will achieve the goal of ownership of supplies as far forward as possible under one agency—DLA. After Milestone 3 of the SSF [which basically extends the SSF to division authorized stockage list inventories], DLA will assume ownership and management of those DLA items stocked at the Army division level.

    CSCM-A is a logical extension of the Army SSF initiative because it reduces the number of owners of consumable supplies before those supplies reach the final consumer. The SSF will create a seamless logistics and financial process with nationally owned and managed inventory at worldwide stock locations and fully integrated accounting procedures. CSCM-A will help to meet the goals of the SSF and NIMS by giving DLA ownership of NAMI stocks. DLA will continue to manage these low-cost, high-volume consumable items, which made up 78 percent of total Army demands in fiscal year 2000, in a more integrated manner.

    DLA's supply chain management of NAMI stocks will eliminate multiple handling of supplies and dollars, creating a direct line of management of the items from procurement to the final sale to the unit that will consume them. By transferring total management of NAMI supplies to DLA, the Army potentially could avoid nonrecoverable costs such as commodity business unit (CBU) operations, installation handling, transportation redistribution, and information technology costs.

    The elimination of redundant systems will save money and increase efficiency by creating a more reliable and effective supply system that meets the financial goals of the SSF. As NIMS and CSCM-A transform supply functions, customers will have centralized access to NAMI information through DLA.

Savings From NIMS and CSCM-A

    A business case analysis, completed by Dynamics Research Corporation (DRC) in February 2001, examined the effects of streamlining the supply operations management of all remaining NAMI for which DLA is the national manager. DRC determined that DLA NAMI ownership would not require significant cost adjustments or cause disruptions to existing source-supply-customer activities. DRC therefore recommended transferring ownership of those NAMI for which DLA already is the national manager from the Army to DLA. To put this transfer into perspective, the fiscal year 2000 value of all Army supply classes (Army-managed items and NAMI) was estimated at $15.82 billion, of which NAMI constituted $1.6 billion, or about 10 percent.

    Initial estimates indicate that this transfer will result in savings to the Army in a number of areas. In addition to the CBU cost avoidance already mentioned, the number of electronic transactions could be reduced by 45 percent; this reduction would result from DLA's centralized system processes and would save approximately $400,000. Eliminating obsolete NAMI inventory would save approximately $1.9 million, and new NAMI storage operation efficiencies would save $31 million.

    DLA's assumption of ownership for these NAMI stocks will not occur without some costs. Information technology for new interface development and financial support costs will be approximately $2 million over the 5 years after DLA assumes ownership of NAMI stocks.

    In all, transferring NAMI stocks to DLA could save over $37 million within 5 years. As the new supply chain reaches maturity, savings could reach $10 million per year. Other economies are anticipated from the consolidation of NAMI storage locations. Reductions and efficiencies gained in distribution are estimated at more than $30 million over time but were not included in the business case analysis.

    NIMS and CSCM-A are two initiatives that DLA and the Army are working on closely to transform the current supply system into a more efficient system that meets every need of the warfighter as quickly and as cost effectively as possible. The future warfighter will not have time to wait for supplies to move through the supply system of today. Our goal is to revolutionize supply chain acquisition, distribution, and inventory management by creating a single supplier and a single point of sale to better serve the needs of the warfighter. ALOG

    Major General Hawthorne L. Proctor is the J3 of the Defense Logistics Agency at Fort Belvoir, Virginia, where he has oversight of both the National Inventory Management Strategy and the Consumable Supply Chain Management-Army initiatives. He has a B.S. degree in economics from North Carolina Agricultural and Technical State University and an M.A. degree in public administration from Central Michigan University. He is a graduate of the Quartermaster Officer Basic and Advanced Courses, the Army Command and General Staff College, and the Army War College.

    Captain Aaron J. Cook currently is an intern at the Defense Logistics Agency at Fort Belvoir, Virginia. He has a B.S. degree in accounting from Eastern Illinois University and is a graduate of the Armor Officer Basic Course, the Combined Logistics Officers Advanced Course, and the Combined Arms and Services Staff School.