The Army should take advantage of contributors at all levels to develop and distribute apps and other tools to fully realize the potential of the Global Combat Support System-Army. A concept similar to those used in commercial app stores should be implemented to distribute such tools and provide ratings for them. Operations Research and Logistics Decision Making. The Army is investing heavily in an effort to fully capitalize on the enterprise-wide promise offered by IT. Although enormous sums have been invested by the corporate world in ERP solutions, these investments have had very mixed results Brown, Emerging evidence indicates that it is possible to achieve dramatic improvements in performance and competitiveness with IT systems.
This success, however, has only been achieved by companies that have applied IT solutions to appropriate, efficient, and mature business processes. Information especially ERP systems alone cannot compensate for the lack of such a business-practices. In fact, the evidence suggests the opposite, that attempts to implement IT solutions absent such a business practices actually lead to poorer performance Heinrich and Simchi-Levi, It is important to differentiate between 1 the purpose and functions of OR, which uses knowledge-based decision support systems, and 2 transaction-based ERP technology, which is used to acquire and process raw data and to compile and communicate accounting reports.
ERP solutions have increasingly been touted as a panacea for all kinds of corporate decision-making processes, but they lack the analytical capabilities needed to optimize the efficiency of those transaction-oriented processes. Utilizing principles from mathematics, engineering, business, computer science, economics, and statistics, OR has developed into a full-fledged academic discipline.
Its purpose is to provide managers and executives with insight and guidance, using advanced analysis to interpret information and create knowledge for them as they apply their decision-making processes to complicated management issues Parlier, In the corporate world the term business intelligence is used to encompass both analytics and the data processes and technologies used for collecting, managing, and reporting decision-oriented information.
It is critical that the Army recognize and build on the potential offered by its ERP implementation by developing and connecting to analytic capabilities provided by decision support systems. What is needed is a symbiotic—not merely a complementary—relationship between decision support systems incorporating analytically based forecasting, planning, and optimization technologies and ERPs to fully capitalize on the promise of an integrated logistics enterprise.
The difference between ERP data systems and advanced analytics, which includes prognostic, predictive, and prescriptive analytics, is shown in Figure Furthermore, the Army materiel enterprise lacks an engine for innovation, a virtual test-bed that can provide a synthetic, nonintrusive environment for experimentation and evaluation of innovative ideas and concepts. Such a synthetic environment is needed to guide and accelerate transformational change along cost-effective paths, providing the analytical glue to integrate and focus what otherwise would be disparate initiatives and fragmented research efforts.
In essence, such a capability functions as an engine for innovation to sustain continuous performance improvement. If these existing, although limited, Logistics Innovation Agency capabilities. Not only would this allow the rapid assessment of useful logistics tools prior to their infusion into the force, but it would also dramatically improve enterprise supply chain management across multiple classes of supply. This is discussed in more depth in Appendix F. The Army lacks a comprehensive strategy and implementation plan incorporating effective decision support analytical tools i. In this era of dramatic resource constraints, the Army logistics community must better harness and apply operations research and strategic analytics across the materiel enterprise.
To obtain the full decision support potential of the integrated logistics enterprise, the Army should ensure that enterprise resource planning system data transactions and management information systems are complemented by the operations research capabilities needed to conduct modern analytics. The goal should be effective integration of analytics into organizational decision making.
The Army should develop an engine for innovation for the logistics community and adopt, apply, and refine management innovation as a strategic technology see Appendix F. Technology readiness levels TRLs represent one approach commonly used to support decisions on the front end of the acquisition life cycle pre-Milestone C.
No matter the life-cycle phase, sustainment or development, insight into issues of costwise readiness and affordability—the likely future operation and sustainment costs and cost growth —can be gained by simply asking whether specific sustainment concepts, policies, or methods are in use, are planned for use, or are not planned. The same is true for the ability to credibly relate budgets current resources to near-term readiness and for the ability to relate programs future resources to future capabilities.
