implementing best practices for major business processes in the

Implementing Best Practices for Major Business Processes

in the Department of Defense

Implementing Best Practices for Major Business Report FY14-01Processes In The Department Of Defense Task Group

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PREFACE

This report is a product of the Defense Business Board (DBB). Recommendations by the DBB are offered as advice to the Department of Defense (DoD) and do not represent DoD policy.

The DBB was established by the Secretary of Defense in 2002 to provide the Secretary and the Deputy Secretary of Defense with independent advice and recommendations on how “best business practices” from the private sector’s corporate management perspective might be applied to the overall management of DoD. The Board’s members, appointed by the Secretary of Defense, are corporate leaders and managers with demonstrated executive-level management and governance expertise. They possess a proven record of sound judgment in leading or governing large, complex corporations and are experienced in creating reliable solutions to complex management issues guided by best business practices.

Authorized by the Federal Advisory Committee Act of 1972, the Government in Sunshine Act of 1976, and other appropriate federal regulations, the Board members are a federal advisory committee and volunteer their time to work in small groups (subcommittees) to develop recommendations and effective solutions aimed at improving DoD.


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TABLE OF CONTENTSExecutive Summary ............................................................................................................5

Terms of Reference ...........................................................................................................27

Complete Study………………………………………………………………… ............................................31

List of Acronyms ...............................................................................................................85

List of Interviews ..............................................................................................................89

List of Work Review by the Task Group…………………………………...... ...................................95

Figures and Tables

Figure 1- Past budget declines following major military engagements ............................................... 7

Figure 2- Projected interest on debt and the defense budget. ............................................................ 8

Figure 3- U.S. debt held by Public………………………………...……..……. ...................................................... 8

Table 1 - Focus Areas and Potential DoD Savings………………………....... ............................................... 10

Table 2 - Financial Management Best Business Practices and Key Benefits ......................................................................................................................... 11

Table 3 - DoD “business operations” Costs………………………………….. ................................................... 12

Table 4 - Logistics and Supply Chain Management Best Business Practices and Key Benefits……………………………………………………………….. ..................................................... 14

Table 5 - Staffing, Layers, and Spans of Control Best Business Practices and Key Benefits ...................................................................................................................... 18

Table 6 - Compensation Best Business Practices and Key Benefits .................................................... 21


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TASKThe former Deputy Secretary of Defense (DEPSECDEF), Dr. Ashton B. Carter, asked the Defense Business Board (hereinafter referred to as “the Board”) to assess the major business issues that the Department of Defense (hereinafter referred to as “the Department”) will likely face during the period of time of the next Quadrennial Defense Review (QDR), 2014-2018. The Task Group was also asked to determine: how these issues will impact the Department; if there are existing, cost-effective measures to mitigate these issues; which successful private sector processes, practices, or techniques can be used to address these issues; and how the Department can best implement them. See Tab A for a copy of the Terms of Reference (TOR) outlining the scope and deliverables for the Task Group.

The Department faces a critical time in its history as it seeks to implement a 2014 QDR while simultaneously addressing a combination of management challenges, budget reductions, and mounting costs in the face of globally demanding operational responsibilities. The Task Group’s recommendations focused on the reforms the Department can make to several major business operations to better position itself for success in times of increased financial uncertainty.

Mr. William Phillips served as the Task Group Chair. The other Task Group members were Mr. Denis Bovin, Mr. Richard Spencer, Dr. Cynthia Trudell, and Ms. Leigh Warner. Ms. Kelsey Keating served as the staff analyst, and CAPT Stanley Keeve, US Navy and COL Leslie Caballero, US Army served as the military representatives.

APPROACHThe Task Group’s draft findings and recommendations were presented to the Board for deliberation at their January 23, 2014 quarterly meeting where the Board voted to approve the recommendations. See Tab B for a copy of the complete study with findings and recommendations approved by the Board.

In addition to drawing on their own expertise, the Task Group interviewed over 30 individuals from government, think tanks, and private industry, including current and recent DoD senior military and civilian leaders, see TAB C. The Task Group also reviewed


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reports on DoD business operations and best practices from industry, academia, think tanks, and Congressional agencies such as the Government Accountability Office (GAO), Congressional Research Service (CRS), and Congressional Budget Office (CBO).

Due to timing delays associated with administrative processes and the federal government shutdown, the Task Group could not deliver its recommendations in a timely manner to affect the QDR as initially intended. However, the recommendations provided from this study remain relevant and applicable to the Department’s ongoing business operations.

BACKGROUNDThe Task Group assessed several major trends to refine the study’s scope.

★ Historic DoD Budgets. As the Department draws down after two wars – Operation Iraqi Freedom and Operation Enduring Freedom – its budget will necessarily shrink as a result of decreased Overseas Contingency Operations funding and planned reductions in active duty military personnel. Historically DoD budgets have shrunk 33% to 43% after major conflicts, to a floor of approximately $400 billion, illustrated in Figure 1. Given past precedent, the Task Group believes defense budgets will continue to decline with or without forcing mechanisms such as the Budget Control Act of 2011 and Sequestration.

★ Defense Missions. Even as operations have ended in Iraq and are ending in Afghanistan, the Department continues to operate in a more dangerous and uncertain world.

★ The National Debt. The growth in US national debt will impact future DoD budgets as interest costs on the debt will increase over time and exceed defense spending by fiscal year 2019 (FY19), as depicted by Figures 2 and 3.


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Figure 1. Past budget declines following major military engagements (Source: CSIS, February 2013; CBO estimates)


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Figure 2. Projected interest on debt and the defense budget (Source: CBO February 2014)

Figure 3. U.S. debt held by Public - Trillions of Dollars (Source: COB May 2013)


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BUSINESS LEADERS’ RESPONSE TO FINANCIAL CHALLENGESDuring times of declining budgets and increased uncertainty, successful corporate business leaders act quickly and take critical steps to address their company’s challenges. Despite different circumstances, leaders all share some common approaches. They begin by assessing their leadership teams to identify and empower those ready to help, replace those who are not, and fill remaining talent gaps with highly skilled “down-budget” leaders. They then establish objectives to address the crisis-at-hand through the identification of major cost drivers: people and benefits, facilities and infrastructure, supply chain, and organizational overhead. Cuts are made quickly and transformational changes begin as the situation stabilizes.

Case Study: IBM – In 1993, IBM’s organization faced a similar situation to that of DoD today. The company was huge in size (128 people had Chief Information Officer (CIO) in their title), resources were decreasing dramatically, integration of business operations was poor (31 different internal communication networks and 155 different data centers), and organizational efficiency was mired in excessive overhead (for every dollar spent, 42 cents was in indirect costs). IBM’s culture was paternalistic (outstanding yet unaffordable pensions and medical care) and it found itself operating in an environment characterized by volatility, uncertainty, complexity, and ambiguity (VUCA).

In an effort to turn around the company, IBM leadership took bold strides and established 90-day priorities in order to stop “hemorrhaging cash”, right-size the organization, and identify a strong Chief Financial Officer and head of Human Resources, two of the most critical leadership positions needed to affect change. Within 12 months, IBM eliminated ~60,000 positions, consolidated 70 different advertising contracts/relationships into one, sold first class facilities and 8,000 acres of undeveloped land, and consolidated 21 corporate locations into five. Within 24 months, it consolidated 155 data centers to 16, reduced 127 CIOs to one, and reduced 30 communication networks to one. From 1994 to 1998, IBM took out $9.5B in costs/overhead (12-15%) and grew revenue from $64.1B in 1994 to $81.7B in 1998. From 1994 to 2000 and beyond, IBM integrated their supply chain to improve effectiveness and eliminated over $16B in costs.

As a result, IBM returned to profitability, regained critical market share and was once again considered one of the world’s preeminent technology companies.

Cuts are made quickly and

transformational changes begin

as the situation stabilizes.


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Based on their review of past literature, to include IBM’s experience, and relying on their own expertise, the Task Group identified three focus areas that successful large corporations consistently addressed during times of financial uncertainty:

1) Financial and cost management 2) Logistics and supply chain management 3) Human capital management

The focus areas and their respective potential savings to the Department are shown in Table 1.

In determining the objective of each focus area, the Task Group established specific selection criteria:

★ Best business practices relevant to the current situation at DoD ★ Results that can begin and be achieved within the first four years of a 20-year

scope (addressing sequestration requirements) ★ Opportunities that support mission readiness of the DoD

Focus Areas Potential DoD Savings

1) Financial/Cost Management • $4-6B savings and increased flexibility

2) Logistics and Supply Chain Management • $18-23B savings and increased readiness

3) Human Capital Management• Reduced Layers and Span of Control: $5-8B savings• Military Compensation and Benefits: $1-2B

savings near term, $250-270B over 20 years

Table 1. Focus Areas and Potential DoD Savings


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FINDINGS AND RECOMMENDATIONS

FINANCIAL/COST MANAGEMENTThe objective for DoD financial/cost management is to improve financial processes and systems and improve cost management through accurate and auditable financial statements. Table 2 highlights private sector financial management best business practices and corresponding key benefits when implemented. Achieving and sustaining DoD’s mandated budget cuts will require strong and deliberate financial management practices and processes.

