Overview of RAND’s Supply Chain Management Research Supply Chain Risk

Overview of RAND’s Supply Chain Management Research Supply Chain Risk Leadership Council Nancy Moore and Elvira Loredo October 8, 2008

Outline Overview of RAND DoD’s supply chain challenges RAND’s supply chain research Logistics 08 2

What Is RAND? An independent, nonprofit research institution founded in 1947 by the Air Force to preserve the war effort of scholars A producer of multi-disciplinary, quantitatively oriented research A tackler of large, complex problems A center for education and training in policy analysis Logistics 08 3

We Are Guided by Our . . . Charter “To further and promote scientific, educational, and charitable purposes, all for . . . public welfare and security of the United States.” Mission To help improve policy and decision-making through research and analysis Core values Quality and objectivity Vision To be the world's most effective and trusted global provider of research and analysis Logistics 08 4

RAND Has Evolved to Meet New Needs Research for Research and Analysis person years 600 500 400 National security 300 Domestic and international 200 100 0 1940s Project RAND formed by USAAF at Douglas Aircraft 1950s First nonUSAF study The RAND Corporation formed 1960s 1970s RAND Graduate School established First work for OSD, civil agencies Domestic Research Division formed 1980s Project RAND becomes Project AIR FORCE FFRDC 1990s RAND Europe and Science and Technology Policy Institute formed Army and OSD FFRDCs formed First sustained work in private sector 2000s RAND-Qatar Policy Institute opened RAND Gulf States Policy Institute opened Logistics 08 5

Our Research Is Typically Characterized by . . . Issues that involve: An analytic approach that is: Competing objectives and perspectives Integrative, collaborative, and multidisciplinary Intersection of public/ private interests Empirical, with technical depth and methodological rigor "Messy" data, major uncertainties Implications for the future Innovative, but informed by past findings Buttressed by demanding standards of quality and objectivity RAND strives to build long-term relationships with its clients Logistics 08 6

RAND's Key Resource Is Its 737 Member Professional Research Staff Degree Discipline Degree Level No degree 1% Arts and letters Social sciences Political science and international relations 8% 5% 11% 12% 8% 3% Physical sciences 9% Math, operations research, statistics 3% Business and law Computer sciences 12% 7% Life sciences None 1% Behavioral sciences 11% Policy analysis Other 1% 10% Bachelors 11% Masters 30% Doctorate 57% Economics Engineering Logistics 08 7

RAND’s Customers Defense – Air Force, Army, Navy, Marine Corps, Defense Logistics Agency, U.S. Transportation Command, Office of the Secretary of Defense Other federal government – Department of Health and Human Services, Department of Justice, Department of Homeland Security, National Science Foundation, State and local governments – State of California, City of Los Angele, Foundations – Pew, McArthur, Robert Wood Johnson, Companies Logistics 08 8

All RAND Department of Defense Research Is Conducted by FFRDCs Congress est. 36 Federally Funded Research and Development Centers Long-term contracts to ensure independence encourage long-term engagement on key issues Source: FAR. FFRDCs . Access to Government and supplier data, including sensitive and proprietary data, and to employees Required to operate in the public interest with objectivity and independence Free from organizational conflicts of interest Not . use its privileged information or access . to compete with the private sector 10 DoD FFRDCs, RAND has 3 IDA CNA NDRI PAF Arroyo Center Studies & Analysis Engineering & Technology Development Logistics 08 9

Outline Overview of RAND DoD’s supply chain challenges RAND’s supply chain research Logistics 08 10

A Significant Portion of DoD’s Budget Goes to External Providers DoD Total Obligation Authority (TOA) ( B) 100 178 14 354 34 347 40 380 50 447 76 341 86 368 142 520 276 472 291 364 254 364 287 618 (Constant FY 2008 Dollars) 604 (Nominal Then-Year Dollars) Personnel 90 Procurement 80 RDT&E Goods and services 60 50 40 30 20 10 0 F Y 48 F Y 50 F Y 52 F Y 54 F Y 56 F Y 58 F Y 60 F Y 62 F Y 64 F Y 66 F Y 68 F Y 70 F Y 72 F Y 74 F Y 76 F Y 78 F Y 80 F Y 82 F Y 84 F Y 86 F Y 88 F Y 90 F Y 92 F Y 94 F Y 96 F Y 98 F Y 00 F Y 02 F Y 04 F Y 06 Percent 70 Source: OUSD(Comptroller), National Defense Budget Estimates for FY 2009, March 2008, Tables 6-1 and 6-2 http://www.dod.mil/comptroller/defbudget/fy2009/fy2009 greenbook.pdf NOTE: Data in Constant FY2008 Dollars. Logistics 08 11

