Navy's performance-based logistics experience offers lessons for the private sector
As commander of the Naval Supply Systems Command, Rear Admiral Mark Heinrich must deliver supply chain support for "America's Away Team" around the world. With more than 100 ships typically under way at any time, the stakes are high and "mission execution is key," Heinrich said in a session on performance-based logistics at the Council of Supply Chain Management Professionals' 2012 Annual Global Conference.
Speaking directly to the budget challenges the U.S. military faces today, he said, "We know that with better relationships with our suppliers, we can perform in a more cost-wise manner."
Heinrich then offered logistics and supply chain managers advice on building relationships with suppliers based on the Navy's experience. Just three examples:
- Suppliers' return on assets is a critical parameter, which implies that buyers must carefully consider the term of a contract. "Too short, and companies can't invest. Too long, and you drive out competition."
- Alignment is about behavior, and that means wielding both the carrot and the stick. The big carrot buyers can use: creating an opportunity for suppliers to make more money if they deliver greater value. An effective "stick" is to break apart a bundle of business activities and have the supplier compete for the now separate services.
- Consistent and transparent governance is important, but the buyer should be careful not to "over-torque" oversight. Insight can easily stray toward intrusion, Heinrich said.