Best Business Practice Key Benefits

Strong financial management processes and accurate financial information

• Enables quick response to changing conditions with more certainty

Non-financial executives spend 20-30% of their time on financial management issues

• Unified management team focused on cost

Integration of Business systems using Enterprise Resource Planning (ERP), middleware, open source tools

• Saves 10-25% of annual operating costs• Typically replaces redundant, outdated, and expensive systems

Financial transparency to organizational leadership and investing community

• Executives held accountable for financial goals• Financial goals and objectives are shared across leadership teams • Financial statements are auditable and open at public companies

Sustaining a culture of cost management – not an initiative, a continual process

• Can reduce overhead by 5%• Better informed management decisions

Table 2. Financial Management Best Business Practices and Key Benefits

The Department’s financial management system and processes have been on the GAO high risk list since 1995 and the Department continues to face major challenges in this area. The budget is known and managed, but the Department is not effectively using financial and cost systems to support better decision making. System modernization has been a priority and largely centered on Enterprise Resource Planning (ERP) systems, but its execution has been inconsistent and savings have been slow to materialize.


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A few examples of ERP initiatives in mid-FY12 are:

★ General Fund Enterprise Business System - $58M/year and 107 legacy systems replaced

★ Navy Enterprise Resource Planning System - $103M/96 systems ★ Defense Enterprise Accounting and Management System - $56M/8 systems

Senior leaders increasingly understand the need to establish a cost culture within the Department, but implementation has been elusive. The Department is also actively investing in financial management and has the Financial Improvement and Audit Readiness (FIAR) plan in place to address auditability, but the schedule keeps adjusting to the future.

Further, the business-related Defense Agencies, which represent approximately $60 billion of the Department’s operating costs, operate largely autonomously. See Table 3, DoD “business operations” costs. Many of these agencies provide “business operations” to the Department (e.g., Defense Information Systems Agency (DISA), Defense Logistics Agency (DLA), Defense Finance and Accounting Service (DFAS)). While the Defense Agencies are under the responsibility of a Principal Staff Assistant (PSA), those PSAs have little time to manage them. More oversight with a focus on cost controls is needed. Cost reductions are already underway at some Agencies, like DLA and DFAS, but more can be done.

Agency Funding Type FY2012

DLA Direct and Working Capital $46.3B

DISA Direct and Working Capital $8.8B

DFAS Direct and Working Capital $1.4B

DeCA Direct $1.4B

DCMA Direct $1.2B

DSS Direct $0.6B

DCAA Direct $0.5B

TOTAL $60.2B

Table 3. DoD “business operations” Costs (Source: Comptroller FY14 Greenbook, not adjusted for inflation. Does not include intelligence agencies and the Missile Defense Agency)


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Based on the Task Group’s findings and observations, the Board recommends the Department undertake the following initiatives that implement financial management efficiencies:

1. Drive financial transparency for better management visibility and create a “cost management culture” throughout DoD. This can be done by applying common business practices, metrics, and scorecard methods across the Department. The Department should continue to invest in technology enabling tools (e.g., ERP and middleware) to integrate critical business processes. Reinvigorate initiatives like Lean Six Sigma and set ambitious cost savings objectives for key business processes.

2. Reduce the costs of the Defense Agencies: Concentrate on Agencies whose primary mission is “business operations” (e.g. DLA, DISA, DFAS, etc.).

★ Establish aggressive cost reduction goals and performance improvement objectives. Goals should be tracked regularly using key performance indicator scorecards, and developed by leveraging what might already be in place. Start by setting 10-15% savings targets in the initial years, with 5-10% savings targets for future years. Optimize for savings using the working capital fund’s account structure.

★ Benchmark the agency’s key processes against similar commercial sector processes and metrics.

★ Create a roadmap of planned progress and require routine reporting. ★ Empower the Deputy Chief Management Officer to drive this process, reporting

to DEPSECDEF and the responsible PSAs. Hold each agency director accountable to achieve their established cost reduction goals.

These recommendations could result in an estimated savings of $4-6B and increased flexibility.


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LOGISTICS AND SUPPLY CHAIN MANAGEMENTThe objective for logistics and supply chain management is to increase readiness by delivering, positioning, and sustaining forces from any point of origin to any point of employment through deeper integration of DoD’s logistics and supply chain management. Table 4 highlights private sector logistics and supply chain management best business practices and key benefits. Success in this area is directly proportional to senior executive leadership and involvement.


Integrate Supply Chain with Strategy • Creates more efficient overall supply chain management• Achieves cost and competitive advantages

Strategic Sourcing • Private companies typically leverage 90% of their procurement spending through strategic sourcing for savings of 10-20%

Utilize Global Information System for Real-Time Backbone

• Reduces fulfillment cycle times of 30-60% resulting in faster delivery• Reduces excess inventory and costs• Increases accuracy of forecasting• Ability to quickly reset distribution and delivery patterns• Improves visibility of direct and indirect

costs throughout the lifecycle

Inventory Optimization • Reduces inventory carrying costs• Right sizes investments in property, plants, and equipment

Utilize emerging technologies and techniques to improve business processes

• Enhances service delivery and reduces costs through re-design and automation

• Creates enduring application of techniques like Lean Six Sigma and strategic sourcing

Table 4. Logistics and Supply Chain Management Best Business Practices and Key Benefits

Success in this area is directly

proportional to senior executive leadership and

involvement.


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Examples from private sector experiences are:

★ Inventory Optimization. ✩ Walmart requires major suppliers to connect directly to its own

inventory management system, making suppliers responsible for retail shelf stocking.

★ Facilities Optimization. ✩ Amazon uses consolidated warehousing and the latest technologies to

drive efficiencies. ★ Global Information System.

✩ FEDEX utilizes common IT systems and tradecraft to facilitate acquisition integration and service quality improvement.

✩ IBM integrated its supply chain to decrease costs, increase procurement “hands free” transactions, and reduced maverick buying to less than 2% of total transactions.

★ Performance Management. ✩ IBM decreased costs by 21% and increased logistics volume 30% using

performance management methods. ✩ Illinois Central distilled performance management to one metric that is

easily understood by all levels of the organization, facilitating unity of effort.

★ Senior Leadership Governance of Supply Chain. ✩ Ford, IBM, and Walmart rely on centralized executive “C-Suite

level” management of full supply chain/logistics processes to drive continuous cost and performance improvements throughout the entire organization.

★ Re-design Workflow with Emerging Technologies. ✩ Illinois Central became the most efficient US railroad with the best

safety record through the first use of computerized traffic control.


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The Department’s logistics enterprise consumes $171.2 billion of the annual budget and is broken down into the categories of maintenance, supply, and transportation. Supply chain management has been on GAO’s “High Risk List” since 1990. Current challenges include: a) multiple disconnected cost centers and processes; b) duplication from overlap that limits inventory visibility and minimizes the ability to control costs; and c) excess and aging warehouse facilities that are expensive to operate, inefficient, and underutilized.

Despite many obstacles, the Department has had several recent successes in improving its logistics enterprise. DoD established a Joint Logistics Board (JBL) to strengthen governance, and implemented a Comprehensive Inventory Management Improvement Plan (CIMIP) that decreased secondary item inventory, on-hand excess inventory, and on-order excess inventory. DLA also began the Strategic Network Optimization (SNO) initiative that focused on the transportation network, inventory management, and warehouse consolidation which produced $1.4B in savings. These successful management initiatives have created a foundation for additional future savings, but more can be done for process improvement and further savings.

Based on the Task Group’s findings and observations, the Board recommends the Department undertake the following initiatives to streamline its logistics and supply chain management:

1. Create more connectivity and streamlined processes across the logistics enterprise.

★ Agree to a shared taxonomy on appropriate processes and common performance metrics for greater enterprise management potential.

★ Avoid the temptation to build one “all inclusive” information management system/ERP. Rather, build systems in increments that leverage successes from the Military Services and DLA, with architectures that can evolve toward greater integration in the future.

★ Expand strategic sourcing initiatives. ✩ Military Service focused initiatives offer great potential savings and

Supply chain management has been on

GAO’s “High Risk List”

since 1990.


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adaptability. ✩ Lead with consistent implementation aligning the Military Services and the

Department. ✩ Coordinate the design of all strategic sourcing programs across DoD to

maximize process improvement and savings potential through Industrial Base alignment.

✩ Seek additional efficiencies beyond DLA commodities and depot maintenance, to include Defense Agencies’ back-office support.

✩ Set a target of 2% savings per year of $400B spend, (industry realizes 5-12%).

2. Continue to reduce excess depot and warehouse infrastructure and maintenance costs.

★ Expand excess inventory initiative; reducing to 5% excess would yield $2-3B. ★ Aggressively consolidate depots to achieve efficiencies and reduce operations

and maintenance (O&M) costs. ✩ Target a goal of 50% reduction in Military Services’ warehouse space

infrastructure. ✩ Services to pursue DLA SNO like efficiencies - together to yield $1-2B.

★ Target 10% reduction in maintenance and related infrastructure, facilitated by troop draw-down, to potentially yield $8B of $79.5B FY12 maintenance costs.

★ Use Base Realignment and Closure (BRAC) authority to eliminate and dispose of additional excess infrastructure and streamline the supply chain.

✩ Articulate to Congress the possible trades from otherwise inefficient “carrying costs.”

✩ Annual savings, based on earlier BRAC results, could yield $10B over 20 years (DoD testimony – House Armed Services Committee) – early years to yield $1-2B.

★ Continue to experiment with emerging technologies to facilitate adoption of supply chain efficiencies while enhancing flexibility and adaptability needed by the Total Force.

Savings through inventory and maintenance reductions, sourcing approaches and infrastructure could yield $18-23B and increased readiness.


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HUMAN CAPITAL MANAGEMENTHuman Capital Management (HCM) is a major cost and value driver in most organizations. For this study, the Task Group focused on two specific areas that require immediate attention: 1) staffing, layers, and spans of control and 2) military compensation.

1) Staffing, Layers, and Spans of Control.