With this in mind, there may be value in considering the concept of sustainment readiness levels SRLs. Analogous to TRLs, SRLs are post-Milestone C graduated thresholds for a sustainment maturity model, which consist of critical supply chain management policies applicable across all platforms.
The supply chain policies identified below support development of readiness-driven supply networks and, collectively, form the analytical foundation for pursuing and achieving cost-wise readiness. Their effects should be assessed and measured in terms of enterprise outcomes: Adopting such a sustainment maturity model would be a significant. Milestone C is an acquisition program review conducted at the end of the Engineering, Manufacturing and Development phase of an acquisition program.
For currently fielded systems in the sustainment portion of their life cycles, empirical impacts for various sustainment policies could be assessed using SRLs. For example, it could be determined whether a policy was being implemented with measurable effect within a cost-performance resources vs. For new systems, these criteria could be used as an assessment and planning checklist in conjunction with TRLs. This approach would be significant because the development of new programs has historically not focused for various reasons, including lack of empirical operational data on the costs and logistics implications of the operation and sustainment phase, even though sustainment costs typically constitute more than 70 percent of total life-cycle costs of a program.
SRLs could provide a means for DoD officials, program managers, and materiel management centers to address, and focus attention on correcting, numerous problems in supply chain management, including persistent deficiencies in demand forecasting, inventory policy, and strategic resource planning. Specific sustainment management policies—that is, catalysts for innovation refer to Box —should be included as critical enablers for this SRL concept.
Management policies for which SRLs can be established include these:. A broader discussion of the above concepts, including possible assessment criteria, is included as Appendix G. Inadequate attention has been focused on the long-standing need to correct numerous problems in supply chain management, including persistent deficiencies in demand forecasting, inventory policy, and strategic resource planning.
The Army should adopt critical supply chain management policies—catalysts for innovation—and apply a sustainment readiness level SRL maturity model concept to both currently fielded systems and new systems in development. Anecdotally, there are many instances when, as a program faces budget constraints which all programs inevitably do , the first requirements that are sacrificed are those related to logistics and sustainment. They are sacrificed in favor of those that more directly affect warfighting performance.
There exist many examples, such as relaxation in reliability, fuel consumption, system life, maintenance. Whether or not these ultimately proved to be good decisions, they were generally the best available to a responsible decision maker forced to operate with incomplete data. These decision makers, when choosing a logistics-related requirement rather than a nonlogistics requirement, are typically presented with the benefits of each choice in an apples-to-oranges comparison.
For example, reliability improvements to an artillery system, expressed in terms of mean time between failure, would not usually compete well against rate of fire, range, or other capabilities more easily quantified in terms of combat measures. Yet improved mean time between failure would have beneficial mission impacts such as more mission-ready systems available to the commander and less likelihood of a system or subsystem failing during a mission.
Despite its significant effort looking for apples-to-apples assessments of logistics versus nonlogistics system analyses, the committee was unable to find any. When systems are being developed, the results of logistics analyses are not quantified in terms of warfighting effects. As a result, logistics systems and logistics requirements do not fare well when competing with other types of systems or subsystems.
The Army should develop and implement methodologies to quantify the warfighting effects of logistics in analyses. While it can be difficult to perform comparative analyses of logistics and nonlogistics systems using common relevant measures of effectiveness, it is generally possible. The main requirements to successfully do this are quality analysts and well-designed tools.
Rather, the decision maker is usually forced to make a choice between two or more alternatives with only experience and advice from others with the same information deficits. No data exist to indicate how often a decision is made where the alternative would actually be a better choice for the Army. However, given that the decision is generally made to sacrifice the logistics requirement, and given the large portion of the Army budget devoted to support systems, it is likely that there is a substantial long-term cost impact of poor decisions.
The Contingency Basing Initiative is focused on making contingency bases more efficient, reducing waste, reducing energy demand by reducing usage and using alternative energy sources, and reducing water demand by more efficient usage and recycling efforts. Many logistics-related issues are not being addressed at TRAC-Lee, despite its role in performing logistics assessments. As a consequence, the potential impacts on tactical workload and unit-level workforce reduction have not been quantified. Nor has the possibility of significantly reduced forward stock levels or aggregate requirement objectives for CBM-enabled components been assessed.
