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From root cause analysis to rapid cost reduction

Using advanced analytics to reduce total defense logistics support costs

Overview

The armed services must protect national security and support warfighter readiness. However, after 10 years of rising budgets, the Department of Defense (DoD) is now facing the challenge of meeting its mission with a declining budget.

Organizations must reduce total logistics support costs without sacrificing superior logistics services. Accenture’s experience reveals that focused analytics initiatives can rapidly identify and solve the root causes of today’s high-cost logistics problems.

As part of the Pentagon’s wide reform agenda, former Defense Secretary Robert Gates mandated that leadership identify significant cost savings—$100 billion in overhead over five years to lower the cost to serve and reinvest savings back into mission-critical needs.1 The focus is on cutting excess by eliminating what is redundant, inefficient and unnecessary to maintain a modern fighting force. In addition, the US military must operate in a federal budget environment that many observers think will require future, perhaps significant, cuts to defense spending.

1. Gates, Robert M. (August 9, 2010). Statement on Department Efficiencies Initiative. In U.S. Department of Defense website. Retrieved March 8, 2011, from http://www.defense.gov/speeches/speech.aspx?speechid=1496.

Background

Defense logisticians have explored opportunities to lower logistics support costs by undertaking total ownership cost (TOC) initiatives. While some have had limited success reducing logistics support costs, many share a similar—and fundamental—barrier to success. While they can identify their biggest logistics support costs, organizations struggle to identify specific cost drivers to take action on and alleviate immediately because of a number of factors, which include:

  • Assumptions. Organizations sometimes assume that problems with integrated logistics support (ILS) elements are parts problems.

  • Complexity. There is a host of ILS elements that impact TOC, making it difficult to identify which is driving the cost problem.

  • Siloed data. Organizational and data boundaries make it difficult for logisticians to see the whole picture of a siloed data landscape.

  • Resources. Organizations lack the specialized skills and tools to solve TOC problems using all of the data available or all the techniques possible. Even if defense organizations pinpoint a TOC problem, challenges remain. They may lack the business case to obtain funding to solve the problem, or organizations may identify root causes that are too difficult to take action on in a resource- and budget-strapped environment. Further, some defense organizations never reap the benefits of their TOC initiatives because solutions are not incorporated into existing workflows and processes.

Analysis

Accenture recognizes the potential of focused analytics initiatives to help defense organizations move past these challenges and rapidly identify and solve the root causes of high-cost logistics problems.

A commercial business technique now gaining traction across the public sector, advanced analytics is the scientific application of quantitative and statistical techniques to drive business value and cost savings. Advanced analytics goes beyond typical business intelligence dashboards—because the insights gained address more than just “what happened.” They reveal “why it happened” and allow organizations to drive insights back into the business or mission to realize new outcomes.2

Accenture’s experience suggests that by applying advanced analytics to total logistics support cost problems, defense organizations can:

  • Drive immediate and rapid TOC savings.

  • Understand actionable outcomes.

  • Bring together data owned by multiple stakeholders.

  • See the big picture of TOC cost drivers.

  • Make more informed decisions.

  • Create an opportunity for a value-based arrangement to reap the savings.

2. Davenport, Thomas H and Jeanne G. Harris. Competing on Analytics: The New Science of Winning, Harvard Business School Press, 2007.

Recommendations

Accenture teams would approach a problem like this following these steps:

  1. Determine the business problem.
    The business problem should be validated as a high-cost logistics problem to drive the most value and generate the most cost savings out of the initiative.

  2. Identify necessary business data.
    Solving the analytics problem means pulling the right data into an environment where the right analytics tools can be applied. Brainstorming the potential causes of the problem helps target source data.

  3. Collect, store and cleanse data.
    The source data must be requested from other systems and placed into a receiving database that meets information assurance and other security requirements. Cleansing the data is essential for reliable results.

  4. Solve the business problem.
    Accenture brings best-in-class analytics tools, and Department of Defense and commercial aerospace and defense know-how to solve the business problem. The team includes people who know how to use, configure and make the most out of the software and techniques.
     

    Alliances with a broad spectrum of analytics software providers, like SAS, means that Accenture selects the solution that brings each client the most return on investment.
  1. Develop business case.
    Once the TOC logistics solution is identified, a comprehensive business case is essential to help organizations establish a performance baseline, project accurate improvement targets, and secure funding and resources to remedy the logistics support cost problem.

  2. Incorporate solutions.
    The true benefit of the analytics initiative is not achieved until the solution becomes part of the organization’s workflows and processes.

  3. Monitor performance.
    Performance metrics help ensure that defense organizations get the expected cost savings and high performance out of the analytics initiative.

Because efforts are highly focused, the process typically takes 12 weeks. In many cases, depending on the availability of the data, initial root causes and corrective actions can be uncovered in the first six to eight weeks, which helps speed value to defense organizations.