The Task Group’s objective for staffing, layers, and spans of control is for DoD to design and implement a DoD organization size and shape that optimizes speed, agility, and human resource total costs and is capable of operating within a VUCA environment. Table 5 highlights private sector best business practices and key benefits to staffing, layers, and span of control.


Degree of change (incremental, transitional, transformational) and timing defined by strategic plan

• Incremental to transformational change yields 20-30% headcount reduction

Core work activities optimized; non-core eliminated/outsourced to “Best Provider”

• Core to non-core work ratio shifted from 55:45 to 70:30 through delayering, increasing spans of control and elimination/outsourcing of non-core work

Multi-year roadmaps and milestones established. Supported by a strong Program Management Office (PMO) and senior leadership oversight

• Improves transformational change success rate to 70%

Organization effectiveness and efficiency underpinned by fewer “touch points”, common language, core operating processes, and data architectures

• Enables speed and agility• Critical decision making cycle times reduced from months

to weeks• Product development cycles reduced by 20%

Continuous and compelling communication to employees

• Re-engineered work more precise through strong employee engagement

Table 5. Staffing, Layers, and Spans of Control Best Business Practices and Key Benefits


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A few examples of private sector transformational best business practices are:

★ IBM. ✩ Re-engineered their business model and critical processes to support

enterprise leveraging and a transformed portfolio. ✩ Significant delayering at the senior and middle management levels as well

as headcount reductions (~150K employees) was required to accomplish the change.

✩ Transformation resulted in return to strong profitable growth, market cap, and a sustained competitive business model.

★ General Electric. ✩ Through process re-engineering, strong cultural interventions, and change

management, layers reduced from 12 to 6 and spans of control increased from 3 to 10.

✩ Positioned company to take advantage of new portfolio and emerging market opportunities.

The Department has taken several actions to streamline and make HCM more efficient. Recent targeted initiatives, such as the Army’s reduction of soldiers and Brigade Combat Teams and the Air Force’s reduction of aircraft, have resulted in streamlined operations, reductions in headcount, and lowered operating costs. However, these reductions are insufficient to meet current sequestration expectations.

The DEPSECDEF’s initiative (July 31, 2013 memorandum) to reduce headquarters staff by 20% indicates continued commitment to cost management; however, this initiative only covers a small percentage of the people costs embedded in overhead activities and favors near-term over long-term cost savings. In FY12, the Department spent $152.6B for military pay and $77.2B for civilian pay equaling an estimated total of $230B on manpower pay. Although the Services have followed DEPSECDEF’s lead with decentralized initiatives to accomplish targets, overall a decentralized approach runs the risk of sub-optimizing the required changes for future DoD effectiveness.


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Based on the Task Group’s findings and observations, the Board recommends the Department implement the following strategy for organizational change:

1. Commit to transformational change (5+ years) with strong program management and senior leadership oversight.

2. Execute in “Waves” for manageability and sustainability.

★ Wave 1: Incremental initiatives that yield immediate headcount reduction and cost savings.

★ Wave 2: Transitional initiatives that align and leverage core business processes that yield further efficiencies and effectiveness. This enables readiness for implementing fundamental changes informed by DoD.

★ Wave 3: Transformational initiatives that enable future mission capability per DoD’s future strategy.

3. Target an appropriate Military personnel/Civilian personnel/Contract Services cost and population “mix” ratio. The objective will be to yield $8B savings per year by 2018.

4. Hold the Senior Executive Service Accountable. Fully utilize the performance management system for Senior Executive Service accountability.

The Task Group noted that Congress must play a critical supporting role to implement these types of changes, and with estimated savings of $5-8B per year, Congress should be supportive.

2) Military Compensation.

The end-state objective for military compensation is an affordable compensation and benefits system that attracts and retains the best and brightest personnel, and is configured to meet the demands of the mission.

The Task Group noted that

Congress must play a critical

supporting role to implement these types of

changes, and with estimated savings

of $5-8B per year, Congress should

be supportive.


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Table 6 highlights private sector best business practices and key benefits in the area of compensation and benefits.


Strong alignment between compensation and performance management systems • Supports delivery of high performance and rewards for results

Understanding compensation and benefit value through the “lens” of the employee using Conjoint Analysis

• Provides a more objective platform to support senior management in making compensation and benefit tradeoff decisions. Note, a typical US company wastes ~$1500/employee/year on compensation and benefits

• Provides best value opportunity to both employer and employees. Often benefits are over- or under-valued stemming from poor understanding and/or inadequate communication/marketing

Transition to defined contribution plans from defined benefit (DB) plans

• Reduces volatility of existing liabilities. Provides employee flexibility/portability. Average private sector pension contributions range from 4-12% per year

Changes to business strategy, and/or organization structures accompanied by targeted changes to the compensation system

• Promotes greater organizational alignment and efficiencies

High and low performing employees are compensated accordingly for their results within a company – wide performance management system

• Incentivizes and rewards strong performers while providing valuable feedback to lower performing employees

Recognition of importance of benefits beyond base pay (e.g., flexible working hours, geographical location, work structure)

• Increases employee satisfaction and promotes efficiencies• Allows for non-cash benefits to be incorporated

into pay/benefits spectrum

Table 6. Compensation Best Business Practices and Key Benefits


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The Task Group observed that legacy compensation and benefits systems have not been adjusted to support and sustain the All-Volunteer Force since its creation in 1973. In 1970, Thomas Gates chaired a study on the All-Volunteer Force and identified three critical components to be addressed in order for the All-Volunteer Force to be successful: (1) military compensation, (2) the up or out promotion structure, and (3) military retirement; key issues the Department has yet to address.

Legacy systems are designed to support career personnel with little attention given to the majority of Service members (those serving fewer than 20 years). Legacy systems are ill-equipped to manage the talent attraction and retention requirements presented by the Iraq and Afghanistan wars, leading to costly reactionary increases in compensation and benefits. Furthermore, Military Service members are not fully educated on the value of their overall benefits packages.

Consequently, DoD personnel costs are on an unsustainable trajectory and forecasted to consume the entire DoD budget by 2030.

★ Basic pay for the average service member from January 2002 to January 2010 increased by 29% adjusted for ECI (this includes previously planned restoration pay); housing allowances increased by 83%, and the subsistence (food) allowance increased by 40% in nominal dollars.

★ Enlisted and officer cash compensation is at the 90th and 83rd percentiles, respectively, when compared to civilians with comparable education. DoD goal has been 70th percentile.

★ With the legacy pension structure of 20 year cliff vesting and a 2.5 multiplier (1.1 for private sector), only 17% of enlisted military personnel will receive a pension with a disproportionate vesting amongst the officer population (~40%).

Currently, for each dollar spent on basic pay, DoD contributes 33 cents to the Military Retirement Fund (MRF). In FY12, DoD and Treasury contributed $21.9B and $70.1B,

Consequently, DoD personnel

costs are on an unsustainable

trajectory and forecasted to consume the entire DoD

budget by 2030.


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respectively, to the MRF, for a net total of $92B. As of FY11, the MRF pension liability is ~70% unfunded of a $1,273B actualized accrued liability. A recent statistically limited conjoint analysis indicates DoD could benefit from utilizing this methodology on a larger scale to more fully understand what the current, diverse workforce truly values. Findings requiring further validation include:

★ A dollar spent increasing enlisted personnel basic pay has more than six times the impact than a dollar spent increasing senior officer basic pay.

★ One-third of officers value commissaries as much or more than they cost; when compared to less than 6% of enlisted who value it in the same manner.

★ Majority of Military Service members value military exchanges as much or more than they cost.

★ More than 75% of junior officers and 99% of all other rank groups do not value child, youth, and school services as much as it costs to provide.

Based on the Task Group’s findings and observations, the Board recommends the Department implement the following:

1. Develop and implement an Human Capital Management plan. A plan that transitions over the next five years to a compensation and benefits framework that is sustainable and supports the attraction and retention requirements of the All-Volunteer Force.

★ Define the near and long-term talent retention requirements from enlistment to retirement (e.g., Army enlisted personnel ~4 years versus Air Force pilots 20 year retirement) to develop a framework for delivering value and capability to Service personnel during their tenure.

★ Using the retention requirement framework, address compensation and benefits as a system, not simply individual products (regular military compensation (RMC), bonuses, special pay, retirement, commissary, healthcare, etc.).

★ Develop and administer a statistically significant, multi-cohort, conjoint analysis in FY14. Learn from the current system and beyond which compensation and benefit element combinations (tangible and intangible) have the highest perceived value within the various groups.


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★ Design a flexible HCM system to be competitive with the private sector for attraction and retention of needed talent. Manage unsustainable basic pay “creep” through continued utilization of targeted bonuses and incentives to meet requirements. Employ analytical modeling to assure best value and avoid overpaying.

2. Make near-term adjustments to compensation. Utilize the current force draw down to make near-term reasonable adjustments to the “premium” difference between the military and private sector compensation.

★ Rigorously communicate and educate personnel on the value of their total compensation and benefits package (improve pay stub information, annual summary of total benefits paid, etc.).

★ Slow basic pay growth rate by implementing DoD recommended pay raise schedule: 0.5% (2015), 1.0% (2016), 1.55% (2017). Basic pay would remain relatively flat over this time period and below projected employment cost index levels with reduced accrual payments into the MRF.

★ Evaluate the reinstatement of cost sharing for housing allowances to both reduce costs and incentivize Service members to utilize recently renovated government housing with a goal of saving 10% of the costs (approximately $11B over ten years).

3. Transition to a Defined Contribution plan. Work vigorously with Congress to address the unsustainable cost structure, fairness, and flexibility issues of the Military’s Defined Benefit (DB) Retirement Plan.

