Federal and Defense Logistics Outsourcing and Private/Public Sector Partnerships Imperative

Feb 3, 2009

Federal and Defense Logistics Outsourcing and Private/Public Sector Partnerships Imperative

Nearly two decades ago, as the inflection point for transition from the Industrial age to the Information age began to unfold, the new paradigm of greater information availability and better data sharing and communication capability along with bloated and uncontrollable cost structure of nearly every enterprise in every market segment of the American economy began to yield a new phenomenon: reversal of vertical integration.

Up to the aforementioned inflection point, nearly all companies tended to be vertically integrated in that they owned, managed and ran the entire value chain for their respective industries from upstream supplies and raw materials, to processing and production plans to design and manufacturing, to delivery, distribution and marketing. An awesome task that necessitated tremendous process design and control which yielded in the command and control’s (The C-Level Suite’s) need to have better visibility in to the entire behemoth of operations hence ushering in the design of Management Information Systems (MIS) and hence, along with other technological reasons, the blooming of the information technology age and era.

Greater visibility and control brought in by the revolution of the information age and its technologies, led to a better understanding of the supply chain, enterprise resource planning, managing lead-times, suppliers, manufacturing cycle times, the demand side (hence distribution, logistics and marketing success factors) and the overall components of an enterprise’s cost structure.

This greater visibility and control enabled and enticed the management to spin-off certain non-core but critical components of the upstream (raw-materials supply chain) and the downstream (the distribution and delivery supply chain) so that it can better focus on core elements: strategy; product and service design and construct; process management and marketing. Armed with this new ability, management envisioned a loosely Federated and yet independent and distributed set of SBUs in both the upstream and the downstream components of their vertically integrated enterprises. This, over the last 2-3 decades has been shaping and crystallizing the broad, distributed and abundant commercially available virtual supply chain of design, production, manufacturing and logistics players, and indeed the revolution, where large, medium and small global providers facilitate support services on commercial basis to all global customers (public or private sector oriented) hence gaining economies of scale in their highly scale sensitive respective segments of the upstream and downstream value chain of sourcing, production and delivery.

Looking back, the United States Government (USG) and the Department of Defense (DOD), partly by design and partly by necessity were initially largely vertically integrated entities as well. As technology advances, cost pressures and the aforementioned Federated supply chain elements began to take root, even the largest enterprise customer in the world, the USG, and all its respective Agencies have begun to decompose their vertically integrated posture and rely more on external and commercial sources for goods, manufacturing, services, global logistics and delivery of nearly everything. However, Due to the government’s requirements and unique needs (i.e. the Department of Defense sensitive information, goods and operational requirements), the supply value-chain decomposition activities has led to a unique private-public sector relationship and uniquely aligned supplier relationships. This has allowed the USG to exert control, service level agreements (SLAs) and to drive competitive value in all its material and services acquisitions while working with a Federation of commercial providers over whom it has great influence.

As an example, the top 10 Federal Systems Integrators (notables such an Lockheed Martin, Boeing, Northrop Grumman, Booz Allen & Hamilton, IBM BCS, SAIC, General Dynamics, etc. ) get nearly $7 out of every $10 of prime Federal Government contracts. These Corporations are private independent commercial entities, and yet, in their structure, values, mission and strategy operate much like their public and Federal sector customers and assumed their customers required posture, a true manifestation of an extended family and enterprise by necessity and hence by design.

This metamorphosis and construct has yielded some significant benefits. The USG has many vendors to go to for its needs ranging from procurement of jets to tanks to armored vehicles to IT systems to software and enterprise applications to ready-to-eat meals to furniture to global intermodal transportation via land, sea or air. By the same token, the supply chain vendors to the USG can count on a variety of government customers and verticals (Defense, Black and Civilian Agencies) on global basis for business hence broadening these suppliers’ customer base. So, if I am an armored vehicle company, I can sell armored cars to the DOD, the State Department, Transportation Vendors for those verticals as well as many other governments and agencies around the world with the same need. The same holds true, with some exceptions, for nearly every other category of products and services. IBM, the largest provider of mainframe, enterprise services bus -ESB, services oriented architecture-SOA, common data and communications gateways for the law-enforcement community is the sole, and at times, the main provider of these platforms and services to the USG as well as other governments around the world. And, the list goes on.

As such, the challenge for the USG has become the screening and selection of its commercial outsourcing partners as well as the management of these partners as an extended, yet well controlled, part of its own procurement and distribution arm and activities.

This had led to three key elements:

1. Use of information systems to tie the loose Federation of suppliers in to a cohesive extended enterprise
2. Dedicated government and government-vertical specific (i.e. the DOD) organizations to manage the end-to-end process for procurement, deployment and distribution such as the USTRANSCOM – The Ultimate Government Integrators
3. Issuance of more competitive bids (Sources Sought, RFI and ultimately RFPs) that allow for attraction of a greater combination of quality, value, precision in technical requirements and, more importantly, velocity, delivery and On-Demand action

Consistent with this trend and desire on the part of the USG for quality, reliability, velocity, delivery guarantee and on-demand action and response, many small and mid-size organizations bring to fruition this desire for the USG relative to its global war-fighting operations, delivery needs in the hot-zones, war and civil-war theaters of operations and hard to reach areas of the world where increasingly, the United States’ presence as a hard-player (military and peace keeping operations) and a soft-player, the purveyors of diplomacy, negotiations, nation building and the geo-political stabilization is key to our global success in creation of world stability and to regain our geo-political standing internationally.

Kevin Curtis, 571.439.6577 or kevinrcurtis@yahoo.com with any questions or inquiries.