U.S. Coast Guard Logistics Transformation: How Logistics Transformation Supports CFO Act Compliance Mr. Jeffery Orner Deputy Assistant Commandant for Engineering and Logistics CG-4D Remarks for:

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U.S. Coast GuardLogistics Transformation How
Logistics Transformation Supports CFO Act
ComplianceMr. Jeffery OrnerDeputy Assistant
Commandant for Engineering and LogisticsCG-4DRe
marks for

• November 8, 2006

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Briefing Outline

• CFO Compliance Shared Problems, Shared Solutions
• Coast Guard Logistics Today and Tomorrow
• Importance of Sound Logistics to CFO Compliance
• Unified Logistics and Financial Management A
  Coast Guard Perspective

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Our Shared Responsibility

• Transparency of Information Breeds
  Self-Correcting Behavior.
• ADM Thad Allen
• Commandant of the Coast Guard

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Typical Coast Guard Day

• Save 15 lives Assist 117 people in distress
• Conduct 90 search and rescue missions
• Protect 2.8 million in property
• Enforce 129 security zones
• Interdict and rescue 15 illegal migrants at sea
• Board 4 high interest vessels
• Board 192 vessels of law enforcement interest
• Board 122  large vessels for port safety checks
• Seize 71 lbs of marijuana and 662 lbs of cocaine
  with a street value of 21.1M
• Conduct 317 vessel safety checks and teach 63
  boating safety courses
• Conduct 19 commercial fishing vessel safety exams
• Respond to 11 oil and hazardous chemical spills
• Process 280 mariner licenses and documents
• Service 140 aids to navigation
• Monitor the transit of 2,557 commercial ships
  through U.S. ports
• Investigate 20 vessel casualties - collisions,
  allisions, and groundings

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Our Shared Problem

• GAO and other auditors have repeatedly found
  that the federal government lacks complete and
  reliable information for reported inventory and
  other property and equipment, and can not
  determine that all assets are reported, verify
  the existence of inventory, or substantiate the
  amount of reported inventory and property.
• Source GAO-02-447G, Executive Guide, Best
  Practices in Achieving Consistent, Accurate
  Physical Counts of Inventory and Related Property
• March 2002

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Our Shared Problem (contd)

• Further, the lack of reliable information
  impairs the governments ability to (1) know the
  quantity, location, condition, and value of
  assets it owns, (2) safeguard its assets from
  physical deterioration, theft, loss, or
  mismanagement, (3) prevent unnecessary storage
  and maintenance costs or purchase of assets
  already on hand, and (4) determine the full costs
  of government programs that use these assets..
• Source GAO-02-447G

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Our Shared Problem (contd)

• Consequently, the risk is high that the
  Congress, managers of federal agencies, and other
  decision makers are not receiving accurate
  information for making informed decisions about
  future funding, oversight of federal programs
  involving inventory, and operational readiness.
  
• Source GAO-02-447G

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USCG OMS Audit

• CFO Audit Findings re USCG
• You dont know what you have
• Accuracy and Completeness
• You dont know why you have it
• What equipment your parts go to
• You dont know the value or condition
• Local units expected to record and track
• You dont properly classify it
• PPE vs OMS

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USCG OMS Problem Areas

• Problem Areas
• Count, valuation and classification
• Substantial excess obsolete
• Removed 160M of inventory not used in 3yr/7yr
  timeframes
• Much NRFI
• Secondary storerooms not on the record
• Completeness
• Internal Control Problems
• Who acquired it and why?
• What does it go to?
• Why is it still there?

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Challenge for FY07 Completeness
This is not on the books
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Completeness
Challenge for FY07 Completeness
Neither is this
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The Real Property Existence Test
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What is Logistics?
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Current State of LogisticsKey Characteristics
We propose a logistics business model with
centralized planning and control and distributed
execution.
Coast Guard Logistics Community
Logistics Management Control
Centralized
Distributed
Shore Facilities
Cutters
Electronics
Boats
Aviation
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Distributed Business Model tends to be weaker in
the planning and control areas, resulting in a
more reactive logistics process.
Case For Change
Characteristics of Distributed Logistics
Responsibilities