★ Adopt the DBB recommendation to create a Defined Contribution (DC) plan for new enlistments using the existing Military Thrift Savings Plan to include the following.

✩ Service personnel under current DB plan grandfathered. ✩ Average vesting of 4 years, payout at age 60-65 with flexible payout

options. ✩ Risk adjusted to recognize combat roles and hardship ✩ Opportunity of ~$0.5B reduced future fund liability by FY34.


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★ To support sustained affordability through transition, consider: ✩ Index payout of retirement benefits to 67 years of age. ✩ Adjust benefit multiplier to 2.0 (40% of base pay) from present 2.5% (50%

of base pay). Benchmarks: private sector 1.1, public and municipal 1.5, fire and police 2.0.

✩ Adjust High 3 computation to High 5. ✩ To further accelerate the transition to the DC plan, consider offering the

choice for 1-15 year Service members of freezing their accrual in the DB plan and opting into the DC plan (financial and conjoint analyses will confirm feasibility).

CONCLUSION

The Department of Defense is facing one of the Nation’s most demanding business process environments in an increasingly unpredictable world. Implementing the Board’s recommendations offers the potential to increase DoD’s efficiency, flexibility, and adaptability; and could potentially yield a net savings of ~$27-37B annually. As the Services and Department make tough force structure choices in the near-term, an inward look at the “Business of the Department” is important for the future health of our Nation’s military capability and the All-Volunteer Force.

Respectfully submitted,

William R. PhillipsTask Group Chair

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e B

oard

dur

ing

thei

r del

iber

atio

ns.

35

2

Age

nda

 Te

rms

of R

efer

ence

Ove

rvie

w

 A

ppro

ach

 In

fluen

ces

on th

e D

oD E

nviro

nmen

t – 

Tren

ds

 M

ajor

Bus

ines

s Is

sues

Cha

lleng

ing

DoD

– 

Fina

ncia

l Man

agem

ent

– Lo

gist

ics

and

Sup

ply

Cha

in M

anag

emen

t – 

Hum

an C

apita

l Man

agem

ent

 C

losi

ng R

emar

ks

36

3

Term

s of

Ref

eren

ce O

verv

iew

 A

ddre

ss tr

ends

that

will

affe

ct D

oD d

urin

g th

e pe

riod

of

the

next

Qua

dren

nial

Def

ense

Rev

iew

(QD

R),

2014

-201

8

 Id

entif

y an

d as

sess

the

maj

or b

usin

ess

issu

es th

at th

e D

epar

tmen

t will

like

ly fa

ce th

roug

h th

e pe

riod

of th

e ne

xt

QD

R

1. 

Wha

t are

the

maj

or b

usin

ess

issu

es th

at th

e D

epar

tmen

t sho

uld

cons

ider

? 2. 

How

will

thes

e is

sues

impa

ct th

e D

epar

tmen

t?

3. 

Are

ther

e an

y ex

istin

g, c

ost-e

ffect

ive

mea

sure

s th

at th

e D

epar

tmen

t ca

n im

plem

ent t

o m

itiga

te th

ese

issu

es?

4. 

Wha

t suc

cess

ful p

rivat

e se

ctor

pro

cess

es, p

ract

ices

, and

tech

niqu

es

can

DoD

use

to a

ddre

ss th

ese

issu

es?

5. 

How

can

the

Dep

artm

ent b

est i

mpl

emen

t the

se p

roce

sses

, pra

ctic

es,

and

tech

niqu

es?

37

4

 R

evie

w p

ast D

oD Q

DR

rep

orts

 R

evie

w r

elev

ant D

oD “

busi

ness

ope

ratio

ns”

activ

ities

 In

terv

iew

30+

priv

ate

indu

stry

and

cur

rent

/rec

ent D

oD

seni

or m

ilita

ry a

nd c

ivili

an le

ader

s on

DoD

“bu

sine

ss

oper

atio

ns”

and

QD

R d

evel

opm

ent p

roce

ss*

 R

esea

rch

“bes

t bus

ines

s pr

actic

es”

– in

dust

ry,

acad

emia

, thi

nk ta

nks,

DoD

, and

Con

gres

sion

al

agen

cies

(G

AO

, CR

S, C

BO

)

 Id

entif

y be

st b

usin

ess

prac

tices

and

pro

cess

es

Ap

pro

ach

Not

e: D

oD d

elay

s an

d fu

rloug

hs h

ave

impa

cted

the

timel

ines

s of

this

stu

dy a

s it

appl

ies

to th

e Q

DR

201

4 re

port

* N

ote:

App

endi

x lis

ts o

ffici

als

inte

rvie

wed

38

Sou

rce:

CS

IS, F

eb 2

013;

CB

O e

stim

ates

Maj

or T

rend

s D

efen

se B

udge

ts fo

llow

ing

OEF

/OIF

will

mirr

or p

ast m

ajor

con

flict

s dr

awdo

wns

5

Futu

re b

udge

t con

stra

ints

will

impa

ct D

oD

39

 D

efen

se b

udge

ts w

ill c

ontin

ue

to d

eclin

e w

ith o

r with

out

sequ

estra

tion

 D

efen

se m

issi

ons

cont

inue

: dr

awdo

wn

occu

rrin

g in

a m

ore

dang

erou

s an

d un

certa

in

wor

ld

 In

tere

st c

osts

will

exc

eed

defe

nse

spen

ding

by

FY19

 B

usin

ess

dim

ensi

on o

f DoD

is

criti

cal e

lem

ent i

n ad

dres

sing

th

is p

robl

em

0 2 4 6 8 10

12

14

16

18

20

2012

201

3 20

14 2

015

2016

201

7 20

18 2

019

2020

202

1 20

22 2

023

Deb

t Hel

d by

Pub

lic

Sou

rce:

CB

O M

ay 2

013,

in $

Tril

lions

Maj

or T

rend

s D

ebt i

s th

e D

rivin

g Fa

ctor

6

U.S

. Deb

t gro

wth

will

impa

ct fu

ture

DoD

bud

gets

40

7

 A

sses

s th

eir l

eade

rshi

p te

ams

– W

ho’s

read

y to

hel

p? (e

mpo

wer

) – 

Who

’s n

ot?

(rep

lace

) – 

Fill

tale

nt g

aps

with

hig

hly

skill

ed “d

own

budg

et” l

eade

rs

 E

stab

lish

obje

ctiv

es th

at a

ddre

ss th

e cr

isis

at h

and

 Lo

ok a

t maj

or c

ost d

river

s – 

Peo

ple

and

bene

fits

– Fa

cilit

ies

and

infra

stru

ctur

e – 

Sup

ply

chai

n – 

Org

aniz

atio

nal o

verh

ead

 C

ondu

ct tr

iage

– 

Ear

ly d

ays

not p

retty

– c

ut c

osts

as

fast

as

poss

ible

– 

Onc

e st

able

, offe

r mor

e tra

nsfo

rmat

iona

l app

roac

hes

Toug

h Ti

mes

W

hat B

usin

ess

Lead

ers

Do

Whe

n Fa

ced

with

Fin

anci

al C

halle

nges

41

8

The

Bus

ines

s Si

tuat

ion

… IB

M 1

993

 O

rgan

izat

ion

char

acte

rized

by

– H

uge

size

– e

very

thin

g is

mea

sure

d in

$bi

llion

s – 

Res

ourc

es a

re d

ecre

asin

g dr

amat

ical

ly –

als

o m

easu

red

in $

billi

ons

– In

tegr

atio

n of

bus

ines

s op

erat

ions

is p

oor -

fina

ncia

l, su

pply

cha

in,

IT…

– 

Org

aniz

atio

nal e

ffici

ency

is

poor

– y

ears

of i

ncre

asin

g re

sour

ces

have

led

to in

crea

sed

over

head

, red

unda

ncy,

and

ina

dequ

ate

focu

s on

cos

t – 

Maj

or d

ecis

ions

are

n’t d

ebat

ed, r

athe

r han

dled

thro

ugh

“pre

-arr

ange

d co

nsen

sus”

– 

Pat

erna

listic

: O

utst

andi

ng y

et u

naffo

rdab

le p

ensi

ons

and

med

ical

car

e

 O

pera

ting

envi

ronm

ent i

ncre

asin

gly

char

acte

rized

by

vola

tility

, un

certa

inty

, com

plex

ity a

nd a

mbi

guity

(VU

CA

) – 

Who

and

whe

re th

e “b

ad g

uys

or o

ur c

ompe

titio

n” a

re is

cha

ngin

g

 Fo

r eve

ry d

olla

r of r

esou

rce

achi

eved

, 42

cent

s is

in in

dire

ct c

osts

[1]

 D

uplic

atio

n, re

dund

ancy

and

exc

ess

exis

t: – 

128

peop

le h

ave

CIO

in th

eir t

itle

– 26

6 di

ffere

nt g

ener

al le

dger

sys

tem

s – 

31 d

iffer

ent i

nter

nal c

omm

unic

atio

n ne

twor

ks

– 15

5 di

ffere

nt d

ata

cent

ers

42

 E

stab

lishe

d 90

day

prio

ritie

s, in

clud

ing

– S

top

hem

orrh

agin

g ca

sh

– R

ight

-siz

e th

e or

gani

zatio

n – 

Iden

tify

stro

ng C

FO a

nd h

ead

of H

R

 Fo

cuse

d on

spe

cific

act

ions

– 

Cut

cos

ts:

elim

inat

e re

dund

ant a

ctiv

ities

, non

-cor

e fu

nctio

ns, a

nd c

ut o

verh

ead

dram

atic

ally

– 

Red

uce

unne

cess

ary

faci

litie

s an

d re

al e

stat

e im

med

iate

ly

– A

ddre

ss c

osts

of p

eopl

e th

roug

h rig

ht-s

izin

g an

d ch

ange

s to

ben

efit

plan

s – 

Sel

l ass

ets

dete

rmin

ed to

be

non-

core

but

with

sig

nific

ant v

alue

in th

e m

arke

t  

With

in 1

2 m

onth

s – 

Rig

ht-s

ized

the

orga

niza

tion,

elim

inat

ing

~60,

000

posi

tions

– 

Con

solid

ated

redu

ndan

t act

iviti

es (e

.g. 7

0 di

ffere

nt a

dver

tisin

g co

ntra

cts/

rela

tions

hips

into

1)

– S

old

8,00

0 ac

res

of u

ndev

elop

ed la

nd, s

old

first

-cla

ss fa

cilit

ies,

con

solid

ated

21

corp

orat

e lo

catio

ns in

to 5

Wha

t IB

M D

id

9

“Mov

e fa

st.