With the exception of the Joint Operational Energy Initiative, a lack of analysis appears to generally be the case for most ongoing and contemplated logistics technology initiatives. Another example of failure to assess logistics impacts is the recent decision to reduce the size of brigade combat teams from 4, to 3, personnel authorizations within the current program which encompasses fiscal year [FY] to FY , assuming that robotics will somehow enable this reduction in manpower. TRAC-Lee has neither the necessary analytical experience nor the modeling capabilities to actually assess, much less validate, such a crucial decision.
As a result, they do not demand comparison of such alternatives using common metrics. The committee believes that such comparisons are usually possible, and Army decision makers should insist on such results from their analysts. Modeling and simulation resources personnel and tools are insufficient at Training and Doctrine Command Analysis Center-Fort Lee to evaluate, compare, and contrast various science and technology initiatives and their respective impacts on both the force structure alternatives currently under consideration and operational outcomes across the spectrum of operations.
Institutional enterprise-wide modeling, simulation, and analytical capacity for conducting strategic logistics is fragmented and is inadequate to provide the cause-and-effect understanding essential for designing the force of the future. The Army should revitalize its logistics analysis capability by acquiring the necessary tools and qualified people in quantities commensurate with the number and impact of logistics decisions that need to be made.
The Army should educate its leadership about what is possible in logistics analysis, and about the importance of demanding analyses of alternatives using common metrics. Operations Research Support for Logistics. Officer ORSA authorizations declined from 55 in fiscal year , including five colonels, to none by fiscal year , as shown in Figure Parlier, They have remained at zero until just a few years ago, when one position was restored to the U. Army Materiel Systems Analysis Activity.
Army civilian ORSAs also saw disproportionate cuts relative to the rest of the Army, declining from half of Army-wide authorizations in FY to less than a third by FY, where they remain today Figure Nearly all those that remain, however, are providing matrix customer support to program management offices as cost analysts rather than analyzing supply chain challenges.
Furthermore, in the case of the U. Army Aviation and Missile Command, for example, there have been no dedicated resources to support outsourcing logistics systems analysis, research, or studies for nearly two decades now Parlier, Army Aviation and Missile Command, August 22, This situation is not confined to AMC. Similarly acute conditions prevail across all levels of the materiel enterprise:. No authorizations for FA49; No authorizations for FA49 and no authorizations for civil servant ; Forces-Iraq had a robust contingent of deployed OR analysts from all Services, as well as contractor support.
For example, in early there were 31 Army FA49 field-grade officers deployed in a variety of organizations and staff positions across the major commands in-theater. However, no FA49 officers were assigned to the organization responsible for theater logistics operational planning, U. Forces-Iraq J-4, which had a staff of The Army has not conducted a thorough, comprehensive assessment of the state of OR for nearly two decades. The need for such an introspective, forthright evaluation is clear, especially for the logistics community given the paucity of existing analytical capacity personnel authorizations allocated to its various commands and organizations.
An analytical renaissance is desperately needed, long overdue, and a precondition for achieving the significant improvement that is not only possible but also can be realized within a relatively short time frame a few years rather than decades. The Army should make an appropriate investment in organizing the Army analytical community to better support the materiel enterprise. Such an investment is a precondition for sustainment excellence. In addition to rebuilding analytical capacity within the materiel enterprise, the committee strongly suggests a more comprehensive assessment of the state of operations research across the entire Army using an evaluation construct that includes analytical capacity, capability, utilization, organization, and contribution.
Air Ministry Publication Has IT made OR obsolete? Order Stability in Supply Chains: Coordination Risk and the Role of Coordination Stock. A Summer Bright and Shining. Shoemaker and Hoard, now Counterpoint Press. Supply Chain Management Review. Enabling a Transforming Army at War: In Proceedings of the Winter Simulation Conference. The Land Warfare Papers, No. Strategies for Management Innovation. Modeling the Supply Chain. The mission of the United States Army is to fight and win our nation's wars by providing prompt, sustained land dominance across the full range of military operations and spectrum of conflict in support of combatant commanders.
