SDDC business directorate supports DLA cost-saving initiative
November 13, 2013
By Mark Diamond
SCOTT AIR FORCE BASE, Ill. - Military Surface Deployment and Distribution Command's Strategic Business directorate, in partnership with Defense Logistics Agency Distribution, kicked off a program Oct. 28 to provide cost savings to the government as part of DLA's First Destination Transportation, or FDT, Initiative.
As part of the program, DLA Distribution is moving its FDT contracts under SDDC's Defense Transportation Coordination program, managed by SDDC's Strategic Business directorate under a third party logistics provider.
According to Sherri Troup, DLA-Distribution FDT officer, the initiative is designed to save money associated with the transportation of freight from vendor locations to first destination - either to a military depot or directly to the military customer - by separating the cost of transportation from the cost of the freight.
In a recent DLA article highlighting the FDT initiative, Troup said by partnering with SDDC to arrange transportation for suppliers, DLA has the opportunity to improve transportation rates, delivery times, and improved material visibility through the use of the DTC contract.
Troup said prior to moving to the FDT contracts under the DTC program, these shipments were accomplished as Free On Board, or FOB-Destination contracts, and transportation costs were "bundled" into the overall cost of the product. Under FOB-Destination contracts, the cost of the item and the cost of transportation are hidden in the overall cost. She said as part of the FDT Initiative, these contracts will now be converted to FOB-Origin contracts and the cost of the freight and cost of transportation will be broken out and become more transparent.
In logistics circles, FOB (Free On Board) terms specify when responsibility for a product shifts from the seller to the buyer. For FOB-Destination contracts, the seller, or vendor, is responsible for transporting the product to the first destination. Therefore, the cost of transportation is rolled into the cost of the product. For FOB-Origin contracts, the buyer is responsible for transporting the product to first destination.
Sharon Brahmbhatt, chief, DTC Operations Support Branch, said DLA believes they can save money by arranging FDT transportation through the DTC program.
That's a good bet.
DTC is designed to save the Defense Department on transportation expenditures through the consolidation and optimization of freight movements by a single provider. The DTC contract is coordinated by Menlo Worldwide Logistics. As the DTC coordinator, Menlo, determines the appropriate mode of transportation and arranges, controls, consolidates and monitors freight shipments within the Continental United States on a routine basis.
As the former deputy commander at DLA Distribution, and the current deputy to the commander for SDDC, William H. Budden offers a unique perspective to the new partnership between these two organizations.
"[The FDT program] continues to support the 2010-2017 Defense Logistic Agency Strategic Plan to achieve significant price reduction across DLA's portfolio of material acquisitions," explained Budden. "It's not only one of DLA's 'Big Ideas' designed to save millions of dollars over the five-year Fiscal Year Defense Plan, it is consistent and aligned with one of [the SDDC commanding general's] strategic business focuses ... domestic transportation expansion."
Brahmbhatt said the first phase of the FDT program continues through October 2014. During this period, she said SDDC is testing 8,000 shipments per month, but no more than 100,000 a year. She said this first year will be used to determine cost savings, and based on DLA estimates, the move to DTC will generate a cost savings of approximately $50 to $70 million per year.
Brahmbhatt said before the FDT initiative, DTC shipments were picked up only at government facilities, or second-destination transportation. Under the FDT initiative, the carriers are now picking up cargo directly from the vendors.
Budden said those vendors will rely on SDDC and DLA to provide carriers that are not only cost effective, but well qualified to carry supplies from the vendors facility to the consumer or to the distribution warehouse. "This is really an extension of the great working relationship between DLA, the single largest shipper within the Defense Department, and SDDC, which delivers world-class, origin-to-destination distribution solutions in partnership with the commercial transportation industry," he said.
Brahmbhatt explained that using the Vendor Shipment Module, or VSM, the vendor will let DLA know the freight they purchased is available to move. From there, DLA's Defense Distribution Center in Susquehanna, Pa., electronically notifies Menlo there is a product ready to pick up, where it needs to be picked up, and where it needs to be delivered. Menlo handles the transportation.
During an initial week-long "Go Live" event held the week prior to the Oct. 28 kickoff, Menlo received 338 offers, including DLA Disposition Services shipments and other shipments that were already converted to FOB-Origin contracts. During the Go Live period, Philip Sadler, also from the Domestic Contracts Division, said SDDC, DLA and Menlo representatives conducted daily teleconferences to discuss the progress. "There were a few bumps in the road, but typically these were minor issues that were quickly resolved," added Sadler.
In fact, he said Menlo reported a 97.3 percent on-time pickup rate during the Go Live period. Brahmbhatt said the progress they saw was impressive, especially considering Menlo was using a new system.
"We knew the FDT initiative would be a smooth transition," added Brahmbhatt, "but to be at 97 percent of contract terms this early on is very impressive."
Budden added that in these times when the logistics community needs to provide more value to the Warfighters, DLA and SDDC have accepted the challenge to decrease costs while increasing the level of support to the troops in both the U.S. and abroad
"It is our combined goal to take control of our segments of the supply chain to improve in-transit visibility, which increases customer confidence and reduces safety stock requirements," he said.