If w

e m

ake

mis

take

s, le

t the

m b

e be

caus

e w

e m

oved

too

fast

rath

er th

an to

o sl

ow.”

-- L

ou G

erst

ner 1

993

43

 W

ithin

24

mon

ths

– C

onso

lidat

ed 1

55 d

ata

cent

ers

to 1

6 – 

Elim

inat

ed 1

27 C

IOs

to h

avin

g on

ly 1

– 

Elim

inat

ed 3

0 co

mm

unic

atio

n ne

twor

ks to

onl

y 1

toda

y

 Fr

om 1

994

to 1

998

took

out

$9.

5B in

cos

ts/o

verh

ead

(12-

15%

) – 

Rev

enue

gre

w fr

om $

64.1

B in

199

4 to

$81

.7B

in 1

998

 Fr

om 1

994

to 2

000

and

beyo

nd, i

nteg

rate

d su

pply

cha

in

– Im

prov

e ef

fect

iven

ess

whi

le e

limin

atin

g in

exc

ess

of $

16B

in c

osts

Wha

t IB

M D

id

Stro

ng le

ader

s, w

ith s

peci

fic g

oals

, mov

ing

quic

kly

to

targ

et c

osts

10

44

 N

arro

wed

the

Stu

dy S

cope

Usi

ng S

elec

tion

Crit

eria

– 

Bes

t Bus

ines

s P

ract

ices

rele

vant

to c

urre

nt s

ituat

ion

at th

e D

oD

– R

esul

ts th

at c

an b

egin

and

be

achi

eved

with

in th

e fir

st fo

ur y

ears

of a

20-

year

sco

pe,

addr

essi

ng

sequ

estra

tion

requ

irem

ents

– O

ppor

tuni

ties

that

sup

port

mis

sion

read

ines

s of

the

DoD

 Fo

cus

Are

as:

Thes

e re

com

men

datio

ns c

ould

yie

ld $

27-3

7B*

savi

ngs

over

the

next

4-

5 ye

ars

whi

le e

nhan

cing

out

com

es

Bus

ines

s/M

anag

emen

t Iss

ues

for D

oD 2

014

* N

ote:

Rec

ogni

zing

that

sav

ings

are

not

add

itive

as

focu

s ar

ea s

avin

gs li

kely

to h

ave

som

e ov

erla

p

1) F

inan

cial

/Cos

t Man

agem

ent

 $4

-6B

sav

ings

and

incr

ease

d fle

xibi

lity

2) L

ogis

tics

and

Sup

ply

Cha

in

 $1

8-23

B s

avin

gs a

nd in

crea

sed

read

ines

s

3) H

uman

Cap

ital M

anag

emen

t  

Red

uced

Lay

ers

and

Spa

n of

Con

trol:

$5-8

B s

avin

gs

 M

ilita

ry C

ompe

nsat

ion

and

Ben

efits

: $1

-2B

sav

ings

nea

r te

rm, $

250-

270B

ove

r 20

year

s

11

45

Obj

ectiv

e: I

mpr

ove

finan

cial

pro

cess

es a

nd s

yste

ms

and

impr

ove

cost

man

agem

ent

thro

ugh

accu

rate

and

aud

itabl

e fin

anci

al s

tate

men

ts

Fina

ncia

l Man

agem

ent

Bes

t Bus

ines

s Pr

actic

es

Ach

ievi

ng a

nd s

usta

inin

g D

oD’s

man

date

d bu

dget

cut

s ($

54 b

illio

n/ye

ar) w

ill

requ

ire s

tron

g an

d de

liber

ate

finan

cial

man

agem

ent p

ract

ices

/pro

cess

es

Bes

t Bus

ines

s Pr

actic

e K

ey B

enef

its

Stro

ng fi

nanc

ial m

anag

emen

t pro

cess

es a

nd

accu

rate

fina

ncia

l inf

orm

atio

n  

Ena

bles

qui

ck re

spon

se to

cha

ngin

g co

nditi

ons

with

mor

e ce

rtain

ty

Non

-fina

ncia

l exe

cutiv

es s

pend

20-

30%

of t

heir

time

on fi

nanc

ial m

anag

emen

t iss

ues

 U

nifie

d m

anag

emen

t tea

m fo

cuse

d on

cos

ts

Inte

grat

ion

of B

usin

ess

syst

ems

usin

g E

nter

pris

e R

esou

rce

Pla

nnin

g (E

RP

), m

iddl

ewar

e, o

pen

sour

ce to

ols

 S

aves

10-

25%

of a

nnua

l ope

ratin

g co

sts

 Ty

pica

lly re

plac

es re

dund

ant,

outd

ated

, and

ex

pens

ive

syst

ems

Fina

ncia

l tra

nspa

renc

y to

org

aniz

atio

nal

lead

ersh

ip a

nd in

vest

ing

com

mun

ity

 E

xecu

tives

hel

d ac

coun

tabl

e fo

r fin

anci

al g

oals

 

Fina

ncia

l goa

ls a

nd o

bjec

tives

are

sha

red

acro

ss

lead

ersh

ip te

ams

 

Fina

ncia

l sta

tem

ents

are

aud

itabl

e an

d op

en a

t pu

blic

com

pani

es

Sus

tain

ing

a cu

lture

of c

ost m

anag

emen

t – n

ot

an in

itiat

ive,

a c

ontin

ual p

roce

ss

 C

an re

duce

ove

rhea

d by

5%

 

Bet

ter i

nfor

med

man

agem

ent d

ecis

ions

12

46

 D

oD’s

“Fin

anci

al M

anag

emen

t” on

the

Gov

ernm

ent’s

A

ccou

ntab

ility

Offi

ce (G

AO

) “H

igh

Ris

k Li

st” s

ince

199

5  

Bud

get i

s kn

own

and

man

aged

, how

ever

not

effe

ctiv

ely

usin

g fin

anci

al a

nd c

ost s

yste

ms

to s

uppo

rt be

tter d

ecis

ion

mak

ing

 S

yste

m m

oder

niza

tion

has

been

a p

riorit

y, c

ente

red

arou

nd E

RP

s,

but e

xecu

tion

has

been

inco

nsis

tent

and

sav

ings

slo

w to

m

ater

ializ

e – 

Arm

y Lo

gist

ics

Man

agem

ent P

rogr

am (L

MP

) ant

icip

ated

$75

0M in

sav

ings

by

end

of F

Y12

, but

act

ual s

avin

gs a

re u

nkno

wn.

No

track

ing

mec

hani

sm in

pl

ace

[2]

– P

roje

cted

sav

ings

of s

elec

t ER

P in

itiat

ives

(mid

-FY

12) [

3]

 G

ener

al F

und

Ent

erpr

ise

Bus

ines

s S

yste

m -

$58

M/y

ear a

nd 1

07 le

gacy

sys

tem

s re

plac

ed

 N

avy

Ent

erpr

ise

Res

ourc

e P

lann

ing

Sys

tem

- $1

03M

/96

syst

ems

 D

efen

se E

nter

pris

e A

ccou

ntin

g an

d M

anag

emen

t Sys

tem

- $

56M

/8 s

yste

ms

Fina

ncia

l Man

agem

ent

DoD

Tod

ay

13

47

 N

eed

for c

ost c

ultu

re in

crea

sing

ly b

eing

und

erst

ood

but i

mpl

emen

tatio

n is

stil

l el

usiv

e

 D

oD in

vest

ing

in fi

nanc

ial m

anag

emen

t. Fi

nanc

ial I

mpr

ovem

ent a

nd A

udit

Rea

dine

ss (F

IAR

) Pla

n sc

hedu

le in

pla

ce, b

ut s

lippi

ng to

the

right

[4]

– FY

14 S

tate

men

t of B

udge

tary

Res

ourc

es g

oal i

s no

w fo

cuse

d on

the

mor

e lim

ited

Sch

edul

e of

Bud

geta

ry A

ctiv

ities

– 

FY17

goa

l for

full

finan

cial

sta

tem

ent a

udit

likel

y to

mov

e to

FY

18 o

r bey

ond

Fina

ncia

l Man

agem

ent

DoD

Tod

ay

“We

don’

t typ

ical

ly a

sk o

urse

lves

abo

ut th

e fin

anci

al o

r cos

t co

nseq

uenc

es w

hen

we

mak

e de

cisi

ons

in th

is b

uild

ing.

Par

t of

the

prob

lem

is c

ultu

ral,

but p

art o

f the

pro

blem

is a

lso

that

we

don’

t hav

e th

e in

form

atio

n to

ans

wer

that

que

stio

n.”

