Vice Adm. Alan S. Thompson became director of the Defense Logistics Agency (DLA) in November 2008. Directing an organization of approximately 26,000 civilian and military personnel, he has responsibility for providing the Army, Navy, Air Force, Marine Corps, and other federal agencies with a variety of logistics, acquisition, and technical services in both peace and war. Thompson recently answered a few questions and shared his thoughts on the 50th anniversary of DLA.
Scott R. Gourley: In what ways has DLA evolved over the years to better support warfighters?
Vice Adm. Alan S. Thompson: DLA was formed in 1961 by then-Secretary of Defense Robert McNamara, so we’re about to celebrate our 50th anniversary here. In the beginning, DLA was created to reduce costs, because senior Department of Defense leaders looked across Army, Navy, Air Force, and Marine Corps and realized that there were a number of logistics functions being performed independently that were either identical or very, very similar. So the thought was that you could move those functions from the individual services into a joint defense-wide organization that could provide the same support at much lower cost.
If you look at the history of DLA over the last five decades, again and again that’s been our story. We can assume logistics functions from the services and typically insert best business practices – along with some investments in things like information technologies, facilities, or workforce – and dramatically reduce the cost along the way. In addition, that process has consistently produced either the same or a better level of support at that lower cost. And that’s been an overarching theme as DLA has evolved over the last 50 years.
Another important role that DLA is reflective of [is]the fact that we are designated as a Combat Support Agency by the United States Congress. The reason that’s important is because it gives me, as the director of the agency as a whole, a special relationship with both the chairman of the Joint Chiefs of Staff as well as the staffs of the combatant commanders around the world.
My administrative reporting chain of command is to the secretary of defense through the under secretary of defense for acquisition, technology and logistics. But the second designation as a Combat Support Agency also gives me a reporting relationship to the chairman of the Joint Chiefs. And essentially that enables DLA to position support forward in a combatant commander’s theater of operations to better support the units operating there.
For example, in Southwest Asia, in the United States Central Command (CENTCOM) area of responsibility, we have roughly 350 DLA military and civilian personnel on the ground today providing the full spectrum of DLA support to our forces in Iraq, down in Kuwait, and, perhaps most intensively, in Afghanistan.
I think that the relationship that reflects has been a critical enabler to DLA meeting the requirements of the armed forces and always staying a bit ahead of when the requirements are formally identified, making DLA able to provide the support that is needed at the time that it is needed.
The Combat Support Agency designation is also the umbrella under which we have counterpart regional commands. For example, we have an Army colonel leading DLA Central who oversees all of our operations in the CENTCOM area of responsibility. He is also co-located with U.S. Central Command in Tampa [Fla.] so he can plug directly into the CENTCOM staff on a daily basis. That allows DLA, as a joint service provider, to be very, very close to our ultimate customer in that area – the warfighter. I think that has been a very important element in our support to the armed forces over the years.
We have also seen growth in the full spectrum of support over the last several decades. And that increased dramatically in 2005 with the latest movement of logistics missions from the services to DLA under the Base Realignment and Closure [BRAC] process. We are now providing not only the consumable spare parts and materiel to the armed forces but also the acquisition organization for the repairable components that go into everything from ships and submarines to aircraft to ground combat vehicles.
All of that combines to make DLA a major acquisition organization across our hardware, troop support, and fuel and energy supply chains. As an example, across the Agency, with $40 billion in sales, DLA processes roughly 10,000 contracting actions a day. So we are a very high volume business with a great deal of intensity in the work that we are performing to support our customers.
Looking back at the last few years, what do you consider to be DLA’s biggest accomplishments?
If I looked at the last five years, for example, I’d probably put things in two categories.
First, I think that we have continued to provide very solid support to our non-deployed and industrial customers. That includes forces who are training, preparing to deploy around the globe to meet the various missions of our armed forces. At the same time I think we have also provided very solid support through our depot maintenance activities across Army, Navy, Air Force, and Marine Corps. And we actually expanded on that role with the implementation of the BRAC 2005 decision, to where DLA is now providing materiel support right to the maintenance technician or artisan in everything from Army depots to Navy shipyards to Air Force Air Logistics Centers.
