Exceptional Release Presents:
Designing Flexibility into Government Modernization Projects
By: Capt Steven Lane
My case study looked at the Eastern Distribution Center (EDC) for the Defense Logistics Agency (DLA). A report conducted by the Government Accountability Office (GAO) conducted in 2017 stated that, “The Department of Defense (DOD) manages about 4.9 million secondary inventory items, such as spare parts, with a reported value of $91.7 billion as of September 2015”(GAO, 2017a, 1).
A GAO Study stated that DLA generated $23 billion in revenues from supply chain services in 2015. The study applauded efficiency improvements taken by DLA. However, inefficiencies across DLA’s US distribution centers remain and must be analyzed by the existing authorities.
The GAO postulated the underutilization of the DLA distribution capability limits effectiveness in the enterprise supply chain. In response to this DLA leadership are pushing for modernization to better utilize their assets (GAO, 2017b).
The current Defense Logistics Agency’s Eastern Distribution Center in Susquehanna, PA boasts $13 billion of inventory over 770,000 stock numbers. The EDC was designed and built in the 1980s, which is the last time any study was completed for efficient operations. The EDC recently underwent a $62 million roof project, which prolonged the EDC’s life by 30 years. The estimated cost to modernize the warehouse is $107 million.
DLA hired St. Onge, an engineering consulting firm, to conduct a study developing an estimate and possible options to modernize the warehouse(s).
The proposed modernization is a multi-year, multimillion- dollar project to completely overhaul the current warehousing operations. Such projects rarely behave in a manner predicted from the onset. They are subjected to uncertainty at myriad points throughout, which cannot be ignored (de Neufville & Scholtes, 2011). The case study conducted sought to understand the feasibility of large DoD warehouse technological modernization efforts and implement a flexible approach towards future warehouse modernizations projects.
The study developed a construct to aid DoD leaders in implementing flexible design for warehouse modernization projects. The key comparison in my study is flexibility. The adaptability to an ever-changing market and rapidly growing technology allow advantageous decision making. How then can the DoD rapidly flex its options when bureaucratically and financially constrained?
Case Study
The following section outlines the case study conducted to answer this question. Case studies focus on answering the why and how; specific to an instance, scenario, or in this case a government entity attempting to modernize a warehouse. The case study centers on five key tenants of design outlined by Robert Yin’s Case Study Research: questions, propositions, units, logic between data and propositions, and the criteria to interpret (Yin, 2014). The case study relied upon three elements of data: interviews, observations, and historical or archival data surrounding the project.
The questions being addressed come from a gap of knowledge in the literature as it pertains to DoD agencies. The research question itself focuses on propositions to be gained throughout the process to apply to future projects. Linking these propositions to data will provide a framework for decision makers to engineer flexibility into their designs. The interpretation will decipher the analysis into usable constructs. For these reasons a case study provides the best approach of research. Within the case study research design, semi-structured interviews were used to collect qualitative data.
The raw data was collected through interviews, observations, and historical documentation. It was organized and structured in preparation for analysis by systematically typing and storing the transcripts of interviews. The observations were broken into sections based upon location. The historical documentation likewise received preparatory scrubbing and sorting. The data was then read to frame the researcher’s mind. After reading, the coding effort began and was conducted in Excel. The themes and codes came from the reading of the data. The codes were then assigned and interpreted.
Evaluation style interviews were the primary structure utilized in the research. In these interviews, “the researcher learns in depth and in detail how those involved view the successes and failures of a program or project” (Rubin & Rubin, 1995, 122). The knowledge sought was highly experiential and particular to the interviewee’s personal experiences on projects. Questions were developed to hear detailed descriptions, those that go beyond surface knowledge of observation and are derived from the experience (Rubin & Rubin, 1995). This experience sharing allowed the researcher to deduce meaning and repeatable lessons from another’s experience.
The data collection of the research came from semi structured interviews. These interviews included engineers designing the DLA EDC warehouse modernization, DLA management, industry-comparable personnel, and observations from site visits. The experts interviewed all worked modernization efforts for their perspective organizations.
They ranged from project managers to industrial engineers and operational managers. Each person was interviewed in person or over the phone. Transcripts of the interviews are held by the researcher. Each one is anonymous and only differentiated by government or commercial respondent. Table 1 provides the stakeholder group breakdown as well as the individual’s organization. The site visits included the DLA EDC, an Amazon Fulfillment Center, and a P&G Mixing Center.
Respondents were professionals involved in large scale modernization projects; specifically, those seeking to include innovative technologies into their designs. Respondents were contacted through mutual connections, site visits, and from the sponsoring organization. The respondents were either directly working on a distribution center or a multi-million/ billion-dollar project that took place over several years.
Considering the timeline and large-scale budget was imperative to drawing conclusions from sources outside the distribution and warehousing field. For example, the respondent from Northrop Grumman Newport News Shipyard worked modernization projects and procurement for aircraft carriers for 30 years. The object is different, but the considerations of obsolescence and investment were similar. Each project took a decade to complete and had to consider flexible options developed throughout the life of the project.