-

Sen

ior m

ilita

ry le

ader

14

48

Fina

ncia

l Man

agem

ent

DoD

Tod

ay

Age

ncy

Fund

ing

Type

FY

2012

D

LA

Dire

ct a

nd W

orki

ng C

apita

l $4

6.3B

D

ISA

Dire

ct a

nd W

orki

ng C

apita

l $8

.8B

DFA

S D

irect

and

Wor

king

Cap

ital

$1.4

B

DeC

A

Dire

ct

$1.4

B

DC

MA

Dire

ct

$1.2

B

DSS

D

irect

$0.6

B

DC

AA

Dire

ct

$0.5

B

TOTA

L $6

0.2B

Source: Com

ptroller FY14 Greenboo

k, not adjusted for infl

a>on

. Do

es not includ

e intelligence agencies and th

e Missile Defense Agency

 B

usin

ess-

like

Def

ense

Age

ncie

s re

pres

ent ~

$60B

of D

oD’s

ope

ratin

g co

sts

– M

any

are

DoD

“bus

ines

s op

erat

ions

” (e,

g., D

ISA

, DLA

, DFA

S, e

tc.)

– O

pera

te la

rgel

y au

tono

mou

sly

– P

rinci

ple

Sta

ff A

ssis

tant

s (P

SA

) hav

e lit

tle ti

me

to m

anag

e

 D

oD’s

FY

13 B

udge

t Req

uest

sug

gest

s $1

0B in

tota

l Def

ense

Age

ncy

Sav

ings

Cos

t red

uctio

ns u

nder

way

; mor

e ca

n be

don

e

15

49

1. D

rive

trans

pare

ncy

for b

ette

r man

agem

ent v

isib

ility

and

cr

eate

a “c

ost m

anag

emen

t cul

ture

” thr

ough

out D

oD

– A

pply

com

mon

bus

ines

s pr

actic

es, m

etric

s, a

nd s

core

card

met

hods

ac

ross

the

Dep

artm

ent

– C

ontin

ue to

inve

st in

tech

nolo

gy e

nabl

ing

tool

s (e

.g.,

ER

P a

nd

mid

dlew

are)

to in

tegr

ate

criti

cal b

usin

ess

proc

esse

s

– R

e-in

vigo

rate

initi

ativ

es li

ke L

ean

Six

Sig

ma

and

set a

mbi

tious

cos

t sa

ving

s ob

ject

ives

for k

ey b

usin

ess

proc

esse

s

Fina

ncia

l Man

agem

ent

DB

B R

ecom

men

datio

ns

16

50

2. R

educ

e co

sts

of D

oD’s

Def

ense

Age

ncie

s

– C

once

ntra

te o

n ag

enci

es w

hose

prim

ary

mis

sion

is “b

usin

ess

oper

atio

ns” (

e.g.

DLA

, DIS

A, D

FAS

, etc

.)

– E

stab

lish

aggr

essi

ve c

ost r

educ

tion

goal

s an

d pe

rform

ance

impr

ovem

ent

obje

ctiv

es

 Tr

ack

usin

g K

ey P

erfo

rman

ce In

dica

tor s

core

card

s  

Leve

rage

wha

t mig

ht a

lread

y be

in p

lace

 

Opt

imiz

e fo

r sav

ings

usi

ng th

e w

orki

ng c

apita

l fun

d’s

acco

unt s

truct

ure

 S

et 1

0-15

% ta

rget

s in

initi

al y

ears

; mov

e to

5-1

0% a

nnua

l tar

gets

for f

utur

e ye

ars

– B

ench

mar

k th

e ag

ency

’s k

ey p

roce

sses

aga

inst

sim

ilar c

omm

erci

al s

ecto

r pr

oces

ses

and

met

rics

– C

reat

e a

road

map

of p

lann

ed p

rogr

ess;

requ

ire ro

utin

e re

porti

ng

– E

mpo

wer

DC

MO

to d

rive

this

pro

cess

, rep

ortin

g to

DE

PS

EC

DE

F an

d al

igne

d P

SA

s  

Hol

d ea

ch a

genc

y di

rect

or a

ccou

ntab

le to

ach

ieve

cos

t red

uctio

n go

als

Fina

ncia

l Man

agem

ent

DB

B R

ecom

men

datio

ns

17

Est

imat

ed s

avin

gs o

f $4-

6B p

er y

ear

51

Logi

stic

s an

d Su

pply

Cha

in M

anag

emen

t B

est B

usin

ess

Prac

tices

Obj

ectiv

e: I

ncre

ase

read

ines

s by

del

iver

ing,

pos

ition

ing,

and

sus

tain

ing

forc

es

from

any

poi

nt o

f orig

in to

any

poi

nt o

f em

ploy

men

t, th

roug

h m

ore

deep

ly

inte

grat

ed lo

gist

ics

and

supp

ly c

hain

man

agem

ent

18

Bes

t Bus

ines

s Pr

actic

e K

ey B

enef

its

Inte

grat

e S

uppl

y C

hain

with

Stra

tegy

 

Cre

ates

mor

e ef

ficie

nt o

vera

ll su

pply

cha

in

man

agem

ent

 A

chie

ves

cost

and

com

petit

ive

adva

ntag

es

Stra

tegi

c S

ourc

ing

 P

rivat

e co

mpa

nies

typi

cally

leve

rage

90%

of t

heir

proc

urem

ent s

pend

ing

thro

ugh

stra

tegi

c so

urci

ng fo

r sa

ving

s of

10-

20%

Util

ize

Glo

bal I

nfor

mat

ion

Sys

tem

for R

eal-

Tim

e B

ackb

one

 R

educ

es fu

lfillm

ent c

ycle

tim

es o

f 30-

60%

resu

lting

in

fast

er d

eliv

ery

 R

educ

es e

xces

s in

vent

ory

& c

osts

 

Incr

ease

s ac

cura

cy o

f for

ecas

ting

 A

bilit

y to

qui

ckly

rese

t dis

tribu

tion

and

deliv

ery

patte

rns

 Im

prov

es v

isib

ility

of d

irect

and

indi

rect

cos

ts

thro

ugho

ut th

e lif

ecyc

le

52

Logi

stic

s an

d Su

pply

Cha

in M

anag

emen

t B

est B

usin

ess

Prac

tices

19

Bes

t Bus

ines

s Pr

actic

e K

ey B

enef

its

Inve

ntor

y O

ptim

izat

ion

 R

educ

es in

vent

ory

carr

ying

cos

ts

 R

ight

siz

es in

vest

men

ts in

pro

perty

, pla

nts,

and

eq

uipm

ent

Util

ize

emer

ging

tech

nolo

gies

and

tech

niqu

es

to im

prov

e bu

sine

ss p

roce

sses

 E

nhan

ces

serv

ice

deliv

ery

and

redu

ces

cost

s th

roug

h re

-des

ign

and

auto

mat

ion

 C

reat

es e

ndur

ing

appl

icat

ion

of te

chni

ques

like

Lea

n S

ix S

igm

a an

d st

rate

gic

sour

cing

Suc

cess

dire

ctly

pro

porti

onal

to s

enio

r exe

cutiv

e le

ader

ship

and

in

volv

emen

t

53

Logi

stic

s an

d Su

pply

Cha

in M

anag

emen

t B

est B

usin

ess

Prac

tices

(Exa

mpl

es)

 In

vent

ory

Opt

imiz

atio

n – 

Wal

mar

t req

uire

s m

ajor

sup

plie

rs to

con

nect

dire

ctly

to it

s ow

n in

vent

ory

man

agem

ent s

yste

m, m

akin

g su

pplie

rs re

spon

sibl

e fo

r ret

ail

shel

f sto

ckin

g

 Fa

cilit

ies

Opt

imiz

atio

n – 

Am

azon

use

s co

nsol

idat

ed w

areh

ousi

ng a

nd th

e la

test

tech

nolo

gies

to

driv

e ef

ficie

ncie

s

 G

loba

l Inf

orm

atio

n S

yste

m

– FE

DEX

util

izes

com

mon

IT s

yste

ms

and

trade

craf

t to

faci

litat

e ac

quis

ition

inte

grat

ion

and

serv

ice

qual

ity im

prov

emen

t

– IB

M in

tegr

ated

its

supp

ly c

hain

to d

ecre

ase

cost

s, in

crea

se

proc

urem

ent “

hand

s fre

e” tr

ansa

ctio

ns, a

nd re

duce

d m

aver

ick

buyi

ng to

le

ss th

an 2

% o

f tot

al tr

ansa

ctio

ns

20

54

Logi

stic

s an

d Su

pply

Cha

in M

anag

emen

t B

est B

usin

ess

Prac

tices

(Exa

mpl

es)

 P

erfo

rman

ce M

anag

emen

t – 

IBM

dec

reas

ed c

osts

by

21%

and

incr

ease

d lo

gist

ics

volu

me

30%

usi

ng

perfo

rman

ce m

anag

emen

t met

hods

[5]

