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Supplying Principles and Practices > USPS Supplying Practices Process Step 1: Identify Needs > Develop Logistics Support Strategy
Develop Logistics Support Strategy
Logistics is defined as that part of the supply chain process that plans,
implements, and controls the efficient, effective forward and reverse flow and
storage of goods, services, and related information between the point of
origin and the point of consumption to meet Client needs. Some supply
chains include return processes, or the reverse flow of goods, in addition to
outbound delivery (e.g., the return and replacement of reparables, packing
materials, or damaged goods). Logistics planning will address these
considerations.
The Postal Service encourages the practice of results-based logistics to
optimize the flow of materials through the supply stream. Results-based
logistics stresses speed and reliability over quantity. Because of the expense
associated with managing large quantities of material, Supply Management
focuses on the swift and reliable supply and maintenance of material
essential to proper operation of a product or service, as opposed to
managing large quantities of inventory on its own.
The Item Manager is responsible for developing, implementing, and
monitoring the performance of a logistics strategy for the product(s) required
by the Client. The Client and the Purchase/SCM Team will support the
development of the strategy, with the Client having approval authority. While
a number of Postal Service organizations, systems, and processes exist for
logistics support, the common factors are:
• Operating concept, including operational availability requirements
• Product description
• Development and deployment schedules
• Maintenance concepts
• Current and projected demand patterns
• Supply concepts
• Data requirements
• End-of-life management
• Risk analysis
Logistics is required to ensure continuous support of a Client's operational
needs, which are defined in the Define and Understand Client Needs, Goals,
and Strategies topic of the Conceptualize Need task of Process Step 1:
Identify Needs. This information should include how reliable the Client
expects the product to be and how quickly it needs to be available from the
time the need is identified. This information drives what types of support must
be acquired, in what quantities, and where it must be positioned to meet the
needs.
What the product is will also drive what type of support is required.
Commodities will have unique characteristics that will influence the logistics
required. For example, mail processing equipment will require major
transportation to get to installation sites, trained technicians to install and
maintain, tools and test equipment for diagnostics and repair, and spare
components and supplies to keep the equipment operational.
This factor comprises two elements - time and location. Time determines
how quickly logistics solutions have to be in place and can be broken down
into further elements such as research and development (R&D), production,
testing, and deployment. Sufficient allocation of time for the Item Manager to
perform reliability and maintainability analysis, comparative analysis with
existing products or systems, and coordination of the distribution and
information networks will create opportunities for major total cost of
ownership (TCO) savings throughout the rest of the operational life cycle.
Additional information on TCO can be found in the Develop Preliminary Total
Cost of Ownership (TCO) Estimate topic of the Conceptualize Need task of
Process Step 1: Identify Needs.
Location can be broken down into production and operational locations. If a
supplier has multiple potential production locations, there are opportunities
for reducing distribution costs by analyzing routing costs between the
production locations and operational sites. For example, if a supplier has
production capabilities in New Jersey, Illinois, and California and the major
operational sites are on the West Coast, production in California would be
encouraged to reduce transportation costs. Matching this knowledge with the
expected demand patterns for replacement or sustaining products (parts or
consumables) enables a distribution plan to be developed - direct from
supplier or to one or more distribution facilities.
Maintenance concepts are based on the product, its complexity, and how it
will be used. The goal of the maintenance concept or strategy is to assure the
operational availability specified by the Client. A wide variety of support
options are available to the maintenance planners, ranging from 100 percent
supplier support to 100 percent Postal Service support. Product reliability,
availability, and maintainability factors will drive determinations of levels of
maintenance, skill sets, staffing, diagnostic equipment, tools, parts,
consumables, and quantities.
A key factor often overlooked when developing a maintenance concept is that
many products also use related consumables or supplies, such as cleaning
supplies and computers. Demand analysis to establish sourcing, quantities,
and storage location decisions must also be performed for these products.
The maintenance concept will be formalized into a maintenance plan and
documented in a joint Integrated Logistics Support Plan (ILSP), in
accordance with Management Instruction AS-520-2004-10, Integrated
Logistics Support for Capital Equipment.