From the 17 interviews conducted there were common themes developed and within those theme’s nomenclatures of categories. The following table shows these themes which guided the creation of the flexible framework.
Thematic coverage proved the best organization of thoughts to group together intent behind the interviewees’ responses. It gives stages of considerations. Namely, flexibility relies upon three things: the physical design, the organization’s environment, and the executability of a design. In the following chapter these concepts will be explored and contrasted based upon government or commercial similarities and differences.
Design Elements
The first theme uncovered similarities and differences between the commercial and government sectors pertaining to physical design factors. The main focal points were physically designing flexibility, phasing the projects appropriately, bench-marking from industry, and the balance of automation integration. The commercial respondents relied upon knowledgeable expert contractors and teams to develop a design envisioning growth.
The commercial respondents built their contracts and phases to be broken into portions that could be stopped upon a certain level of utility gained. That utility determination came from executive decision makers responsible for project execution and the firm’s future state. The commercial sector relied upon a bench-marking and prototype method of modernization.
Upon determining a successful design, it was repeated and adjusted dependent upon location-specific requirements. Commercial respondents considered the integration of automation to meet their needs. Finding the balance of automation to labor was a critical consideration, which was determined largely by the investment required versus the gain from the technology.
The government respondents discussed their frustrations with lengthy, unclear and poorly designed projects. They felt the contracting office and decentralized nature of procurement led to poorly articulated bids and designs. There was a consensus of proper team formulation as a requirement for success. The government viewed phased approaches completely differently than their commercial counterparts.
The government did not consider stopping a project from full completion. They fully committed to a project from the beginning and counted the different phases of construction or implementation as a phased approach. The government respondents also relied upon bench-marked practices from industry but did not consider the prototype methodology of modernization. Each project developed individually.
The design elements or technological benchmark considerations were sourced from the industry for consideration in their design. A similarity between the government and commercial sectors was the integration of automation. Neither agency wants to over commit to an automation process and overly invest in a technology. Both agree that the decision makers must determine the correct balance and implementation of automation.
Environment of Organization
Across the discussion of the organization’s environment several key characteristics stood out. The strategic goal alignment of that organization drives the purchasing power and agility. Rapid changes are required for flexible decision making. The environment that is aligned strategically to consider these changes and make determinations throughout the project will remain the most flexible.
An aspect of that organization is the relationship throughout the supply chain. Organizations that support long-term, strong relationships with suppliers and contractors are able to adjust more rapidly on projects than those continually using new sources. Throughout the project each phase and decision should relate to an overarching goal of the agency. Goals then drive and justify continuing or ceasing project phases.
Executability of the Project
Every option was tied to a certain ROI. The ROI was developed by the engineers designing the plan, but the executives also considered the value-added and new capabilities the said modernization would offer. This is one of the option comparison criteria required by successful decision makers prior to bid. Without an end scorecard to hold up against other designs it will prove fruitless to try and assess one against another.
A commercial respondent stated, “There was a lot of scrutiny of the vendors and the team developed a scorecard.” Aligning end goals with criteria of value helps quantify the decision. When comparing designs commercial experts relied upon a scorecard developed internally.
One organization gave the researcher a copy of their scorecard and the top priorities were: confidence in design, references/comparable projects’ successes, IT capability, schedule, confidence in approach, and total cost. These highlight their top concerns, but the total scorecard was made up of 39 considerations. This criteria for analysis helps their executives quantify differences between somewhat subjective areas.
The scorecard method relates ROI and timeline to one another and is a direct result of developing option comparison criteria. The scoring of projects in this method is an attempt to judge their executability and directly pulls from several attributes within the topic of executability. The timeline and ROI commonly rank at the top of an option comparison list and judge whether the organization can truly execute the proposed project.
“The EDC was designed and built in the 1980s, which is the last time any study was completed for efficient operations”
The major themes and their sub components led to developing a framework of flexible decision making. The idea of developing a flexibility scorecard arose several times in the literature and interviews. A simple additive model of key components can provide a quantitative value; however, the ranking of those attributes proves vastly more difficult when considering the different options. The model assesses flexible attributes for the decision maker to consider.
The model relies heavily upon the input from decision makers. They will need to develop an internal condition of each element. This model merely represents key themes and attributes based upon the interviews conducted with commercial and government personnel familiar with large-scale modernization projects.
The model framework builds off the three themes. Each question can be answered yes or no and provide guidance for areas to consider improving flexibility. There are not specific values assigned to rank projects because doing so is subjective to the decision makers.
Rather this model provides a framework of considerations for decision makers to assess if flexibility can be designed into warehouse modernization efforts across the Air Force and DoD. There are feedback loops, but it is shown as a straight linear process for simplicity.
The physical design and organization structure questions can and will most likely occur correspondingly. Neither one is prioritized over the other and dependent upon the organization utilizing the framework. Finally, the third column helps decision makers determine their ability to carry out the proposed project.
Design Features and Team
The design of the modernization can be judged on its ability to adapt to further technological predictions and surge for growth requirements. Additional open space, redundancy in potential bottlenecks, and “knockdown walls” are a few of the characteristics described by responders that provided flexibility to their designs. The more characteristics present in the design, the higher the score in this category.