– Ill

inoi

s C

entr

al d

istil

led

perfo

rman

ce m

anag

emen

t to

one

met

ric th

at is

ea

sily

und

erst

ood

by a

ll le

vels

of t

he o

rgan

izat

ion,

faci

litat

ing

unity

of

effo

rt

 S

enio

r Lea

ders

hip

Gov

erna

nce

of S

uppl

y C

hain

– 

Ford

, IB

M, a

nd W

alm

art r

ely

on c

entra

lized

exe

cutiv

e “C

-Sui

te le

vel”

man

agem

ent o

f ful

l sup

ply

chai

n/lo

gist

ics

proc

esse

s to

driv

e co

ntin

uous

co

st a

nd p

erfo

rman

ce im

prov

emen

ts th

roug

hout

the

entir

e or

gani

zatio

n

 R

e-de

sign

Wor

kflo

w w

ith E

mer

ging

Tec

hnol

ogie

s – 

Illin

ois

Cen

tral

bec

ame

the

mos

t effi

cien

t US

railr

oad

with

the

best

sa

fety

reco

rd th

ough

the

first

use

of c

ompu

teriz

ed tr

affic

con

trol

21

55

DoD

Lo

gist

ics

171.2 Billion Annual Budget (FY12)

•  $79.5 billion in maintenance

•  $67.6 billion in supply

•  $24.2 billion in transportaBon

$608.3 Billion in Assets (FY12)

• 600 ships

• 16,000 aircraHs

• 40,300 combat vehicles

• 367,300 ground vehicles

OperaBonal Resources (FY12)

• 100,000 suppliers

• 92,000+ requisiBons per day

• $96.4 billion inventory/4.6 million

items

LogisBcs OperaBng LocaBons (FY12)

• 18 maintenance depots

• 25 distribuBon depots (global)

• 49,500+ customer sites

• Worldwide air and seaports

22

Logi

stic

s an

d Su

pply

Cha

in M

anag

emen

t Sc

ope

of D

oD L

ogis

tics

Sou

rce:

AS

D fo

r Log

istic

s an

d M

ater

iel R

eadi

ness

56

 D

oD’s

“Sup

ply

Cha

in M

anag

emen

t” on

GA

O’s

“Hig

h R

isk

List

” sin

ce 1

990

 M

ultip

le d

isco

nnec

ted

cost

cen

ters

and

pro

cess

es

– M

ilita

ry S

ervi

ces:

Man

date

d by

Titl

e X

for S

ervi

ce-u

niqu

e ite

ms

– D

LA:

Com

mon

sup

ply

prov

ider

(e.g

., “C

omm

oditi

es” s

uch

as fo

od, f

uel,

cons

truct

ion/

barr

ier m

ater

ial,

med

ical

item

s)

– TR

AN

SC

OM

: Jo

int D

istri

butio

n P

roce

ss O

wne

r – 

GS

A: N

egot

iate

s co

ntra

cts

for b

asic

goo

ds (e

.g.,

offic

e su

pplie

s, to

ols,

co

mpu

ter p

rodu

cts,

and

cle

anin

g pr

oduc

ts)

 O

verla

p le

ads

to w

aste

ful d

uplic

atio

n, li

mits

inve

ntor

y vi

sibi

lity,

and

min

imiz

es a

bilit

y to

con

trol c

osts

 

Exc

ess

and

agin

g w

areh

ouse

faci

litie

s ar

e ex

pens

ive

to

oper

ate

and

inef

ficie

nt

– M

ilita

ry S

ervi

ces

prop

erty

boo

ks h

old

hund

reds

of w

areh

ouse

s, m

any

unde

rutil

ized

; was

tefu

l exp

ense

on

agin

g fa

cilit

ies

Logi

stic

s an

d Su

pply

Cha

in M

anag

emen

t D

oD T

oday

23

57

Logi

stic

s an

d Su

pply

Cha

in M

anag

emen

t D

oD T

oday

 R

ecen

t DoD

Suc

cess

es

– E

stab

lishe

d Jo

int L

ogis

tics

Boa

rd (J

LB) –

stre

ngth

ens

gove

rnan

ce

– In

vent

ory

Man

agem

ent E

nhan

cem

ent

 C

ompr

ehen

sive

Inve

ntor

y M

anag

emen

t Im

prov

emen

t Pla

n (C

IMIP

) – 

Dec

reas

ed s

econ

dary

item

inve

ntor

y to

$8B

as

of M

arch

201

2 –

larg

est d

ecre

ase

sinc

e 19

90

– R

educ

ed “o

n-ha

nd e

xces

s in

vent

ory”

to 7

.2%

at e

nd o

f Mar

ch 2

013,

redu

ced

$3.4

B

sinc

e M

arch

201

2; ta

rget

goa

l no

mor

e th

an 1

0% [6

] – 

Dec

reas

ed “o

n-or

der e

xces

s in

vent

ory”

to 7

.6%

, red

uced

$54

8M s

ince

200

9 [6

]  

Dis

tribu

tion

Pro

cess

Ow

ner S

trate

gic

Opp

ortu

nitie

s (D

SO

) ini

tiativ

es a

chie

ved

$402

M in

dis

tribu

tion

cost

avo

idan

ces

acro

ss th

e FY

DP

beg

inni

ng in

FY

14 [7

]

 S

trate

gic

Net

wor

k O

ptim

izat

ion

(SN

O) p

rodu

cing

$1.

4B s

avin

gs in

tran

spor

tatio

n ne

twor

k, in

vent

ory,

and

infra

stru

ctur

e w

areh

ouse

con

solid

atio

n [6

] – 

DLA

mat

erie

l now

con

solid

ated

and

sou

rced

from

3 p

rimar

y hu

bs (E

ast,

Cen

tral,

Wes

t)

24

Thes

e su

cces

sful

man

agem

ent i

nitia

tives

cre

ate

a fo

unda

tion

for

addi

tiona

l fut

ure

savi

ngs,

but

mor

e w

ork

to b

e do

ne o

n sa

ving

s an

d pr

oces

s im

prov

emen

t

58

Logi

stic

s an

d Su

pply

Cha

in M

anag

emen

t D

BB

Rec

omm

enda

tions

1. 

Cre

ate

mor

e co

nnec

tivity

and

stre

amlin

ed p

roce

sses

acr

oss

the

logi

stic

s en

terp

rise

– 

Agr

ee to

sha

red

taxo

nom

y on

app

ropr

iate

pro

cess

es a

nd c

omm

on p

erfo

rman

ce

met

rics

for g

reat

er e

nter

pris

e m

anag

emen

t pot

entia

l – 

Avo

id th

e te

mpt

atio

n to

bui

ld o

ne “a

ll in

clus

ive”

info

rmat

ion

man

agem

ent s

yste

m/E

RP

 

Rat

her,

build

sys

tem

s in

incr

emen

ts th

at le

vera

ge s

ucce

sses

from

the

Mili

tary

Ser

vice

s an

d D

LA w

hile

incl

udin

g ar

chite

ctur

es th

at c

an e

volv

e to

war

d in

tegr

atio

n – 

Exp

and

stra

tegi

c so

urci

ng in

itiat

ives

 

Mili

tary

Ser

vice

-focu

sed

initi

ativ

es o

ffer g

reat

pot

entia

l sav

ings

and

ada

ptab

ility

 

Lead

with

con

sist

ent,

impl

emen

tatio

n al

igni

ng th

e M

ilita

ry S

ervi

ces

and

the

Dep

artm

ent

 C

oord

inat

e th

e de

sign

of a

ll st

rate

gic

sour

cing

pro

gram

s ac

ross

DoD

to m

axim

ize

proc

ess

impr

ovem

ent a

nd s

avin

gs p

oten

tial t

hrou

gh In

dust

rial B

ase

alig

nmen

t  

See

k ad

ditio

nal e

ffici

enci

es b

eyon

d D

LA C

omm

oditi

es a

nd D

epot

Mai

nten

ance

, to

incl

ude

Def

ense

Age

ncie

s’ b

ack-

offic

e su

ppor

t  

Set

a ta

rget

of 2

% s

avin

gs p

er y

ear o

f $40

0B s

pend

, (in

dust

ry re

aliz

es 5

-12%

)  

Ant

icip

ate

yiel

d of

$6-

8B a

nnua

lly a

nd p

roce

ss im

prov

emen

ts

25

59

Logi

stic

s an

d Su

pply

Cha

in M

anag

emen

t D

BB

Rec

omm

enda

tions

2. 

Con

tinue

to re

duce

exc

ess

depo

t and

war

ehou

se in

frast

ruct

ure

and

mai

nten

ance

cos

ts

– E

xpan

d ex

cess

inve

ntor

y in

itiat

ive;

Red

ucin

g to

5%

exc

ess

wou

ld y

ield

$2-

3B

– A

ggre

ssiv

ely

cons

olid

ate

depo

ts to

ach

ieve

effi

cien

cies

and

redu

ce O

&M

cos

ts

 Ta

rget

a g

oal o

f 50%

redu

ctio

n in

Mili

tary

Ser

vice

s’ w

areh

ouse

spa

ce*

infra

stru

ctur

e  

Ser

vice

s to

pur

sue

SN

O-li

ke e

ffici

enci

es -

toge

ther

to y

ield

$1-

2B

– Ta

rget

10%

redu

ctio

n in

mai

nten

ance

and

rela

ted

infra

stru

ctur

e, fa

cilit

ated

by

troop

dr

aw-d

own,

to p

oten

tially

yie

ld $

8B o

f $79

.5B

FY

2012

mai

nten

ance

cos

ts

– U

se B

ase

Rea

lignm

ent a

nd C

losu

re (B

RA

C) a

utho

rity

to e

limin

ate

and

disp

ose

of

addi

tiona

l exc

ess

infra

stru

ctur

e an

d st

ream

line

the

supp

ly c

hain

 

Arti

cula

te to

Con

gres

s th

e po

ssib

le tr

ades

from

oth

erw

ise

inef

ficie

nt “c

arry

ing

cost

s”