• Higher inventory costs . . . . Not tightly linked
  to business needs (false sense of security)
• Higher purchasing costs . . Due to local buying
  and non-standard purchases
• Higher personnel costs . . . To handle
  exceptions, coordination between organizationally
• distributed logistics providers unnecessary
  expediting higher
• Infrastructure costs . Handling storage costs
  for unneeded parts
• Reduced capabilities . . . . . Poorly documented
  controlled maintenance leads to lower asset
  availability
• Additional assets to cover lower availability
• Increased total ownership cost. Local buying,
  lack of CM discipline result in lack of
  equipment standardization and thus increased
  TOC.
• CFO Compliance Unlikely Supply maintenance
  spending is widely distributed
• unfocused, making CFO compliance unlikely

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Case For Change CFO Non-compliance

• Situation
• Units have been carrying no/low-demand inventory
• Units have been carrying no-allowance inventory

ANALYSIS OF 60 CFO UNITS
Parts Usage History by NIIN

• Impact
• Less than 6 of demand inventory is on the
  allowance
• More than 46 of the parts carried by the unit
  have no/low-demand and are not on the allowance.
• Difficult to find parts actually on board.
• Some vessel classes are weight constrained
• CGC MELLON alone had over 20-tons of no demand
  parts removed at a value of 4.9M.

. . . And This is Just the Inventory We Knew
About! .. . We also (SO FAR) have found gt500K
Per Unit of Inventory We Didnt Know About
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Case For Change CGC MELLON Example
Weight Removed 40,747 lbs
Repairable Value 132,000
Consumable Value 4.9 million
Parts Removed 41,000

• Situation
• Excess inventory

• Impact
• Difficult to find parts actually on board.
• Some vessel classes are weight constrained

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Logistics Transformation Tenet 1

• Support the mission, support the field
• While we have grown a culture of field unit
  heroes who battle mightily to keep their units
  operating, we need to shift that energy and
  responsibility to the logistics infrastructure
  that should be responsible for it, so that unit
  commanders and their personnel can focus on
  preparation and performance.

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Logistics Transformation

• A transformation of our business processes, Coast
  Guard-wide is underway
• Will improve effectiveness efficiency of our
  logistics processes outcomes
• Will contribute to accountability/CFO Act
  Compliance

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Logistics Transformation Implications

• In the New Logistics Business Model we will have
• A set of CG-enterprise-level requirements
  (readiness-driven)
• A formal requirements process to weigh
  prioritize local needs
• Spending priorities driven by enterprise-level
  requirements
• All logistics s centrally controlled spent by
  the logistics organization on enterprise
  requirements
• Standard Supply, Maintenance CM
• Compliance Program
• Logistics providers accountable for providing
  assets support IAW enterprise-level
  requirements
• Little discretion at the local level over
  investment logistics spending
• Local desires/priorities subordinate to
  enterprise-level priorities.
• However, we have to manage the risk of inability
  of the enterprise to quickly respond/adapt to
  changing conditions at the local level

• Status Quo Outside of Aviation, we have
• High degree of reactive responsiveness by
  logistics providers to individual requirements of
  unit, District Area Commanders
• Spending is not directed at measurable readiness
  metrics or enterprise-level priorities
• No clearly developed or articulated
  enterprise-level readiness priorities
• Largely decentralized priorities, decision
  making, spending in maintenance supply
• Lack of configuration control
• Non-standard poorly documented maintenance
  practices
• Configuration data, maintenance supply not
  linked
• Lack of formal accountability (non-CFO compliant)
• Highly agile, adaptable reactive logistics at
  unknown cost

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Requirements Examples
Statutory Requirements
Federal Agency Business Requirements
Best Practices (Derived Reqs.)

• OMB Circulars
• JFMIP Publications
• Example
• Evaluate and select capital asset investments
  that will support core mission functions
  performed by the Federal Government, and
  demonstrate projected returns on investment that
  are clearly equal to or better than alternative
  uses of available public resources. OMB
  Circular A11

• DoD Acquisition Policy
• Configuration Mgmt
• Aviation Business Model

• US Code
• CFR
• Executive Order
• Public Law
• Example
• Survey real property under its control, maintain
  its inventory of real property at the absolute
  minimum consistent with economical and efficient
  conduct of the affairs of the Coast Guard, and
  promptly report to GSA real property that it has
  determined to be excess. 41 CFR 102-75.60 

Example Prime Unit shall perform prototyping
and verification of configuration changes prior
any change in configuration. CONOP
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Todays Logistics
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Future Operational Unit Support Construct

• Engineering support, technical authority, supply
  chain management, technical documentation,
  including
• Spares, maintenance manual, tools test
  equipment, tech pubs
• Depot maintenance (scheduled unscheduled)
• Materiel condition reports
• Contract field teams (oversee PBL/CLS support
  procure spares)
• Time critical technical order kit delivery