Finally, there must be an expert team to assess these designs. The team must be able to articulate needs consistently for contract and bid communications. The commercial sector relies on a launch team mentality, the same personnel repeating processes to execute similar functions. They not only prototype design features but also team aspects.
Prototype
The idea of prototyping modernization efforts allows for decision makers to start with a past success. Starting at this point then allows them to adjust based on the specific criteria for that specific project. Responders overwhelmingly rely upon industry leaders to develop and smooth technologies and processes. Judging whether a project has been completed within the industry will reveal its ability to provide the required benefits with a lower risk.
The more proven out a technology or improvement is, the more flexible responders judged it. Many respondents in the commercial sector attested to their own company’s ability to benchmark and prototype methods for modernizing within its own organization. Examining Real Options Exercise Decisions in Information Technology Investments. Journal of the Association of Information Systems, 18(5), 372–402.
The prototype or benchmark gave decision makers a platform to begin with and adjust depending upon specific location requirements. Having a model to work from provides shorter design requirements and more agile decision-making abilities. A commercial responder stated of his company, “We put together a prototype because we didn’t know exactly what we would need but we had an idea so that each one would be somewhat interchangeable at least. Going forward that became the prototype for the whole company.”
If the modernization project is well benchmarked or prototyped, then its overall assessment of flexibility would be more favorable.
Phased Approach
A common theme amongst the commercial sector and literature from de Neufville (2011) was a phased approach. The government responders believed in a phased approach but only in so much as there were several phases of the overall project execution. The commercial sector relied upon the ability to continue or cease the overall project at the completion of each phase for flexibility.
With this knowledge a prudent decision maker can gain benefits from considering these top attributes to provide flexibility: timeline, phases, design, net present value or discounted cash flow, and benchmarked success.
Local Purchasing Power
Throughout the research many responders commented on the level of purchasing power within an organization. The lower the level of purchasing power, the more rapidly an organization could respond to developing technologies, benefits, or avoidance of overages. The larger the chain of command between purchasing power and execution, the larger the timeline for decisions and often larger cost for mistakes or missed opportunities.
Delegating portions of purchasing ability to the lower levels allows for more flexibly designed execution of projects. In turn this affords the lower-level expert team the power to maximize the return on investment.
Vendor Relationships
Maintaining a small pool of vendors or suppliers consistently allows for relationships between the buyer and supplier. The chain becomes a symbiotic relationship where each is working to benefit the other because it will eventually benefit them. Strong, repeated relationships pass information quickly. They adapt to arising situations with the other organization’s benefit as a core driving factor. If the organization has strong relationships with its supply chain, then it will flexibly alter its course more efficiently and successfully.
End Goal Alignment
The modernization project for each organization must directly improve or strengthen the end goal of that organization. Aligning decisions to goals can maximize value and allows decision makers to directly evaluate investments. As decision makers evaluate options, they can consider different phases and options for their project.
Each option should improve their end goal metrics as defined by the organization. Furthermore, the end goal alignment will provide criteria for option comparison not only from the onset of the project but throughout its development and execution.
Timeline
The timeline can be viewed as a strength. An elongated timeline allows for further design development and goal alignment while letting the technology develop within the industry. The assessment would be whether or not the agency can reap benefits during the timeline of the project. If the timeline is short, then the flexibility will most likely be lower and thus a lower score should be given.
A longer timeline, if cost-free adjustments can be made during it, should give a higher score allowing more decisions and changes prior to execution. The phased approach relies on the ability to break decisively between stages of the overarching project. The modernization of an entire distribution center could be segmented in order to invest smaller individual amounts and potentially reach the 80% benefit sufficient to stop the project.
Return on Investment
An evaluation of investment consistently touts the largest consideration by decision makers. It must be included to weight the score. A short and long-term view of investment should be considered. The money invested or set aside early on for one project but not “costed” until later in the project could potentially earn benefits elsewhere. Understanding the value of money long-term will help when considering a truly phased approach.
If the project is broken into smaller projects, albeit costlier individually, then the investments can be spread across more platforms or a longer timeline. The division of investment allows decision makers a more diverse and flexible option for project continuance or secession.
Criteria for Evaluation
The organization and decision makers specifically, need to have an upfront understanding of their evaluation criteria. The quantitative comparison categories that will be judging the project’s phases must be laid out to properly assess the outcome. Without an understanding of critical components and values there will be no determining factors to flexibly plan a course of action. Using valued components from the overall goal and strategy should provide a starting point for decisions to be evaluated.
Closing Remarks
The EDC requires modernization to maintain the Warfighter support that DLA demands. The facility and project can be used as a beginning template for the DoD to model further modernization prototypes. The decision makers can plan for flexible options within this project that allow them to capture the most value for the least cost. It will require investments, expertise, and time.
Through proper evaluation of design, organizational factors, and executability, DLA can flexibly adapt to some uncertainties. DLA and the DoD can further improve upon their initial modernization as they move forward. Keeping their end goal in sight at all times, they can support the Warfighter while flexibly designing modernization efforts across the enterprise.
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