So we have truly moved beyond being a wholesale/support organization into being an end-to-end supply chain manager. And I think that’s been a very significant transformation.
Now that transformation was substantially enabled by full implementation of a new information technology capability, Enterprise Resource Planning, substantially based on the SAP software system. That’s been a massive undertaking, but the Department of Defense system is online and doing the full business of DLA.
At the same time I would say that our support to combat operations in the Middle East has been very noteworthy. For example, most recently we have been active with support of the drawdown in Iraq. We are basically embarked on preparations for additional aspects of that drawdown that will be occurring over the next several months. That has included a combination of repositioning the full spectrum of DLA support – whether food, subsistence, fuel, or spare parts equipment support.
But the big growth area of the drawdown in Iraq has involved the disposal of unneeded supplies and equipment. That’s another important role of DLA. They call it “reverse logistics” in the private sector and it has been an absolutely massive undertaking as we have reduced the number of operating bases throughout Iraq. Working with the operational commander in Iraq, we have gone through a process of assuming these supplies and equipment, looking for opportunities to redistribute it inside the Army, in some cases transferring it to the Iraqi Security Forces, and then ultimately disposing of any remaining equipment that is not needed. That has gone very, very well but it has required significant amounts of attention over the last two years.
Over in Afghanistan it has been a story of supporting the buildup and surge of forces, then making sure that we were able to sustain those forces while engaged in a much higher tempo of operations. From the flow of construction materials into Afghanistan a little over two years ago to build out a much bigger operating base network to support the forces, to moving additional sustainment stocks of food, fuel, medical supplies, and spare parts to support equipment, it has been a massive undertaking – made particularly difficult by the challenging lines of transportation into Afghanistan: either up from the Port of Karachi in Pakistan or, more recently, the Northern Distribution Network [NDN] from Western Europe, across the South Caucasus and Central Asia and then dropping down into Afghanistan from the north.
Actually the flow of supplies, which we work quite closely with U.S. Central Command and U.S. Transportation Command, has been substantially driven by DLA shipments. For example, on the Northern Distribution Network (NDN) we have moved close to 50,000 containers through those routes over the last couple of years. And more than 75 percent of that total volume has been DLA materiel. So we’ve been substantial participants in that effort. And it has been very, very successful in balancing the flow of needed supplies and making sure that we have confidence in our abilities to sustain our forces in Afghanistan.
If you go inside Afghanistan, once we built out the additional bases we started bringing online additional logistics support capabilities. In July 2010 we opened a DLA Distribution Center in Kandahar, down in the south. That was to use a relatively small – I’ll call it “buffer” – inventory of material that we would replenish by surface transportation to support forces throughout Afghanistan. Our initial assessment was that by putting a relatively modest inventory there in place and replenishing it by surface, we could take about 38 percent of the total strategic airlift requirement out of the air and put it on the ground. That is not only much less expensive but it also freed up a great deal of strategic airlift space to move sensitive cargo like the MRAPs [mine-resistant ambush-protected vehicles] that have been so critical in saving the lives of soldiers and Marines operating in theater.
We also expanded the stocks of fuel throughout the country. We went from one to three disposal sites for being able to process equipment and supplies.
And in May of this year we opened a Theater Consolidation and Shipping Point (TCSP) just inside Afghanistan, where the Northern Distribution Network materiel flows into the country. Essentially the TCSP provides a holding yard for containers where we can collect containers as they come off the NDN, identify the material that’s inside, and then, working in conjunction with forces at operating bases throughout the country, route the cargo directly to those locations when it is needed.
One of the big challenges is moving things on the ground inside Afghanistan. We were finding that there were a lot of clogs in the system and challenges in getting shipments at various operating bases. But by controlling it at that site just inside Afghanistan in the north, we have significantly improved the movement of supplies throughout the country.