To determine current and projected demand patterns, two elements must be
considered: the use of standardized products already in use by the Postal
Service and the use of current or similar demand information as the basis for
projecting future needs. The use of standardized products, already in use by
the Postal Service, will allow for optimizing strategic sourcing, consolidation
and synergy of demand, and simplification of ordering. The Item Manager will
assure that suppliers have access to the listings of standard products for use
in the development phase of any new products or equipment. Publication
112, Spares, Parts, and Equipment Catalog (SPEC) lists all stocked parts and
is available to suppliers by subscription from Material Management Technical
Data. If it is determined that a purchase should be made, the contract should
call out the use of these items and ask for explanations if the items are not
used.
The second element is using current or similar demand information as the
basis for projecting future needs. Existing items may or may not be used on
the new product or equipment. If they are being used, then the Item Manager
will analyze whether the new product or equipment will influence the demand
utilization patterns. User or maintenance data should be reviewed to
understand what the demand drivers are for this item and what opportunities
exist to change the drivers to reduce overall demand and TCO. For example,
moving to a better-quality item may cost slightly more, but significantly reduce
demand over the life of the product. Once this is done, the Item Manager
must fold in the projected usage for the new product or equipment into the
existing item forecasts and adjust the replenishment schedules accordingly. If
the product or equipment is not in the existing catalogs, then a provisioning
analysis needs to be done (see below).
A slight variation of these techniques can be used when the Postal Service
does not currently supply the exact item being proposed, but has similar
items being used in similar situations. In these instances, the Item Manager
can use comparative analysis to extrapolate the existing demand into future
projections. This can be carried one step further and consideration given to
simply adding the new item and its demand to an existing strategic sourcing
contract.
From the operating and maintenance concepts, an approach can be
developed on how the product or equipment can be sustained over its life
cycle with parts and supplies (aka a supply concept). This concept addresses
what needs to be supplied, where, when, by whom, and how. Some of the
common elements are:
• Provisioning Analysis
• Consumables
• Test equipment
• Quality
• Distribution plan
• Customer service
• Process improvement
• Data requirements
• End-of-life management
• Risk analysis (the Postal Service logistics philosophy is to
manage risk through speed and reliability, not quantity)
Provisioning is the process of deciding what parts and supplies will need to
be replenished, at what organizational level, and in what quantities. Some of
the tools used are work breakdown structure, mean-time-between-failure
(MTBF) rates, reliability analysis, and allocated supply cycle times. MTBF
calculates the average amount of time a component or part takes to fail.
Consumables are often required in daily operations and to sustain the
product or equipment. They may comprise such things as cleaning solutions
and swabs or the paper and labels required by printers associated with the
end items. Frequently, different consumables are managed by different
Category Management Centers (CMCs) other than the one acquiring the
item. The Client and Item Manager must assure that these other offices are
brought into the process early in the development cycle and are kept fully
involved throughout the life cycle. The CMC with the primary purchasing
responsibility should lead the coordination effort.
Test equipment is equipment classified as required to diagnose product or
equipment deficiencies or to test that adjustments or repairs have been
successful. Test equipment can be as simple as templates or jigs or as
complex as extensive computer equipment. Test equipment must also be
analyzed for support requirements such as operating concepts, maintenance
concepts, and individual supply concepts.
Quality should be considered at the beginning of the design process. Use of
suppliers with demonstrated high-quality standards and programs can greatly
enhance on-time deployment and reduce the risk of early failures. Reliability
and maintainability are part of the integrated logistics support plan (ILSP)
developed by Maintenance, but must be sustained by the Item Manager
throughout the life cycle.
When making distribution decisions for a single item, there must be a
systematic approach to determining the most cost-effective and efficient
means of distribution. Three common options of warehousing and distribution
are:
• Supplier provides storage and distribution, or direct vendor
delivery (DVD) and manufacturer delivery - after the item is
purchased, the supplier is responsible for storing the item and
distributing it to the Postal Service Client destination. The costs
associated with storage and distribution are built into the
purchase price for the item.
• Postal Service-provided storage and distribution, through Material
Distribution Centers (MDCs) or other Postal Service facilities -
the Postal Service assumes responsibility for the item once it is
purchased, provides storage and distribution of the item, and
incurs the associated costs directly.
