Industry Trade Associations Committee of Six Update

Industry Trade AssociationsCommittee of SixUpdate The American Apparel and Footwear Association (AAFA) The National Textile Association (NTA) The Parachute Industry Association (PIA) Clemson University APBI Meeting 5/10/07

Background: The Perfect Storm Following 9-11 industry encountered its “perfect storm:” • Product complexity increased as all Services transitioned from standard to unique uniform systems and new technologies. • Existing and new manufacturers invested heavily to support increased demand and to fill the pipelines with many new products. • New and unknown “customers” appeared as the new Army PEO Soldier organization began to develop new items and procure some of them directly. • As demand was satisfied there was too much capacity, over procurements, lack of funding, no commercial work to fall back on, and the large capital investments had not been recouped.

Background: Industry Change Efforts 21 months ago key members of these 3 major trade associations joined efforts to work with DLA and the Army to minimize the resulting negative impact on military readiness and the industry: • Over 30 meetings conducted with limited actionable results. • Vastly increased knowledge and understanding between industry and military. • Optimistic about path forward because of support of all Services, DLA, and Congress.

Research, Development and Technical Support Life Cycle Management Buy, Store, and Distribute Logistical Support

Problem Overview • Core problem: • Lack of supply chain (SC) wide product flow. • Root cause problems: • Lack of enterprise-wide full communication and collaboration. • Procurement funding gaps. • Procurement practices that cause SC gaps and prevent contractors from planning. • Business processes and systems that cause SC gaps.

Problem Overview • Core problems: • Lack of supply chain (SC) wide product flow. • Military view of Clothing and Textiles (C&T) as commodity products. • Root cause problems: • Lack of enterprise-wide full communication and collaboration. • Procurement funding gaps. • Procurement practices that cause SC gaps and prevent contractors from planning. • Business processes and systems that cause SC gaps.

Baseline Supply Chain Throughput Thus, the commodity approach forces the military to stock sufficient inventories to meet peacetime and surge demand for the longest possible SC-wide throughput time or live with stock outs. This approach is very costly to everyone and these large inventories block the transition to new technologies. There is a better way! Since (1) military products are unique from fiber forward, (2) there are no secondary markets for military unique products, (3) commodity buying practices minimize prices, and (4) military funding, buying actions, and technology changes are not reliable, the risk is too high for industry to pre-position non-commodity end-items or components for the military. If acceptable slacks are available from end-item manufacturers because of SC-wide forecasting and launching at acceptable risk, a retailer only has to wait the order & transport time. This defines commodity products. Start fiber production Bought by ~41 weeks Fiber becomes slacks in ~29 weeks

Baseline Supply Chain Throughput If acceptable slacks are available from end-item manufacturers because of SC-wide forecasting and launching at acceptable risk, a retailer only has to wait the order & transport time. This defines commodity products.

Baseline Supply Chain Throughput Since (1) military products are unique from fiber forward, (2) there are no secondary markets for military unique products, (3) commodity buying practices minimize prices, and (4) military funding, buying actions, and technology changes are not reliable, the risk is too high for industry to pre-position non-commodity end-items or components for the military.

Baseline Supply Chain Throughput Thus, the commodity approach forces the military to stock sufficient inventories to meet peacetime and surge demand for the longest possible SC-wide throughput time or live with stock outs. This approach is very costly to everyone and these large inventories block the transition to new technologies. There is a better way! Bought by ~41 weeks

ACU Coat Suppliers & Throughput Times • 1 military unique nylon fiber manufacturer. • 2 military unique NyCo yarn manufacturers. • 4 (was 6) fabric weavers. • 5 dyers and finishers. • 1 to 3 manufacturers for secondary components. • 20 Coat manufacturers. • 52 critical path dependent production processes. • ECWCS fabric visual. • 13 to 43 or more weeks from fiber to garment depending on the flow of military orders. (Not a commodity system)