OPERATIONALUNITS (Sector, AIRSTA, Cutter,
TRACEN etc.)
Aviation Product Lines
Pushed Products Services Supporting Assets
Surface Forces Product Lines
C4I Product Lines
Shore Infrastructure Product Lines
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Commandants Intent

• The inadequacy of the status quo as well as
  future requirements require that the Coast Guard
  develop and deploy an integrated,
  transformational business architecture that
  aligns with DHS and, above all, facilitates more
  effective mission execution.
• ADM Allen
• Confirmation Testimony

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Maintenance The Missing Link

• Why Improve Maintenance Planning?
• Reduce burden on field units
• Reduce time/effort to conduct maintenance
• Drive our inventory requirements improve
  accountability
• Remember this?
• Increase Safety
• RB-S MISHAP Report DISCOVERED THE WIRING
  HARNESS HAD BEEN INSTALLED INCORRECTLY DURING
  LAST ENGINE CHANGE OUT WHICH CAUSED THE ENGINE
  WIRING TO CHAFF AND GROUND OUT TO THE ENGINE
  BLOCK.  
• Improve Reliability/Availability
• Reduce maintenance-induced failures
• Reduce Cost
• Preventive is cheaper than Corrective

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MPC TodayInconsistent Maintenance Procedure Cards
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MPC TomorrowAviation Maintenance Procedure Cards
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Coast Guard logistics is characterized by
stove-pipes between current communities, who
perform the same functions in different ways.
Current State of LogisticsSame Functions
Different Process Flows
. . .and None of These Families of Logistics IT
Systems are Seamlessly Linked with CG Financial
Management Systems.
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Logistics Transformation
Implementation Strategy
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Achieving CFO Inventory Compliance

• FY06 Focus Accomplishments
• Field Unit Inventory Repositioning Project
• Primarily Addressed The Symptom
• Targeted 694 field units
• Removed 3.3M parts worth over 160M
• Redistributed 1.9M to units (cost avoidance)
• Saved over 96K labor hours annually
• Reduced fuel consumption
• Documented over 1,000 Best Business Processes in
  Logistics for Future CG-wide Implementation
• Logistics CONOP Transformation Plans

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Achieving CFO Inventory Compliance

• FY07 Focus and Objectives
• ICCP (Inventory Control and Compliance Program)
• Begin to Address The Cure
• Target Completeness
• Provide Requirements-based Allowances (i.e. What
  you need!)
• Provide detailed MPCs for 35 of mission-critical
  systems
• Reduce Field-held Inventory Putting in Place
  Repeatable Standard Processes
• Putting New CM Practices in Place

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How Transformation Will Impact Operational Units

• CFO Compliance
• Less to count, reduced CFO scrutiny
• Improved Maintenance Documentation
• All information needed to complete task
• Parts push vice parts pull
• Requirements driven allowancing
• Account for what you have, dont worry about what
  you need
• Standard support practices IT
• Regardless of asset type
• Centralized funding
• Parts free to unit, controlled spending
• Increased internal controls
• Logistics compliance checks
• 1-800 Logistics
• Simplified support chain, increased reliance on
  central authority
• Cultural Change
• Reward casualty prevention vs. response
• Balance availability vs. support cost
• Our strength became our weakness unit autonomy

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Supply Provisioning ProcessA Difficult Reality
ORD
New Rqmts
Current Process Provisioning lists built without
maintenance plan, or no parts information
provided to unit at all.
Current Process
Result Technician hopes the part they need is
onboard. If not, buy locally with unit funds.
Procure extra parts to avoid downtime risk.
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Sound Logistics
Configuration
Mission Requirement
Maintenance (Driven by Enterprise Readiness
Requirements Data)
I need a boat that goes fast!
Gotta do the PMS on the boat Chief!
Supply
Pull the parts SK.
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Business Processes First
New Logistics Business Model (Standard Best
Practices) Property - Acquisition Environmental
Configuration - Maintenance Supply ILS
Single CG Logistics IT Backbone Integrated with FM
First We Get the Needed Business Processes in
Place (There isnt an IT Magic Pill)
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Tip of the Iceberg
CFO Compliance
The Logistics Enterprise
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CFO Act Compliance
Balancing Availability with Compliance
STATUTORY COMPLIANCE
OPERATIONAL AVAILABILITY
Compliance is not optional
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Q A

• Questions?
• U.S. Coast GuardLogistics Transformation Mr.
  Jeffery OrnerDeputy Assistant Commandant for
  Engineering and Logistics