Suppliers Conference Transforming the Defense Logistics Agency Allan

Suppliers Conference Transforming the Defense Logistics Agency Allan Banghart Director, Enterprise Transformation 26 August, 2003

Discussion Points q The Agency q Our Case for Change q Transformation q BSM Backbone - Concept Demo q The Rest of Transformation q A Look Ahead 2

The Agency 3

The DLA Enterprise… • • 1312 Weapon Systems Supported $80 B Inventory 20 M Requisitions 23 M Receipts & Issues 132 M Net Barrels of Fuel Sold $13. 5 B Reutilizations/Disposals 22 Distribution Depots 4000 contracts/day 4

The DLA Enterprise… People 21, 000 civilians 500 active duty military 600 reserve military 48 states 28 countries 5

The DLA Enterprise… FY 02 Sales/Services: $21. 5 B § Supply Centers Columbus Richmond Philadelphia § Energy Center § Distribution § Other $2. 3 B $2. 7 B $7. 8 B $5. 9 B $18. 7 B $1. 4 B FY 03 Sales/Services: ~$25 B 6

The DLA Enterprise… Foreign Military Sales §Sales $719 M §Shipments 670 K DLA’s Top 100 customers include 24 nations 7

Scope of Business • • 1312 Weapon Systems Supported $80. 5 B Inventory 132 M Net Barrels Sold $13. 5 B Reutilizations/Disposals 20 M Annual Requisitions 23. 3 M Annual Receipts & Issues 22 Distribution Depots People 21, 000 civilians 500 active duty military 600 reserve military 48 states 28 countries Fortune 500: 2003 -DLA #78 FY 02 Sales/Services $21. 5 B -Lockheed Martin Foreign Military Sales #79 § Supply: $18. 2 B § § Supply Center Columbus $2. 3 B Supply Center Richmond $2. 7 B §Sales $719 M annually Supply Center Philadelphia $7. 8 B §Shipments: 670 k annually Energy Support Center $5. 9 B Distribution $1. 4 B annually DLA’s Top 100 customers include 24 nations Disposal $. 3 B annually 8 Stockpile $. 3 B annually Document Automation & Production $. 4 B

Our Case for Change 9

Case for Change 1998 – “We Need to Change!” • Legacy Systems on Final Breath Designed in the sixties, built in the seventies – 6, 000+ lines of COBOL code → Mainframe environment, batch processing → Stove piped applications, multiple instances → Time late, data & financial integrity issues – Five previous re-systemization attempts failed 10

Case for Change 1998 – “We Need to Change!” → Rapidly Changing Business Environment • Transactional Customer Relationships → Typical Do. D-Supplier Relationships → Inflexible Business Alignment • Customer Dissatisfaction → Losing Sales and Market Position 11

Case for Change 1998 – “We Need to Change!” • Costs Not Well Understood → “Holding Company Enterprise”-Vice“One Enterprise” • New Opportunities Further influenced by: Defense Planning Guidance, Quadrennial Defense Review, Joint Vision 2020 & Do. D’s Future Logistics Environment 12

Addressing Our Challenges Through Transformation 13

The Transformation - What From To Manager of requisitions Customer driven → Manager of Supplies → Supply chain integrator → Holding Company → One Enterprise Best Do. D practices Best practices ’ 60 s Technology Information dominance Overwhelming mass Agility, efficiency & effectiveness Organic capability Best provider 14

The Transformation - Elements • Collaborating with Services’ logistics teams → Collaborating to integrate supply chains → Reengineering processes to best practices → Re-tooling our workforce → Aligning organization with the business model → Mission-critical legacy systems being replaced with new enterprise architecture employing Commercial-off-the-Shelf (COTS) software to Improve War Fighter Readiness 15

Systems Modernization …The “Backbone" Customer Relationship Management National Inventory Management Strategy Fuels Automated System Business Systems Modernization • Order Fulfillment • Planning • Financial Management • Procurement • Tech & Quality Supplier Relationship Management Dynamic Material Positioning Strategic Distribution Systems Architecture (SAP/Manugistics/PD 2/Windows 2000) Common Protocols, Standards, Reference Data, Integrated Data Environment 16 Technical Architecture Technical Infrastructure

Process Reengineering Reengineer to Best Practices Order Fulfillment Planning • Demand by customer • Time Definite Delivery • Collaboration • Available to Promise • Time-phased inventory plan • Online account visibility Technical & Quality • Budget based • Variable Improve customer on plans • Streamlined Item Introduction pricing service by Provide Best Value Solutions collaborating With Customers and Suppliers • • • Comprehensive Product Lifecycle Procuremen Management Financial Supplier performance and • CFO compliance t Product • Improved Quality management • Financials integrated with Assurance business transactions Capable to promise • Change in Inventory Web-based procurement Valuation Methodology Pay on receipt Customer DLA Supplier 17

DLA Holding Company Aviation C S U U S Land P T P O L M I E Maritime E R R S S Troop-General 18

Organizational Realignment • One Virtual Hardware ICP • Singling Up Enterprise Functions C U S T Integrated - Support Services Customer - Information Technology Teams Comptroller Aviation Land O M Maritime E R S - Integrated Supplier Teams Aviation Manu SAP Land U P P L Maritime I E PD 2 Troop/Gen S Troop/Gen R S 19 This Is New Stuff For Us We Know How To Buy !!