• Logistics service providers - third-party logistics (3PL) providers,
Critical Parts Centers (CPCs), fourth-party logistics (4PL)
providers, and virtual service providers. 3PLs provide logistics
services under contract. 4PLs manage other logistics providers
under contract. A virtual service provider assembles a number of
physical logistics providers into strategic alliances that encourage
sharing of their facilities to achieve the pooling of warehousing
and transportation over a wide geographical area. It is possible to
have a virtual purchase, a virtual transportation provider, and an
integrated extended logistics enterprise hub. The Postal Service
may contract with commercial logistics providers to store and/or
distribute the item after purchase and then pay the providers for
their services.
The storage and distribution costs associated with each of these options may
differ from each other and may vary depending on the specific item. In
addition, some items could potentially use a combination of these options. As
a result, when purchasing an item, it is critical to evaluate the different viable
storage and distribution alternatives and select the one that is most
cost-effective and efficient. Cost-modeling tools are effective in this
evaluation and selection. The Postal Service uses the Distribution Cost
Analysis Tool (DCAT) for making storage and distribution decisions in
cooperation with Postal Service and 3PL transportation providers. The DCAT
is a cost estimation tool that can be used to evaluate postpurchase
warehousing and distribution costs. Transportation allocations are addressed
by the Transportation Solution Determination Process.
Customer service is an integral part of customer satisfaction that provides the
customer with the ability to know where to go with questions and to resolve
problems. Customer service can be internal to the Postal Service or provided
by a supplier or through a third-party provider. The Purchase/SCM Team, in
coordination with the Client, needs to assess what types of questions the
customers may have, what data they may need, how to capture and resolve
problem calls, and what reports need to be provided to the Item Manager and
Contracting Officer. Reports should provide insight into the types and
frequency of calls, as well as the supplier's performance. National Materials
Customer Service provides help-desk support for parts, supplies, and
equipment.
Process improvement is a formal process for the Postal Service and its
suppliers to understand support processes, monitor execution, and identify
opportunities to reduce the TCO. While this may appear to be counter to a
supplier's maximization of profit, performance improvement goals and
incentives should be considered to provide opportunities for shared benefits.
Some examples of where improvements can be found are:
• Failure analysis - examining why failures occur and under what
circumstances. Reduction or elimination of failure will increase
the availability of product, reduce usage, and reduce the
maintenance and replenishment costs.
• Cycle-time analysis - documenting the time processes in the
supply chain and the wait time between processes. Reduction in
cycle times can reduce the time in production, time to the
customer, and the amount of inventory required.
• Cost analysis - understanding what drives the costs or the use
of the products. Cost drivers can arise at any point in the supply
chain, from raw materials through manufacture to use by the
ultimate customer.
Certain types of information are required from the supplier and should be
defined up front during this phase. Data requirements are the information
needs of the Client, the Supplier, the Purchase/SCM Team, and the
supporting Postal Service infrastructures. Requirements should be defined
for information flows that are necessary (input and output) and the data
systems that will be used to manage the product. This is especially critical for
any information technology needs.
Opportunities for investment recovery need to be identified for the existing
product that is being replaced and, during preplanning, for when the new
products are to be replaced. In the former, the issues include, but are not
limited to, what to do with the displaced product, how to write off any
remaining depreciation value, and how to phase out the supporting assets
(parts, test equipment, supplies, etc.) while the old product is being phased
out. For investment recovery of new equipment, potential disposal issues and
opportunities for recouping any of the Postal Service costs need to be
identified. Additional information on investment recovery can be found in the
Develop Preliminary Investment Recovery Plan topic of the Develop Sourcing
Strategy task of Process Step 2: Evaluate Sources.
Risk analysis should be performed in conjunction with the development of the
logistics support strategy. Additional information can be found in the Manage
Risks topic of the Decide on Make vs. Buy task of Process Step 1: Identify
Needs.
Develop Preliminary Total Cost of Ownership (TCO) Estimates topic,
Conceptualize Need task, Process Step 1: Identify Needs
Develop Demand Management Strategy topic, Conceptualize Need task,
Process Step 1: Identify Needs
Manage Risks topic, Decide on Make vs. Buy task, Process Step 1: Identify
Needs
Develop Preliminary Investment Recovery Plan topic, Develop Sourcing
Strategy task, Process Step 2: Evaluate Sources
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