Accomplishing this mission rests on the ability of the Army to equip and move its forces to the battle and sustain them while they are engaged. Logistics provides the backbone for Army combat operations. Without fuel, ammunition, rations, and other supplies, the Army would grind to a halt. While aircraft can move large amounts of supplies, the vast majority must be carried on ocean going vessels and unloaded at ports that may be at a great distance from the battlefield. As the wars in Afghanistan and Iraq have shown, the costs of convoying vast quantities of supplies is tallied not only in economic terms but also in terms of lives lost in the movement of the materiel.
As the ability of potential enemies to interdict movement to the battlefield and interdict movements in the battlespace increases, the challenge of logistics grows even larger. No matter how the nature of battle develops, logistics will remain a key factor.
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Force Multiplying Technologies for Logistics Support to Military Operations explores Army logistics in a global, complex environment that includes the increasing use of antiaccess and area-denial tactics and technologies by potential adversaries. This report describes new technologies and systems that would reduce the demand for logistics and meet the demand at the point of need, make maintenance more efficient, improve inter- and intratheater mobility, and improve near-real-time, in-transit visibility.
Force Multiplying Technologies also explores options for the Army to operate with the other services and improve its support of Special Operations Forces. This report provides a logistics-centric research and development investment strategy and illustrative examples of how improved logistics could look in the future.
Enterprise Identity Management Towards An Investment Decision Support Approach 2013
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Operations Research and Logistics Decision Making The Army is investing heavily in an effort to fully capitalize on the enterprise-wide promise offered by IT. Improving Sustainment Support Technology readiness levels TRLs represent one approach commonly used to support decisions on the front end of the acquisition life cycle pre-Milestone C. Management policies for which SRLs can be established include these: Lack of Analysis of Logistics Issues Related to Acquisition Anecdotally, there are many instances when, as a program faces budget constraints which all programs inevitably do , the first requirements that are sacrificed are those related to logistics and sustainment.
Nonfinancial goals must, however, be carefully considered in light of a company's financial circumstances. A defense contractor in the United States, where shrinkage is a certainty, should not adopt a "no layoffs" objective, for example. Objectives must also be tailored to the different levels within an organization. For the head of a business unit, the objective may be explicit value creation measured in financial terms. A functional manager's goals could be expressed in terms of customer service, market share, product quality, or productivity.
A manufacturing manager might focus on cost per unit, cycle time, or defect rate. In product development, the issues might be the time it takes to develop a new product, the number of products developed, and their performance compared with the competition. Even within the realm of financial goals, managers are often confronted with many choices: We strongly believe that value is the only correct criterion of performance. Exhibit 2 compares various measures of corporate performance along two dimensions: Only discounted cash flow valuation handles both adequately. Companies that focus on this year's net income or on return on sales are myopic and may overlook major balance sheet opportunities, such as working capital improvement or capital expenditure efficiency.
Decision making can be heavily influenced by the choice of a performance metric. Shifting to a value mindset can make an enormous difference. Real-life cases that show how focusing on value can transform decision making are described in the sidebars "VBM in action.
Sidebar VBM in action: Managing the balance sheet In Company X, a large consumer products company, the performance of each of its 50 business units was measured by its operating margin or return on sales ROS. As Exhibit 8 shows, Company X was "doing better" than its average competitor because it was earning a But Company X had a problem. Its stock price was not performing well against the competition.
Management was dissatisfied and began to ask questions.
No one could understand why the stock market "didn't appreciate" the company's success. Company X was employing the wrong performance metric. Using ROS meant that it was completely ignoring balance sheet management. Consequently, its capital turnover sales divided by invested capital was only 1. Because of its emphasis on sales, Company X was overproducing and carrying excess inventories to minimize the probability of stockout.
Obsolete and outdated inventories necessitated periodic write-downs. Inventory management was a shambles. An even larger value creation opportunity existed in consolidating manufacturing operations. Several plants in adjacent geographical areas were underutilized. When the least productive were closed and output shifted to the most productive facilities, two benefits emerged.