All of that has been historic and enormously challenging given the limited infrastructure in Afghanistan and the very difficult ground transportation lines into the country. But I think it has turned out to be an enormously successful undertaking and, as a result, the readiness of the forces has been very, very high with all of the needs of the troops taken care of.
On the other hand, what do you consider to be the most significant challenges DLA will face in the future?
As I have frequently asserted throughout DLA, the next decade is going to be very different from the last decade. From that perspective I think it’s largely about a defense budget that is going to be under much greater stress than it has been at any other time post-9/11. And rightly so. Post-9/11 was about deploying the force, supporting the force, and maintaining the force at very high operational tempos and readiness levels.
Of course we want to continue to keep the support to our operating forces and even the support to our non-deployed industrial customers at a very high level. But we have really got to reduce the cost of logistics support across the armed forces. Going back to one of the biggest reasons that DLA was formed as a logistics consolidator and efficiency creator, that really plays to our core competencies.
So I think that the biggest challenge is really in doing more of that. We have been fully engaged with the secretary of defense’s staff over the last year on a number of different initiatives to reduce the total sustainment costs of the armed forces. And we have a number of other initiatives that we have been pursuing on our own at DLA.
As an example, we are conducting a fundamental review and restructuring of our distribution network around the globe. As DLA we operate 26 Distribution Centers. We store huge inventories of materiel that is owned by the military services as well as DLA. So we are looking at inventory that we have on hand to determine if it is all still needed or if it can be reduced. We are looking to see if our Distribution Centers are sized correctly and in the right locations to support the force laydown. We are looking to see if we have optimized the transportation system between these Distribution Centers and our suppliers to try to squeeze out cost. And we are very optimistic that we have some real opportunities there.
We are also looking at all of DLA’s costs. If you look at one dollar of sales to an Army customer, about 14 cents in the aggregate of that dollar pays for the operation of Defense Logistics Agency – the labor costs for our workforce, operating our buildings, our information technologies, and so forth. 86 cents on the dollar is what DLA pays to industry for supplies or services through our contracts. And we’re working to reduce both. I would say that the opportunity is perhaps greater in our relationship to industry, because we have already been working to reduce our own operating and overhead costs for a number of years. In fact, over the last decade our overhead rate has gone from roughly 24 cents on a dollar of sales to about 14 cents. Although we can make some further headway there, I think that perhaps the biggest savings are going to be generated through our relationship with industry.
DLA deals with literally thousands of suppliers. And about a year ago, at our annual conference with industry, we announced that we were kicking off a materiel cost reduction effort where the next time we bought materiel from a particular supplier we wanted to pay 10 percent less. Of course that created a bit of a surprise in the room, with many people thinking that it wouldn’t go anywhere. But in reality we have already generated hundreds of millions of dollars in cost reductions from this effort. Some of that has been through better price negotiations. We have also moved a lot more of our purchasing to long-term contracts that give industry a little bit more certainty and stability in what the requirement is going to be and allows them to reduce their costs. And frankly we have also received literally thousands of recommendations and suggestions from our industry partners on how we might be able to streamline the process and perhaps benefit from further cost savings. It’s multifaceted, but it’s already producing significant results.
Clearly it won’t apply to everything that we buy. Fuel, for example, is a huge part of DLA’s business. And the basic product cost for fuel is largely market driven. But we also pay a lot of money for fuel services and that portion is more susceptible to some efficiencies. Again, it’s a real teaming effort with industry, because industry is giving us a lot of ideas on how we can work more effectively with them to reduce costs.
The secretary of defense has stated that the defense budget will be cut next year. How will reduced resources affect DLA’s ability to support the warfighter?
We are certainly going to strive to sustain our current level of support for the warfighter. Clearly these will be challenging times, since it is always easier to lead and manage in an era when resources are abundant and more difficult when resources are constrained.
But that is the environment that we are going into. And I think that one of the real advantages that DLA possesses going into the next decade is that we have a very solid foundation of information technology coupled with the abilities of our workforce. I believe we can leverage those strengths to generate some substantial efficiencies.