Align People & Organization Personnel Realignment 4, 500 people impacted • All new roles • All new jobs • All commercially based • All receive role-based training Job Series = 12 Legacy = 27 Jobs = 24 Legacy = 47 Position Descriptions = 54 Legacy = 225 Example: Inventory Management Specialist Demand Planner 20

Align People & Organization Workforce Transformation Great strength of our workforce is a profound understanding of DLA’s business models and processes, information flow, organizational structure, culture and IT systems ERPs alter the entire landscape 21

Align People & Organization Partnership Transformation Great strength of our partnerships is a mutual understanding our business models and processes, information flow, organizational structure, culture and IT systems ERPs alter the entire landscape 22

BSM Backbone Concept Demo 23

Business Systems Modernization • Deployed 31 July ’ 02 − Prove concept, manage and mitigate risk − Small % of DLA activity, … big business by any other measure • Successful − All new, end-to-end integrated system fielded − One instance, multiple classes of materiel at three ICPs − Processes reengineered, organizations reshaped, workforce re-tooled − Supporting our mission today 24

Business Systems Modernization • Successful, …but − Far harder, far longer and far more resources to stabilize than anticipated − Issues included: system log-on, access, interface, and responsiveness, software configuration and software-process mismatches, workload, change management, training, post “go-live” support and communications, … • Lessons were learned and incorporated in Release Two development 25

Procurement Solution • Procurement Strategy (July 31, 2002) – AMS’ PD 2 in Concept Demo – AMS’ NGPD in Release Two – SAP in the end state • NGPD headed in right direction, … could not meet BSM timelines (February 2003) • Exercised legacy option of strategy (March 2003) – PD 2 for Concept Demo – Single integrated instance of legacy in Release Two – SAP in the end state 26

BSM Schedule = Users and Materiel = System Functionality FY 2000 2 3 4 FY 2001 1 2 3 FY 2002 4 1 2 BPR Design, Build, Test 3 FY 2003 4 1 2 3 FY 2004 4 1 2 3 Business Release 1. 2 Warehouse C&T, BW 1. 1 (Retire Legacy System) Legacy Procurement BDUs Solution (Retire PD 2) BW 1. 2 FY 2005 4 1 2 3 FY 2006 4 Release Two Release One Release 1. 1 Subsistence = Full Operating Capability Release 2. 0 Core Phased Roll-out Line Items & Personnel 1 2 3 FOC Releases 2. 1 & 2. 2 Enhanced 27 IOT&E

The Rest of Transformation 28

The Transformation – Key Initiatives • National Inventory Management Strategy − Collaborative inventory investment reduction effort − Air Force and Navy pilots launched • Dynamic Material Placement (DPMS) − Robust, commercial material positioning/management − First phase deployed, … completes in 2006 • A-76 − 11 complete, 8 ahead, … $700 M+ savings ’ 04 -’ 09 − 2600 end strength reduction, . . expect additional 1000 reductions in future competitions • Workforce Transformation − e. Workforce, … 2002 – 2005 − Capitalizing on DLA Training Resources 29

The Transformation – Key Initiatives • Customer Relationship Management − Vital logistics supply chain integration enabler − Initial capability deployed, … completes 2007 • Executive Agent − DLA-Services partnership to synchronize log management − Fuel, medical, subsistence and construction, … pending • Supplier Relationship Management − Strategic Material Sourcing • Long term contract (LTC) relationships with key suppliers • 400, 000+ line items targeted, … 100, 00+ on LTC − Strategic Supplier Alliances • 32 alliances targeted, … 9 established − Extending contractual relationships to partnerships 30

The Transformation – Key Initiatives • Strategic Distribution Partnership − OSD, Joint Staff, Service, TRANSCOM and DLA − Successfully integrating logistics and transportation • Integrated Data Environment − Do. D wide log data exchange, interoperability − Piloted in 2001, … completes in 2007 • Fuels Automated System − Commercial software – best practices − Deploying for wholesale, … pursuing retail solution − Completes in 2006, … analyzing BSM integration 31

The Transformation Roadmap Business Systems Modernization National Inventory Management Strategy Plus $1. 8 Billion Dynamic Material Positioning in Savings A-76 Strategic Distribution on the line BRAC 2005 Customer Relationship Mgmt & Executive Agent: fuels-subsistence Workforce Transformation Supplier Relationship Mgmt Strategic Materiel Sourcing Integrated Data Environment Fuels Automated System 1998 200912

Looking Ahead 33

Dateline: Seattle Times Sunday 31 August 2003 Washington 35 Ohio State 13 34

Transformation Continuum Enterprise Transformation ++ Process Reengineering Investment 0 -- e. Synchronized supply chain & market optimization Internal synchronization Improved sales, market rationalization Efficient, effective Distribution Improved customer service Reduced Inventories Management tools Personnel Costs Data integrity & transparency IT integration, speed, maintenance Systems Replacement Expected Return