Logistics: A Bet You Can Always Win

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July 9, 2014: The U.S. Department of Defense has some unique accounting problems that seem to defy solution. The Department of Defense is the largest organization in the world and has been for some time. During the Cold War the Soviet military could claim to be larger, but the Soviet forces were more decentralized than the Department of Defense. This may sound odd, as the Soviets worshipped centralized control of everything. But the military had learned the hard way during World War II that decentralization, for the Soviets, was actually more efficient. The Department of Defense is more centralized because the United States has always had more advanced accounting and inventory control systems than anyone else. Even the Soviets envied the American tools of control, although the Soviets did this discreetly.

When you are the biggest organization, and a military one at that, you face some unique problems for which there is no easy solution. One of the more difficult of these problems is inventory control. The Department of Defense maintains a stock of nearly $100 billion worth of spare parts in order to keep over 100,000 vehicles and other major items of equipment operational. These items range from snow mobiles to 100,000 ton aircraft carriers. In between there are thousands of jet planes, tanks and all sorts of complex gear. Commercial firms have all manner of statistical techniques and software to manage large inventories. But the Department of Defense is unique as it cannot afford to plan for all likely situations (future conflicts) as corporations can.

What this all revolves around is war reserve stocks.  These are supplies (especially ammo and spare parts) that are stockpiled in peacetime so that, when a war comes, the troops would have adequate supplies for the first few months of the conflict. Or at least until new supplies could be ordered and delivered. Guess wrong and you will have shortages in wartime, or too much during long periods of peace that will bring politicians or journalists accusing the military of poor planning and wasteful spending on unneeded stuff. A recent example was a study of the first year of the Iraq war that revealed a lack of some key items in the U.S. war reserve stocks.

The cause of the Iraq War shortages were very familiar to anyone with a knowledge of the history of this sort of thing. After the Cold War ended in 1991, the rather large war reserve stocks were allowed to run down, or were sold off. The Cold War stocks were large, and expensive to maintain. It made sense to reduce them. But not much was purchased to create “post-Cold War” war reserve stocks. To compound the problem, the Pentagon had not developed an effective inventory control system for wartime operations, even though the technology existed in the commercial sector. In effect the post-Cold War reserve stocks were managed like there would never be another war. Strange, but true.

The Afghanistan operations had used so few resources that it had hardly any impact on the issue of the missing war reserve stocks. But Iraq gave the system a real workout, and the logistics and supply people had to make things up as they went along. The result was an expensive scramble, producing too few, or too many needed items. The lack of planning led to problems like being unable to accurately track the movement of the two million tons of supplies shipped in 2003. It was so bad that some items were not even packaged properly to survive shipment overseas. Supplies weren’t the only thing that didn’t move properly. The lack of planning and peacetime training exercises also meant that money was often not delivered to key vendors in time. This was particularly troublesome when the vendor happened to be an air or sea freight company.

The U.S. Transportation Command and several other agencies involved in this mess all pledged to set things right and sin no more. They were half right. Everyone hustled to get the system patched up and functioning for the moment. But in the future the same rot and sloppiness appears to be seeping back in. That’s what has happened time and again in the past. Odds are, it will happen yet again. People like to talk about future wars, but no one likes to spend money on getting ready to buy, store and ship the needed supplies.

Not having sufficient spare parts to support wartime operations is nothing new. The source of the problem is the ease with which one can cut spare parts stockpiles in peacetime. No one will notice it and you will save millions of dollars. Better yet you avoid some bad publicity when you have to dump millions of dollars’ worth of obsolete spare parts years later. This always happens when the equipment the spares are used for is replaced by new gear. You have a pile of spares you no longer need and they are often sold off for pennies on the dollar. On a slow news day the media will pick up on this as another government waste story. Unfortunately if a war comes along you need all the spares you can get. But wars occur infrequently so there is always the temptation to hold back on building up an adequate war reserve of spare parts.

While everyone has religion about large reserve stocks of spares during and right after a major war the old timers in the logistics business know that once the fighting is over some cost cutter will come along and shrink the war reserve. To try and mitigate that the military is adopting more modern inventory tracking systems that reduce the time it takes to find the spares and get them to where they are needed. This is particularly a problem when the spare parts are shipped to units in a combat zone. It's easy to track spares in a warehouse back in the states but much more difficult once they are in a shipping container somewhere out there. Another solution is contracting with firms that can quickly gear up and manufacture spares in a wartime rush as well as using the 3-D printers and similar devices to manufacture some parts on demand in the combat zone. This is already being done. But the one thing you can be sure of is that no budget conscious peacetime military administrator will be able to resist cutting wartime spare parts stocks. You can bet on that and win.

 

 


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