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Why The US Army Turned To IBP

Its supply chain is one of the most challenging to manage in the world

28Apr

It is no exaggeration to say that wars are won and lost as a result of poor supply chain management. Chinese general Sun Tzu, author of The Art of War, once said that the ‘the line between disorder and order lies in logistics.’ If we think of the soldier as the end user, they are waiting for products like ammunition, food, water, medicine, and spare parts and fuel for tanks, transport, combat vehicles, and the like. Without these, they could be killed. The military ultimately has challenges and motivations to succeed that far outweigh those of any business, and there is much that commercial organizations stand to learn from them when it comes to logistics.

The US Army, in particular, has long been at the forefront of supply chain innovation. It is the best funded military in the world, spending far in excess of the likes of China and Russia. It has roughly 800 military bases in more than 70 countries and territories abroad, all of which vary significantly in size and manpower. To put that into perspective, Britain, France, and Russia have around 30 foreign bases combined. The Department of Defence has long enlisted PhDs and funded major research to improve the logistics necessary to cope with supply chain management at this scale. It also often looks towards developments made in the commercial world, particularly over the last couple of decades when it has worked hard to harness digital technologies that can increase efficiency and transparency in their business processes. One of the most important of these is Integrated Business Planning (IBP).

Sales & Operations planning (S&OP) was first developed in 1987 as a solution for operational issues. It now incorporates demand management, feasible supply and capacity planning, product portfolio management, financial integration, customer and supplier integration and resource management, among others. It uses the Sales, Marketing, Supply Chain, Finance and Executive functions for its forecasting. IBP takes this one step further, looking to fulfil the same functions as S&OP while also incorporating such elements as financial modeling and project strategy.

Robert Dietz, Vice President of Supply Chain at Charter Steel, notes, ‘I look at Integrated Business Planning (IBP) as the integration of the S&OP or tactical planning processes with the strategic planning processes and the execution/order management processes. The emphasis on an overall Integrated Business Planning process helps companies better understand that there is a difference between the strategic, tactical and execution processes. I have seen many companies fail in their attempt to implement S&OP because they tried to merge the tactical/master planning and execution/scheduling into one process. Linking S&OP into the Budget or Plan process streamlines and reduces much of the work typically required with annual Budget or Plan processes.’

IBP has been a tremendous boon for the US Army. Jim Dwyer, principal deputy chief of staff for logistics and operations planning at AMC headquarters, noted, ‘When I found out what S&OP does in combination with supply-chain management, I understood that we could do that here in the Army. I knew it would be hard, but I knew the benefits would far outstretch the pain and expense of implementation.’

At the recent S&OP summit, Jim Correll, principal at Oliver Wight, the firm hired to guide the army through IBP, ran through the five parts of the process and outlined how the US had benefited, as well as some of the challenges along the way.

The first step in the process is the product management review. This is simply knowing where your new products before you forecast. For the product review, you have to ask yourself if you’re on schedule with your new products and, if not, do you want to accelerate it to get it back on schedule, or reschedule it? The second step is the demand review, which is the forecast. Here, you need to have the right information or senior management will likely lose faith in the entire process. The information needs to be clearly presented so it is both easy to understand and actionable. The same goes for the third step, which is your supply review. Do you have enough supply to deal with unconstrained demand so that there will be no surprises later?

As we work through these three steps, we are also undergoing integrated reconciliation and financial appraisals. Integrated reconciliation means asking what the issues are and can they be solved there and then, or do they have to go to the reconciliation review where people get together and ask what are we going to take to the top management for resolution. This is ultimately all about identifying where the gaps are and filling them. In financial appraisals, results are compared to performance measures, the business plan and strategies. If it’s not in alignment with strategy, there are two choices - figure out how to align it more to strategy or change the strategy.

As a result of implementing IBP, the US Army managed to cut inventory by $4.5 billion in its first year of implementation in 2014 and $6bn over two years. Annual storage costs fell by $60 million, while inventory staff was reduced by 50%. It also reported increased visibility of future inventory requirements as well as better cash flow and increased supplier capacity.

Obviously, the army has challenges like few other businesses, if any. However, many are, at there core, the same. For example, command’s logistics managers were initially reluctant to use a commercial model and were not used to being asked for their real-world demand data. However, they soon came to understand why it was needed when they saw the results. This is not uncommon in the commercial world, and when overcome, the results are often equally as good. Over the past couple of years, we have noticed an increased focus toward more IBP in organizations as a result of various drivers, both internal and external, that have posed an impact on the operational aspects of the business. In a recent survey by JDA/SCMWorld, 63% of more than 1,000 supply chain executives questioned said they believe that making the move from S&OP towards IBP has been beneficial, noting that their company’s IBP is effective and impactful, and offers them greater risk management and resiliency capabilities. Commercial enterprises would do well look at the US Army’s experience as a benchmark. 

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