The Air Force Materiel Command (AFMC) provides policy, guidance and resources to fulfill United States Air Force logistics' needs in war and peace. PURCHASING talked to Scott Correll, chief, logistics contracting at AFMC headquarters, Wright-Patterson Air Force Base.

What AFMC found as a result of analysis of the average transaction process in three categories of spending for the purchase of spare parts is shown in the table on the right:

Q: Industry would find these lead times intolerable. How did you operate like this?

A: These are just the leadtimes for a small slice of spend. When you look at the leadtimes for all of our spare part spend, the average is around 420 days for administrative and production leadtime together. What it required us to do is to maintain a pipeline inventory of around $1.4 billion, or $4 million a day, to meet customer demands. Our strategy is to aggressively reduce these leadtimes to achieve inventory savings and improve forecasting accuracy by shortening the time interval between projected and actual demand.

Q: What are your goals?

A: The first goal we've been given is to improve the availability of aircraft parts by 20%. The second goal is to achieve this 20% improvement in performance with zero cost growth over fiscal 2004-2009.

Q: How are you going about this?

A: We are pursuing a three-pronged approach. First, we will develop strategic agreements with our critical suppliers allowing for more performance flexibility and shorter leadtimes. Second, we want to optimize our supply base by bringing in new suppliers and making the business more competitive. Finally, we are aggressively pursuing performance-based logistics approaches. We are looking at the whole range of performance-based logistics options for each commodity. These range from one end of the spectrum where we would have the vendor manage inventory to the other where the supplier provides a total supply chain process support, including forecasting our customers needs. We recognize it is critical to develop closer relationships with manufacturers, sharing with them our forecasts and seeing what they need to support us in a tactical way. [When we're] willing to share forecasts, they are more able to plan ahead and meet our needs with shorter leadtimes.

Q: When did you get started?

A: Our Purchasing and Supply Chain Management (PSCM) process started in February 2001. When we began, basically we didn't know PSCM. We hired IBM to partner with us. One of the things we did was take our team of 60 people from across AFMC and immerse them in leading best commercial practices. Also, we benchmarked with three commercial airlines. Specifically, we felt that they were in similar businesses [spare parts and repair], were using commodity councils, and that we could learn much from their successes.

Q: Can you give examples of results?

A: Since we have only strategically sourced a small number of items, we are not able to measure the impact that strategic sourcing has had on the supply chain. We can, however, see improvements on an individual contract basis. Here are two examples:

• Rolls Royce Allison (awarded June 2001): Spares contract valued at $1.4 billion. Under this agreement, on-time deliveries with Rolls Royce have improved from 40% to 89%.
• Goodrich (awarded June 2002): Replenishment spares, data, engineering and storage services contract valued at $495 million. Backorders with this contractor have decreased by 1,200 units when measured against back-ordered units prior to this arrangement (December 2003 versus June 2002). The Acquisition Leadtime (from purchase request receipt by the buyer to contract award) decreased from 136 days to less than 25 days.

Q: What effort has been required?

A: It wasn't easy. We had a team of 80 people that included 45-50 government people, then IBM, the contractor, provided the rest. We just completed our process analysis and will begin implementing a new integrated supply chain process at the end of April. We received approval to implement nine separate initiatives spanning strategic planning, customer relationship management, demand planning, strategic sourcing and supplier management processes. From a sourcing perspective, we just completed an enterprise spend analysis and will begin implementing eight AFMC wide commodity councils starting in May. Implementation will be a continuous long-term effort. We're taking a disciplined standardized process approach across the entire business, something that we don't have today. Also, we fully understand that successfully changing the business is dependent on training and developing our workforce, a robust change management program, and to change keeping our employees fully informed as we move forward with our transformation.