First, less capital was employed to produce the same finished goods; and second, production became more efficient, raising operating margins. Company X failed to manage its balance sheet because of its emphasis on the wrong performance metric—return on sales. When it moved to ROIC and value creation, it discovered opportunities that had previously been missed.
An important part of VBM is a deep understanding of the performance variables that will actually create the value of the business—the key value drivers. Such an understanding is essential because an organization cannot act directly on value. It has to act on things it can influence—customer satisfaction, cost, capital expenditures, and so on. Moreover, it is through these drivers of value that senior management learns to understand the rest of the organization and to establish a dialogue about what it expects to be accomplished.
A value driver is any variable that affects the value of the company. To be useful, however, value drivers need to be organized so that managers can identify which have the greatest impact on value and assign responsibility for them to individuals who can help the organization meet its targets. One of the largest divisions of a money center bank, the retail bank, had been pursuing a "harvest" strategy.
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It had been underinvesting and taking cash out of the business. Unfortunately, it had also been losing market share, albeit slowly over a long period. This alternative was called the "aggressive growth" strategy. It was designed to win back market share at the same slow rate at which it had been lost—a fairly conservative approach. The crucial measure for this program was return on equity ROE projected over the next three years, as shown in Exhibit 9. The ROE for the aggressive growth strategy was lower than the harvest strategy for the first year, about the same in the second year, and only slightly higher in the third year.
When these results were shown to the bank's CEO, he at first could not understand how the aggressive growth strategy could be better, but he realized the answer when he saw its value creation potential. Why did the return on equity and the value creation performance metrics give such different answers? The reason is that most of the value creation potential was outside the three-year time frame that was used for making ROE comparisons at the bank. Valuation requires a longer view, because the value of a strategy cannot be estimated without forecasting the cash flows over the long run.
Value drivers must be defined at a level of detail consistent with the decision variables that are directly under the control of line management. Generic value drivers, such as sales growth, operating margins, and capital turns, might apply to most business units, but they lack specificity and cannot be used well at the grass roots level. Exhibit 3 shows that value drivers can be useful at three levels: Exhibit 4 illustrates value drivers for the customer servicing function of a telecommunications company.
Value driver trees like this one are usually linked into ROIC trees, which are in turn linked into multiperiod cash flows and valuation of the business unit. Total customer service expense, on the left-hand side of the tree, was an expense-line item in the income statement of several business units. Improving efficiency in this key function would therefore affect the value of many parts of the company. It took five levels of detail to reach useful operational value drivers. The "span of control," for example, was defined as the ratio of supervisors to workers.
A small improvement here had a big impact on the value of the company without affecting the quality of customer service. Percent occupancy is the fraction of total work hours that are spent at an operator station. Relatively minor changes here also have a major impact on value. What is important is that these key value drivers, although only a small part of the total business system, have a significant impact on value, are measurable from month to month, and are clearly under the control of line management.
To see how the numbers might work, consider the list of value drivers for a hard goods retailer shown in Exhibit 5. The value of the company derives partly from gross margin, warehouse costs, and delivery costs. Gross margin, in turn, is determined by gross margin per transaction and the number of transactions which can be themselves further disaggregated if necessary.
Warehouse costs are a function of the number of retail stores per warehouse and the cost per warehouse. Finally, delivery costs are determined by the number of trips per transaction, the cost per trip, and the number of transactions. Analysis of these variables showed that the number of stores per warehouse significantly affected the cost per transaction: The scale economies were substantial enough to support a strategy of growth through metropolitan concentration, rather than a shot-gun approach of scattering new stores over a wide area. The number of stores per warehouse thus became a strategic value driver.
Further analysis revealed that the number of delivery trips per transaction was very high. Whenever there were errors in an order or goods proved defective, multiple deliveries had to be made to a single customer. The retailer found that it was making an average of 1. Management believed this was high for the industry and thought it should be reduced to 1. Attaining this performance would increase value by 10 percent. So trips per transaction became an operating value driver as the company began to monitor its monthly performance.