I think to a large extent we are going into this new era in a very strong position, but we will certainly need all of those capabilities as we try to “lean out” our processes, look for some opportunities to reduce inventory where it makes sense, and work very intensively with our thousands of suppliers to try to reduce the acquisition cost of everything we buy.
As forces begin to draw down in Afghanistan, what is DLA doing to prepare for the vast amounts of equipment that will flow out of the country?
Again, I think we have a huge advantage in being able to leverage our experience with the drawdown in Iraq. We truly have “been there and done that” very recently.
A lot of the answer involves intensive planning ahead of time. It includes very close coordination and collaboration with U.S. forces in Afghanistan. And it also includes making sure that we have the needed disposal capacity there in-country to deal with what ultimately is not to be moved out of Afghanistan and returned to the united States. We understand that it will be a very intense effort. But given the magnitude of what we dealt with in Iraq, I think we have a very clear understanding of what will be required; what worked well in the Iraq experience; and where the remaining challenges might be. So I’m real confident that we will be able to handle the drawdown in Afghanistan even better than the drawdown process in Iraq.
What are the biggest lessons learned from the operations in Iraq and Afghanistan in regard to contingency contracting?
Contingency contracting was a real weakness that was identified early on in Operation Iraqi Freedom. The Gansler Commission looked at the capabilities across the armed services and entire Department of Defense in this area. And as a result of the Gansler Commission’s work, ultimately the mission was given to DLA to establish a Joint Contingency Acquisition Support Office [JCASO], led by a flag officer, that essentially is responsible for something we call “operational contracting support.”
What that really means is that JCASO is an organization working closely with each of the geographic combatant commanders to make sure that part of all of their operational plans consider acquisition logistics with contingency contracting planned for, so that whether you are doing humanitarian assistance/disaster relief mission or a larger contingency operation you can quickly and efficiently bring on line a joint contingency contracting capability to meet the operational commander’s requirements.
The JCASO is up and running. They are working very closely with all of the combatant commanders. And I think that is going to be a large part of ensuring in any future contingency operation that we have the contracting support we need and that it is done in a very professional manner to give best value to the American taxpayer, minimize or eliminate procurement fraud, and still give the military customer what they need.
Do you have a message you’d like to pass along to industry?
As I mentioned, each year we have a DLA Industry Conference. Our last one was in May 2011 in Columbus, Ohio, and we will be having our next one in spring 2012, also in Columbus. At this year’s event we had just under 4,000 people attending the conference. We deal with literally thousands of suppliers. Many of them are small businesses. We are very proud of the fact that within the Department of Defense we are the dominant small business acquisition organization. We put a great deal of emphasis on our relationship with small business and particular emphasis in areas like service-disabled veteran owned small businesses.
In addition to our small business emphasis, I think another message that I would offer to industry is that we need to be full partners and work very collaboratively. We absolutely need the assistance of industry with reducing the cost of sustaining the armed forces and we have learned over the last year that there are lots and lots of good ideas out there about how we can streamline our processes to enable cost reduction on the part of our suppliers.
So we are going to need to continue to have that full and open collaboration with industry to be able to continue to sustain the armed forces in the next several years where our budgets will be much leaner.
Any closing thoughts?
Just to return to a point I made in the beginning, if you look at the reason that DLA was created 50 years ago it was to consolidate logistics functions from the four services to provide the same or better levels of logistics support at much lower cost.
I think we are going to continue to do that in the future. DLA exists to support the warfighter and to be a good steward of the taxpayers’ money. The taxpayers shouldn’t pay a penny more than is absolutely essential for the logistics support of the armed forces. And in these leaner budgetary times there has never been a stronger reason for DLA to exist.
So we will continue to strive to do more than our part while keeping our eye on the importance of sustaining our forces at a very high operational level while at the same time really trying to squeeze the cost of that logistics sustainment. And I think if we are able to achieve that then I believe we will have accomplished our mission in supporting the Department of Defense and the armed forces.