Estimating The Benefits Of The Air Force Purchasing And Supply Chain Management Initiative

However, the model may be useful both with other factors and for estimating the benefits of other initiatives."--BOOK JACKET.

This briefing summarizes research on how the Air Force might use an analysis of its spending to develop better supply strategies, improve its relationships with suppliers, and better manage its supply base. Best practices offer many ways by which the Air Force can improve performance and save money. Such techniques include consolidating multiple contracts with existing providers, selecting the best providers and offering them longer contracts with broader scopes of goods and services, and working with selected strategic partners to improve quality, responsiveness, reliability, and cost. There are many challenges to conducting an Air Force-wide spend analysis, primarily the lack of detailed, centralized data on all expenditures as well as questions about data quality for those data that are available. Nevertheless, the data that do exist point to many prospective sources of savings and performance improvements. The authors analyze the most complete centralized source available on Air Force expenditures, known as DD350 data. Transactions in the DD350 data constitute 96 percent of all Air Force contract dollars spent directly. Among the actions that the Air Force might wish to take are: consolidation of a large number of contracts with similar or the same supplier; grouping contractor ID codes having multiple contracts with the Air Force and many purchase office codes associated with the same contractor, so that the Air Force does not have to pay for the contractor's repetitive bidding and contract administration costs; examining contracts for goods or services available from only one supplier, which gives the Air Force only limited opportunities to gain leverage over such suppliers. Conducting a detailed Air Force spend analysis would require information on the needs, preferences, and priorities of commodity users not available in the DD350 data. Because the Air Force needs to balance prospective savings, performance improvements, risks, socioeconomic and other goals, and other regulations not always present in the private sector, not all best commercial practices may be appropriate for it.

Best purchasing and supply management (PSM) practices as identified by academic and business literature and professional organizations offer many ways by which the Air Force can improve performance and save money by improving the management of existing resources, thereby freeing funds for other priorities. Such techniques include consolidating multiple contracts, particularly sole-source contracts, with existing providers, selecting the best providers and offering them longer contracts with broader scopes of goods and services, and working with selected strategic partners to improve quality, responsiveness, reliability, and cost. Because of the success that leading commercial firms have had improving their purchasing and supply management, the Air Force asked RAND to help it identify opportunities to apply best PSM practices. A first step toward knowing which PSM practices to use in any particular purchasing situation is to conduct a spend analysis, or an analysis of expenditures along dimensions such as type of commodity or service and suppliers, numbers of contracts and expenditures, and other variables showing how current money is spent on goods and services. Private firms place high importance on such analyses; 80 percent of supply chain executives in a recent survey view a spend analysis as very important or critical to the success of their enterprise (Aberdeen, 2002). A spend analysis can help enterprises improve their purchasing practices in the areas where they are likely to produce the greatest benefit. This documented briefing summarizes a high-level analysis of Air Force spending and suggests some activities the Air Force may wish to review, revise, or improve in its purchasing and supply management. There are many challenges to conducting an Air Force wide spend analysis, primarily the lack of detailed, centralized data on all expenditures as well as questions about data quality for those data that are available.

The authors describe spend analyses they conducted in 2002 for the first phase of a purchasing and supply management demonstration at the Oklahoma City Air Logistics Center for of F100 jet engine spares and repair services and jet engine bearings. The authors detail required data and processes for a spend analysis and discuss the implications of their findings for F100 purchasing and supply-chain management for future spend analyses.

Because the U.S. Air Force spends over one-third of its budget on nonweapons purchased goods and services, such purchases are a prime target area in which to seek performance improvements and cost savings. Prompted by a need for improved performance from its supply base, the Air Force has become increasingly aware of the advantages of using market research, contract consolidation, supply base rationalization, and other leading purchasing and supply management (PSM) practices in its dealings with suppliers. To aid the Air Force in its PSM efforts, RAND examined how innovative commercial firms implement such practices in their purchases of goods and services. After a review of the academic and trade literature, the study team conducted a series of elite interviews using a structured questionnaire to gather primary data from "best in class" commercial firms. The key findings are that (1) innovative commercial firms are moving to a strategic, goal-oriented approach to PSM, (2) implementing new PSM practices can take a number of years and often requires significant, permanent change throughout the organization, and (3) the Air Force needs strategies to sustain continuity of support for serious PSM change from one leadership team to the next.

The Air Force is under pressure to maintain or improve performance while reducing costs so that it can pay for new weapon system

To assist the Air Force in the process of significantly changing the way it purchases goods and services, this monograph reviews related commercial-sector activities and skills, suggests models for training programs, and includes a framework of metrics to track progress and refine procurement-workforce-development efforts over time.

This research is based on a series of interviews with commercial sector purchasing professionals who are respected by their peers for their successful creation and implementation of what are widely accepted as best purchasing and supply management practices, particularly in the area of service acquisitions. The authors also examine such practices through conference participation and a review of the business literature. They find that commercial firms rely on results-oriented metrics that focus on how acquisition activities support corporate objectives to manage their service acquisition activities. While not a commercial firm, the Air Force can learn from commercial firms' experiences in managing its service acquisitions. The authors recommend a balanced portfolio of performance metrics for the Air Force based on the five major categories of results-oriented metrics that appeared most often in their research: cost, quality, supplier satisfaction, implementation of new initiatives, and special interest items. Commercial firms indicated that in addition to the results-oriented metrics, internal management metrics that track internal customer satisfaction, personnel training and retention, and ethics violations are also important. Selected metrics are reported to top-level executives on a regular basis.

The Air Force has several options for sustaining weapon systems and components but has, in recent years, increasingly chosen contractor logistics support (CLS) over organic support. Still, questions remain about costs and efficiency, even about whether CLS is the best option. The authors explored these by reviewing the relevant government and DoD documents and data and by speaking with various knowledgeable individuals. The authors noted that CLS contracts have often gone to original equipment manufacturers because, lacking the technical data, the Air Force could not choose a third party. They also noted that contracts that guarantee large annual sums limit the Air Force's ability to adjust when its own funding changes and that the reasons underpinning these decisions are not always complete or consistent across the service. Centralizing and standardizing data and the related management skills would help make them available across the Air Force. More important, to retain all its choices for logistics services throughout a system's life cycle, the Air Force should acquire the technical data or data rights near the start of the acquisition process.