Key value drivers are not static; they must be regularly reviewed. Once the retailer reaches its goal of 1. Identifying key value drivers can be difficult because it requires an organization to think about its processes in a different way. Often, too, existing reporting systems are not equipped to supply the necessary information.
Mechanical approaches based on available information and purely financial measures rarely succeed. What is needed instead is a creative process involving much trial and error. Nor can value drivers be considered in isolation from each other. A price increase might, taken alone, boost value—but not if it results in substantial loss of market share.
In seeking to understand the interrelationships among value drivers, scenario analysis is a valuable tool. It is a way of assessing the impact of different sets of mutually consistent assumptions on the value of a company or its business units. Typical scenarios include what might happen if there is a price war, or if additional capacity comes on line in another country? Thinking about such issues helps management avoid getting caught off guard and brings to life the relationship between strategy and value. Adopting a value-based mindset and finding the value drivers gets you only halfway home.
Managers must also establish processes that bring this mindset to life in the daily activities of the company. Line managers must embrace value-based thinking as an improved way of making decisions. And for VBM to stick, it must eventually involve every decision maker in the company. There are four essential management processes that collectively govern the adoption of VBM.
Enterprise Identity Management Towards An Investment Decision Support Approach
First, a company or business unit develops a strategy to maximize value. Second, it translates this strategy into short- and long-term performance targets defined in terms of the key value drivers. Third, it develops action plans and budgets to define the steps that will be taken over the next year or so to achieve these targets. Finally, it puts performance measurement and incentive systems in place to monitor performance against targets and to encourage employees to meet their goals.
These four processes are linked across the company at the corporate, business-unit, and functional levels.
Language selection
Clearly, strategies and performance targets must be consistent right through the organization if it is to achieve its value creation goals. Though the strategy development process must always be based on maximizing value, implementation will vary by organizational level. At the corporate level, strategy is primarily about deciding what businesses to be in, how to exploit potential synergies across business units, and how to allocate resources across businesses.
In a VBM context, senior management devises a corporate strategy that explicitly maximizes the overall value of the company, including buying and selling business units as appropriate. That strategy should be built on a thorough understanding of business-unit strategies. At the business-unit level, strategy development generally entails identifying alternative strategies, valuing them, and choosing the one with the highest value. The chosen strategy should spell out how the business unit will achieve a competitive advantage that will permit it to create value.
This explanation should be grounded in a thorough analysis of the market, the competitors, and the unit's assets and skills. The VBM elements of the strategy then come into play. Assessing the results of the valuation and the key assumptions driving the value of the strategy. These assumptions can then be analyzed and challenged in discussions with senior management.
Weighing the value of the alternative strategies that were discarded, along with the reasons for rejecting them. VBM often focuses business-unit managers on the balance sheet for the first time. Human resource requirements should also be specified. Summarizing the strategic plan projections, focusing on the key value drivers.
These should be supplemented by an analysis of the return on invested capital over time and relative to competitors. Analyzing alternative scenarios to assess the effect of competitive threats or opportunities. Developing business-unit strategy does not have to become a bureaucratic time sink; indeed, the time and costs associated with planning can even be reduced if VBM is introduced simultaneously with a reengineering of the planning process. Once strategies for maximizing value are agreed, they must be translated into specific targets.
Target setting is highly subjective, yet its importance cannot be overstated. Targets are the way management communicates what it expects to achieve. Without targets, organizations do not know where to go. Set targets too low, and they may be met, but performance will be mediocre. Set them at unattainable levels, and they will fail to provide any motivation.
Base your targets on key value drivers, and include both financial and nonfinancial targets. The latter serve to prevent "gaming" of short-term financial targets. Tailor the targets to the different levels within an organization. Senior business-unit managers should have targets for overall financial performance and unit-wide nonfinancial objectives. Functional managers need functional targets, such as cost per unit and quality.
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Link short-term targets to long-term ones. An approach we particularly like is to set linked performance targets for ten years, three years, and one year.