DoD Purchases, Operates, Repairs, Modernizes, and Overhauls Weapons - It Does Not Make Them Supply Base Goods and services Enterprise Weapon Systems Air Force Manufacturing Assemblies, Sub-components, Parts Avionics Army Navy Products Purchasing Customers Marine Corps Central Command Logistics Pacific Command Supply Chain Returns Logistics 08 12

Military Supply Chain Management Faces Unique Challenges Operating environment – Often austere, hostile environments – Requires rapid response anywhere in the world – Unpredictable and widely varying operational tempo – Very wide range of material – Wide array of expensive service parts, many with low and highly variable demand Business environment – Benefits / outcomes not measured in monetary terms – Fixed, annual budgeting, regardless of potential project ROI – Political constraints Logistics 08 13

DoD Is Adopting/adapting Commercial Best Practices Where Appropriate Converting repair depots to lean operations Applying Six Sigma to processes Outsourcing some non-core functions – Performance Based Logistics (PBL) arrangements – Contractor Logistics Support (CLS) Adopting some best practices in purchasing and supply management Logistics 08 14

Outline Overview of RAND DoD’s supply chain challenges RAND’s supply chain research Logistics 08 15

Our DoD Research Has Spanned the Breadth of Supply Chain Management Inventory management Distribution network design and management Database integration and metrics development Process improvement Purchasing and supply management Demand surge planning Transfer pricing and financial management Product design for supply chain Fleet management Outsourcing analyses Logistics 08 16

Examples of Logistics Research Helped military adopt lean thinking and dramatically improve the order fulfillment process Developed integrated global distribution database and metrics now used to control and improve the system Helped minimize total costs through improved global inventory positioning based upon the tradeoffs among inventory, transportation, and material handling costs New inventory approaches to better handle the Army’s low, sporadic demand problem New strategies to better leverage global distribution network capacity in contingency operations Methods for determining what to position where to improve responsiveness to global contingencies Logistics 08 17

Purchasing and Supply Management (PSM) Research Began with a request to help the Air Force develop a strategic approach to competitive sourcing Looked to the commercial sector for lessons Account for differences in missions, personnel rules, and legislative and regulatory constraints Broadened research focus to support efforts to improve “recontracting” activities Emphasis on services acquisitions Tracked revolution in commercial sector purchasing and supply management practices Brought lessons to the Air Force and participated extensively in implementation activities Pioneered the use of spend analysis in the Air Force Provided important contributions to the area of performance based services acquisition Expanded to other Services and agencies Logistics 08 18

Supply Chain Policy Center New research center focused on the challenges facing the global supply chain to include Effects of supply chain disruptions and shifting trade patterns Identifying physical, operational, regulatory, and legal freight transport system vulnerabilities Public and private sector implementation strategies to improve the freight transport system Opportunities for advanced technologies to play a role in addressing critical issues, such as security, enhanced productivity, and environmental mitigation Logistics 08 19

What RAND Brings to the SCRLC Knowledge of DoD’s supply chains – Legacy processes, practices, systems Advanced operations research/analytics Multidisciplinary skills/approach Expertise in – Product/aftermarket support – Influencing policy makers – Synthesizing best practices and adapting/adopting them in a government setting Logistics 08 20

Key Milestones in RAND PAF PSCM Research 1997 - Began SAF/AQC sponsored study of best PSCM practices Case for change, market research, supply strategy development, services contracting, low demand items, measuring PSCM benefits, performance-based supplier relationships, Supplier Relationship Management (SRM), Supply Chain Risks, 1999 – Pioneered spend analyses in AF and DoD Gained senior leadership support 2005 – Briefed Gen Carlson, AFMC/CC, Commander’s Conference on Leading Successful Change 2004 – Briefed Gen Martin, AFMC/CC - directed PSCM implementation across AFMC Commodity Council’s, Supplier Relationship Management (SRM) established 2001 – Began support of F100 PSM Pilot 2001 – Briefed Dr. Roche, SAF, & Gen Ryan, CSAF Logistics 08 22

