Overview of RAND’s Supply Chain Management Research

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

2. Outline • Overview of RAND • DoD’s supply chain challenges • RAND’s supply chain research

3. 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

4. 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

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

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

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

8. 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

9. 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 engagementon 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 Engineering &Technology Development Studies &Analysis

10. Outline • Overview of RAND • DoD’s supply chain challenges • RAND’s supply chain research

11. A Significant Portion of DoD’s Budget Goes to External Providers DoD Total Obligation Authority (TOA) ($B) 178 14 354 34 347 40 380 50 447 76 341 86 368 142 520 276 472 291 364 254 364 287 618 604 (Constant FY 2008 Dollars) (Nominal Then-Year Dollars) 100 90 80 70 60 50 Percent 40 30 20 10 0 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.

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

13. Military Supply Chain ManagementFaces 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

14. 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

15. Outline • Overview of RAND • DoD’s supply chain challenges • RAND’s supply chain research

16. 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

17. 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

18. 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

19. 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

20. 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

22. 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

23. 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.

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

25. 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 decision-making through research and analysis • Values: Quality, objectivity, independence • Strengths • Multi-disciplinary teams • Large, complex problems • Number crunching

26. Principal Research Areas Children and Adolescents Transportation and Infrastructure • Providing practical solutions to complex problems • Supporting evaluation and implementation • Enhancing policy debates • Training future policy analysts • Improving knowledgeand analytic methods Terrorism and Homeland Security CivilJustice Substance Abuse Education Scienceand Technology Energy and Environment Public Safety Health and Health Care PopulationandAging International Affairs U.S. National Security

27. Research Areas Related to Supply Chain Risk Children and Adolescents Transportation and Infrastructure • Providing practical solutions to complex problems • Supporting evaluation and implementation • Enhancing policy debates • Training future policy analysts • Improving knowledgeand analytic methods Terrorism and Homeland Security CivilJustice Substance Abuse Education Scienceand Technology Energy and Environment Public Safety Health and Health Care PopulationandAging International Affairs U.S. National Security

28. RAND Project AIR FORCE ArmyResearch Division RAND Arroyo Center RAND Institute for Civil Justice RAND Education Pardee RAND Graduate School RAND Europe RAND Labor and Population RAND Gulf States Policy Institute RAND Health RAND National Security Research Division National Defense Research Institute A Matrix Organization Supports DisciplinaryAffiliations 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 Infrastructure, Safety, and Environment

29. RAND's Training Programs AreIntegral to Our Research • Military Fellows • Graduate student summer associates program • Pre-and post-doctoral programs • Professional development programs for minority scholars

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

31. RAND Conducts DoD Supply Chain Researchas 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

32. RAND Conducts DoD Supply Chain Researchas 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

33. 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