@ Supply Chain Management


Uncle Sam’s looking for a few good bids (Something I worked on)

The Defense Department is looking to outsource the management of its domestic freight-a contract that could run into the billions of dollars. The program is intended to cut costs and boost service; it could also shake up the industry.

DC Velocity has an article about the DTCI – Defense Transportation Coordinator Initiative that is finally getting some well needed publicity.
I’m pleased to see something that I was part off for more than a year finally seeing the light of day. And I choose the word “part off” very carefully because you can only be a “part off” something like this – the DTCI project was just huge. The dataset was huge. The dollar amounts were more than huge. The meetings lasted days. The computational times were spread over weeks. And so on…
So what is the DTCI all about?

Perhaps it’s no surprise that the people who brought us stealth technology have launched an all-out war on freight spending and nobody seems to have noticed. And the Department of Defense (DOD) surely is thinking big. In August of this year, DOD began reviewing proposals submitted under its Defense Transportation Coordination Initiative (DTCI)—a program through which it will outsource the management of all DOD freight moving commercially in the continental United States.
The goal of DTCI is to improve the speed, predictability and reliability of transportation while simultaneously reducing costs by as much as 20 percent. The rest of us call it third-party logistics (3PL), but hey, this is the government, which rarely misses an opportunity to make up its own acronym.

Nothing could be truer that governments make up acronyms on the fly. This is especially painful if you as an outsider have to sit through meetings where you get bombarded with acronymns every third or fourth sentence. I mean that they have a whole different language unto themselves.

Now, DTCI is no secret … the DOD has been working the circuit since early 2004, talking the vision and addressing concerns. It has even created a public Web site devoted to the initiative. But outside of the defense world, it hasn’t generated much buzz, and it should.
We’re talking billions of dollars in freight over the life of the contract. That’s not a typo. Billions of freight dollars. And when you start shifting that kind of money around in a market, changes happen. Not just for the players involved, but for everybody playing in the sandbox.

The last thing you want is for the government to make a move because when a governmental department the size and scope of the DOD shifts its way of doing things, its like an elephant in a china shop, more or less. With the DTCI, the government wanted to make a significant first step of bringing in private parties to manage the DOD’s domestic freight. The DOD in any case doesn’t use its own fleet for domestic freight shipments except in some special cases and contracts carriers to ship stuff already. However, in DTCI, its trying to bring in a 3PL for very much the same reasons that a firm would bring in a 3PL.

What is the current state of DOD freight management?
Steve Geary summarizes the key elements of how things work today and I agree.

Today, DOD’s freight movement system is decentralized. No central traffic management office exists. Freight costs and freight movement are managed at the local or command level, leaving a wide-open opportunity to improve service and reduce costs through proven techniques like pooling, backhaul management and mode optimization.

Pooling, backhaul management and mode optimization (or conversion as I’d call it i.e. LTL consolidation into TL shipments etc) are standard corporate practices today and in large part facilitated by TMS etc. But you’ve got to imagine the situation of the DOD with its different services and organizations each with its own preferred system and operating practices. It is often said that the DOD works on cutting edge warfighting technologies and that is true. However, in this case, the DOD really needs to transplant what has worked so effectively in the corporate world – logistics planning and execution and this is what DTCI tends towards.
Steve next looks at how the DTCI came to be.

To test the plan’s feasibility, the DOD in 2001 collaborated with 3PL EGL Eagle Global Logistics on a pilot project in which it outsourced the management of its freight across the southeastern United States. Encouraged by the results of the pilot, the DOD then hired GENCO, a well-known 3PL, and the non-profit firm LMI Government Consulting to put together a report on the potential benefits of outsourcing. Conservatively, the study estimated savings of 10 to 13 percent, while noting that actual savings could be higher. And, based on pooling opportunities, the study forecast improvements in both service and cycle time.

It will be of no surprise to anyone if they said that the US government tends to move slowly. However, that was not my experience here (I work for GENCO, the 3PL firm above). Here the action was rather quick and I think it owed largely to the leadership of the DOD that was tasked in bringing this to fruition. We analyzed the DOD’s operation from multiple standpoints, ran all of their data through our proprietary model and put together our recommendations which are outlined above backed up by quantitative analysis of savings.

And the outcome,

Once persuaded of outsourcing’s feasibility, the DOD moved quickly. On June 22, 2006, the U.S. Transportation Command (USTRANSCOM) issued a Request for Proposal ith an August deadline. The DOD’s plan is to award a ong-term contract to a world-class transportation coordinator, and through this relationship employ best commercial practices to achieve the goal of improved performance at lower total cost.” It goes on to say, “The coordinator will leverage current commercial capabilities and proven best transportation practices of commercial shippers to manage, consolidate, cross-dock and optimize specified [domestic] freight movements using contractor-chosen modes among DOD shippers.”

This is what I was referring to above as speed – the DOD, I’m happy to note, did move fast. What’s more the DOD is very interested in realizing these opportunities for savings, streamlined data and ofcourse the best reason of all – the opportunity to yank a 3PL’s collar at any time.
As proposals with the government go, 75 pounds should be a bantam weight proposal. While it is true that the US government has some very peculiar and complex requirements when it comes to moving freight or whatever else that it is tasked to do, it also have a very cumbersome and complex bureaucracy that is trained to make things very complex so that it covers all bases. If the intention is to dot every “i” and cross every “t”, the government does this amazing job not only by trying to live up to this stated intention but also to ensure that anyone trying to fault any government failure would suffer serious brain damage in carrying out that exercise.

In all, the main body of the request for proposal ran to 168 pages, excluding supporting data, exhibits and appendices. One bidder reports that its team’s proposal weighed 75 pounds. Although tempting, it would be unfair to suggest that the size is driven by the bureaucracy; the military logistics environment, even in the United States, is very complex with some unique requirements.

But here’s what cannot be denied,

The successful bidder can expect a very large piece of business. According to Earl Boyanton, assistant deputy under secretary of defense for transportation policy, the DOD spends more than $700 million annually on freight shipments. Of this, once DTCI is fully implemented, DOD anticipates that about one-third, or $250 million, will be actively managed by the coordinator, with freight rates subjected to the competitive pressure of the open market.

I think this is the first of many steps that the DOD is going to take (and perhaps other government agencies and departments will also be convinced to follow suit) to upgrade its capability in the logistics arena starting with the domestic front. And I think that I laud them for making the effort to get serious with the taxpayer’s money.

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Category: 3PL, Logistics, Supply Chain Management, Supply Chain News


One Response

  1. In the transportation Industry It’s good Growing Industry. But In the people are not know the transportation services in details. It’s must necessary to needed some publicity.

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November 2006