Core Problem Summary • Overall lack of understanding that military unique clothing and textiles are not commodities: • Must be actively managed throughout entire life cycle. • Cannot rely on commercial market to ensure availability. • Industry/Government collaboration is vital. • New product development generally addresses military uniqueness of components SC-wide. • No provisions in life cycle management system or procurement process to address SC-wide product flow. Military Unique Item Development, BUT Procured as if an Off-the-Shelf Commodity

Core & Root Cause Problem Review • Core problems: Lack of SC-wide product flow and military view of C&T items as commodities. • Root cause problems: • Lack of collaboration. • Funding gaps. • Procurement practices that cause SC gaps and prevent contractor planning. • Business practices, processes and systems that cause SC gaps.

Root Cause Problem DiscussionLack of Collaboration • Industry-wide collaboration is vital to new product development. • Full collaboration minimizes upstream risks. • Both the industry and military have many touch points. SC collaboration is a best practice that optimizes performance with minimum resources. • Full collaboration is vital for implementing other best supply chain management practices.

Root Cause Problem DiscussionFunding Gaps • Funding is consistent with commodity practices. • But a funding flow must exist at the minimum sustaining requirement level for each critical SC. • DLA monthly obligation authority allocation: • Works fine for commodities used by the military that also have a commercial market. • Is problematic for military unique C&T products because there are no provisions for placing delivery orders solely to keep critical supply chains operating at minimum rates. • Congressional, DoD, DLA, & DSCP fixes required. • War reserve and warstopper funds can leverage flow and surge strategies and multiply performance.

Root Cause Problem DiscussionProcurement Issues • Eliminate unrealistic IDIQ Min-Max ranges. • Provide Forecasting to Industry. • Implement Supply Chain Managers. • Timely awards of contracts and delivery orders. • Honor minimums on multi-year contracts. • Stop re-bidding option years. • Provide protection against uncontrollable cost increases in current and future Multi-year contracts. • Raise Safety Levels carried by DSCP. • Improve Source Sampling and Shade Evaluation Processes that cause delays. • Improve System for Better & Prompt Payment. • Reduce industry and mandatory work equally across the board. • Use all available non-commodity procurement tools to maintain a minimum level of product flow down the supply network. • Fully enforce existing domestic manufacturing laws and support extending to Homeland Security.

Solution Overview: Collaboration Full internal military and industry-military collaboration to educate and eliminate core and root cause problems: • Executive level: • Sets policies and ensures DoD-wide leveraging of resources and results. • Managerial level: • Implements communications and collaboration by supply chain management best practices. • Manages product flow SC-wide. • Ensures seamless hand-off of new products to sustained procurement. • Technical level. • Centers on Service/DLA/industry best practice technical data management by SC-wide collaboration.

Solution Overview: Modern Practices Use modern process improvement approaches such as the Lean Initiative the Air Force has underway enterprise wide: • Top down “Leaning” of internal Air Force system through external procurement agencies and industry. • Lean supply chain management best practices such as pulling what is needed most rather than pushing what is forecasted to be short.

Proposed Action Details • At the DoD executive and managerial levels change fundamental policies and procedures to eliminate SC gaps. • Create a single DoD-wide SC manager to optimize SC-wide funding and product flow: • for each major C&T SC • by coordinating R&D and sustainment procurement needs within the military • and by providing a single, primary point for communications and collaboration between the military and industry.

Proposed Action Visual Industrial Base: 1. At the executive & managerial levels change the policies and procedures and eliminate the issues that cause SC Gaps. Military Services & DLA: 2. DoD-wide Supply Chain Managers Maintain Product Flow Full Collaboration NPD & Sustainment Buying Modern Technical Data Management Executive Raw Materials Managerial Components End Items Technical Questions?

Next Steps • Receive and incorporate additional industry-wide improvement suggestions. • Meet jointly with DLA and all Services to formulate joint vision, objectives, and action plan. • Nomex meeting in June is first major opportunity to optimize the performance of a supply chain.

Industry Trade Associations Committee of Six Update