Supply Chain Risk Leadership Council (SCRLC) “Bring industry luminaries together to advance the discipline of Supply Chain Risk Management through best practice sharing and collaboration around specific objectives such as supplier relationships, risk metrics, and risk methodology” “Driving thought leadership and best practices” No industry-standard metrics exist for measuring supply chain risk, including supply chain resiliency. Cisco is working with leading companies in an effort to develop standard metrics and best practices. Logistics 08 23

SCRLC Members Cisco Toyota Boeing FedEx P&G Nokia Jabil Zurich tsmc Bank of America Department of Homeland Security Stanford University Michigan Ross School of Business Logistics 08 24

About RAND RAND: A private, non-profit research institution founded in 1947 by the Air Force to preserve the war effort of scholars Mission: Helping to improve policy and decisionmaking through research and analysis Values: Quality, objectivity, independence Strengths – Multi-disciplinary teams – Large, complex problems – Number crunching Logistics 08 25

Principal Research Areas Transportation Children and and Adolescents Infrastructure Terrorism and Homeland Security Substance Abuse Science and Technology Public Safety Civil Justice Providing practical solutions to complex problems Supporting evaluation and implementation Enhancing policy debates Training future policy analysts Improving knowledge and analytic methods Education Energy and Environment Health and Health Care Population and Aging U.S. National Security International Affairs Logistics 08 26

Research Areas Related to Supply Chain Risk Transportation Children and and Adolescents Infrastructure Terrorism and Homeland Security Substance Abuse Science and Technology Public Safety Civil Justice Providing practical solutions to complex problems Supporting evaluation and implementation Enhancing policy debates Training future policy analysts Improving knowledge and analytic methods Education Energy and Environment Health and Health Care Population and Aging U.S. National Security International Affairs Logistics 08 27

A Matrix Organization Supports Disciplinary Affiliations and Cross-RAND Research Board of Trustees President and Chief Executive Officer Executive Vice President Research Staff Management RAND-Qatar Policy Institute Behavioral and Social Sciences Economics and Statistics International and Security Policy Management Sciences Policy Sciences Technology and Applied Science RAND Project AIR FORCE Army Research Division RAND Arroyo Center RAND National Security Research Division National Defense Research Institute RAND Institute for Civil Justice RAND Infrastructure, Safety, and Environment RAND Education RAND Labor and Population RAND Europe RAND Health Pardee RAND Graduate School RAND Gulf States Policy Institute Logistics 08 28

RAND's Training Programs Are Integral to Our Research Military Fellows Graduate student summer associates program Pre-and post-doctoral programs Professional development programs for minority scholars Logistics 08 29

Where: RAND's Presence is Increasingly Global Jackson Santa Monica Pittsburgh Washington DC Langley AFB New Orleans Cambridge Moscow Doha Headquarters Other offices Field sites Logistics 08 30

RAND Conducts DoD Supply Chain Research as Part of Broad Research Programs (1 of 2) Arroyo Center – – – – Strategy, Doctrine, & Resources Force Development & Technology Logistics Manpower & Training Project AIR FORCE – Aerospace Force Development – Manpower, Personnel and Training – Resource Management – Strategy and Doctrine Logistics 08 31

RAND Conducts DoD Supply Chain Research as Part of Broad Research Programs (2 of 2) National Security Research Division (also includes non-DoD research outside of NDRI) – National Defense Research Institute (NDRI): OSD, Joint Staff, Combatant Commands, the defense agencies, and the Navy – Research Centers International Security and Defense Policy Acquisition and Technology Policy Forces and Resources Policy Intelligence Policy – International Programs: Asia-Pacific, Middle East, Russia and Eurasia, Long-Range Global Policy – Programs: Maritime, Military Health, Counterterrorism Logistics 08 32

DoD Has Large, Complex Supply Chain Challenges Breadth of goods purchased – Boots, bullets, fuel, food, weapons Many different types of weapons – Guns, trucks, tanks, helicopters, missiles, fighters, bombers, tankers, unmanned aerial vehicles Broad range of technology – Very old, low technology to very new, high technology Highly variable/sporadic parts and repair demands Customers deploy and move Supply chain a target in contingencies Changing geopolitical environment Political constraints on funding, purchasing, outsourcing, reallocating resources Logistics 08 33