 A

nnua

l sav

ings

, bas

ed o

n ea

rlier

BR

AC

resu

lts, c

ould

yie

ld $

10B

ove

r 20

year

s (D

oD

test

imon

y –

Hou

se A

rmed

Ser

vice

s C

omm

ittee

) – e

arly

yea

rs t

o yi

eld

$1-2

B

– C

ontin

ue to

exp

erim

ent w

ith e

mer

ging

tech

nolo

gies

to fa

cilit

ate

adop

tion

of s

uppl

y ch

ain

effic

ienc

ies

whi

le e

nhan

cing

flex

ibili

ty a

nd a

dapt

abili

ty n

eede

d by

the

Tota

l Fo

rce

26

*Not

e: R

ecog

nize

the

Ser

vice

con

trolle

d sp

ecia

lized

inve

ntor

y m

ay m

ake

this

cha

lleng

ing,

but

reco

mm

enda

tion

base

d on

DLA

exp

erie

nce

Sav

ings

thro

ugh

inve

ntor

y an

d m

aint

enan

ce re

duct

ions

, sou

rcin

g ap

proa

ches

an

d in

frast

ruct

ure

coul

d yi

eld

$18-

23B

and

incr

ease

d re

adin

ess

60

27

 R

epre

sent

s a

maj

or c

ost a

nd v

alue

driv

er in

mos

t or

gani

zatio

ns

 Tw

o sp

ecifi

c ar

eas

requ

iring

imm

edia

te a

ttent

ion

– S

taffi

ng, L

ayer

s, a

nd S

pans

of C

ontro

l – 

Mili

tary

Com

pens

atio

n

 A

s cu

rren

tly c

onst

itute

d, b

oth

are

incr

easi

ngly

un

affo

rdab

le w

ithou

t tra

nsfo

rmat

iona

l cha

nge

Hum

an C

apita

l Man

agem

ent

Wha

t we

hear

d fro

m c

urre

nt a

nd fo

rmer

def

ense

lead

ers:

“If

I wan

t to

guar

ante

e th

e fu

ture

, I lo

ok to

the

peop

le s

ide.

” --

AD

M M

ike

Mul

len,

form

er C

hairm

an o

f Joi

nt C

hief

s of

Sta

ff

61

28

Obj

ectiv

e: D

esig

n an

d im

plem

ent a

DoD

org

aniz

atio

n si

ze a

nd s

hape

that

opt

imiz

es

spee

d, a

gilit

y, a

nd h

uman

reso

urce

tota

l cos

ts a

nd is

cap

able

of o

pera

ting

with

in a

VU

CA

env

ironm

ent

Hum

an C

apita

l Man

agem

ent

Staf

fing,

Lay

ers,

and

Spa

ns o

f Con

trol

Bes

t Bus

ines

s Pr

actic

e K

ey B

enef

its

Deg

ree

of c

hang

e (i

ncre

men

tal,

trans

ition

al, t

rans

form

atio

nal)

and

timin

g de

fined

by

stra

tegi

c pl

an

 In

crem

enta

l to

trans

form

atio

nal c

hang

e yi

elds

20

-30%

hea

dcou

nt re

duct

ion

Cor

e w

ork

activ

ities

opt

imiz

ed; n

on-c

ore

elim

inat

ed/o

utso

urce

d to

“Bes

t Pro

vide

r”

 C

ore

to n

on-c

ore

wor

k ra

tio s

hifte

d fro

m 5

5:45

to

70:

30 th

roug

h de

laye

ring,

incr

easi

ng s

pans

of

con

trol a

nd e

limin

atio

n/ou

tsou

rcin

g of

non

-co

re w

ork

Mul

ti-ye

ar ro

adm

aps

and

mile

ston

es

esta

blis

hed.

Sup

porte

d by

a s

trong

P

rogr

am M

anag

emen

t Offi

ce (P

MO

) and

se

nior

lead

ersh

ip o

vers

ight

 Im

prov

es tr

ansf

orm

atio

nal c

hang

e su

cces

s ra

te to

70%

Org

aniz

atio

n ef

fect

iven

ess

and

effic

ienc

y un

derp

inne

d by

few

er “t

ouch

poi

nts”

, co

mm

on la

ngua

ge, c

ore

oper

atin

g pr

oces

ses,

and

dat

a ar

chite

ctur

es

 E

nabl

es s

peed

and

agi

lity

 C

ritic

al d

ecis

ion

mak

ing

cycl

e tim

es re

duce

d fro

m m

onth

s to

wee

ks

 P

rodu

ct d

evel

opm

ent c

ycle

s re

duce

d by

20%

Con

tinuo

us a

nd c

ompe

lling

co

mm

unic

atio

n to

em

ploy

ees

 R

e-en

gine

ered

wor

k m

ore

prec

ise

thro

ugh

stro

ng e

mpl

oyee

eng

agem

ent

62

29

Bes

t Bus

ines

s Pr

actic

es: T

rans

form

atio

n Ex

ampl

es

 IB

M

– R

e-en

gine

ered

thei

r Bus

ines

s m

odel

and

crit

ical

pro

cess

es to

sup

port

ente

rpris

e le

vera

ging

and

a tr

ansf

orm

ed p

ortfo

lio

– S

igni

fican

t del

ayer

ing

at th

e se

nior

and

mid

dle

man

agem

ent l

evel

s as

wel

l as

hea

dcou

nt re

duct

ions

(~15

0k e

mpl

oyee

s) w

as re

quire

d to

acc

ompl

ish

the

chan

ge

– Tr

ansf

orm

atio

n re

sulte

d in

retu

rn to

stro

ng p

rofit

able

gro

wth

, mar

ket c

ap,

and

a su

stai

ned

com

petit

ive

busi

ness

mod

el

 G

E

– Th

roug

h pr

oces

s re

-eng

inee

ring,

stro

ng c

ultu

ral i

nter

vent

ions

, and

cha

nge

man

agem

ent,

laye

rs re

duce

d fro

m 1

2 to

6 a

nd s

pans

of c

ontro

l inc

reas

ed

from

3 to

10

– 

Pos

ition

ed c

ompa

ny to

take

adv

anta

ge o

f new

por

tfolio

and

em

ergi

ng

mar

ket o

ppor

tuni

ties

Hum

an C

apita

l Man

agem

ent

Staf

fing,

Lay

ers,

and

Spa

ns o

f Con

trol

63

Mili

tary

Per

sonn

el:

$152

.6

Ope

ratio

n &

M

aint

enan

ce:

$288

.6

Proc

urem

ent:

$11

9.8

RD

T&E:

$73

.0

Mili

tary

Con

stru

ctio

n: $

12.7

Fam

ily H

ousi

ng:

$2.0

Rev

olvi

ng F

unds

&

Oth

er:

$2.6

Sou

rce:

FY

2014

DoD

Com

ptro

ller G

reen

book

; in

FY12

cur

rent

dol

lars

FY12

Tot

al O

blig

atio

n A

utho

rity

$65

2.3B

Larg

est p

erso

nnel

cos

t; 2n

d lar

gest

cat

egor

y of

fu

ndin

g in

DoD

Incl

udes

sig

nific

ant C

ivP

ers

and

cont

ract

or p

erso

nnel

cos

ts; a

lso

incl

udes

D

efen

se H

ealth

Pro

gram

(DH

P)

30

Hum

an C

apita

l Man

agem

ent

Staf

fing,

Lay

ers,

and

Spa

ns o

f Con

trol

64

AO

OS

D S

ec

reta

ry

De

pu

ty S

ec

reta

ry

Un

de

r S

ec

reta

ry

Pri

nc

ipa

l De

pu

ty U

nd

er

Se

cre

tary

Ass

ista

nt

Se

cre

tary

Pri

nc

ipa

l De

pu

ty A

ssis

tan

t S

ec

reta

ry

De

pu

ty A

ssis

tan

t S

ec

reta

ry

Off

ice

Dir

ec

tor

Ac

tio

n O

ffic

er

AO

Join

t S

taff

Ch

air

ma

n

Vic

e C

ha

irm

an

Dir

ec

tor,

Jo

int

Sta

ff

Vic

e D

ire

cto

r

Dir

ec

tor,

J-#

Vic

e D

ire

cto

r

De

pu

ty D

ire

cto

r

Re

gio

na

l/Su

bje

ct

Off

ice

r

AO

Sta

rt w

ith

AO

Se

rvic

e M

ilita

ry S

taff

Ch

ief

of

Sta

ff

Vic

e C

hie

f o

f S

taff

Ass

ista

nt

Vic

e C

hie

f o

f S

taff

Dir

ec

tor

of

Se

rvic

e S

taff

De

pu

ty C

hie

f o

f S

taff

Ass

ista

nt

De

pu

ty C

hie

f o

f S

taff

Div

isio

n C

hie

f

Off

ice

Ch

ief

Ac

tio

n O

ffic

er

Se

rvic

e

Se

cre

tari

at

Se

cre

tary

Un

de

r S

ec

reta

ry

Ass

ista

nt

Se

cre

tary

Pri

nc

ipa

l De

pu

ty A

ssis

tan

t S

ec

reta

ry

De

pu

ty A

ssis

tan

t S

ec

reta

ry

Dir

ec

tor

Ac

tio

n O

ffic

er

Sour

ce:

DB

B R

epor

t, R

educ

ing

Ove

rhea

d an

d Im

prov

ing

Bus

ines

s O

pera

tions

, Jul

y 22

, 201

0

Hum

an C

apita

l Man

agem

ent

Staf

fing,

Lay

ers,

and

Spa

ns o

f Con

trol

- D

oD T

oday

31

Laye

rs –

A L

ong

Trip

To

The

Top

65

32

 Ta

rget

ed in

itiat

ives

hav

e re

sulte

d in

stre

amlin

ed o

pera

tions

, red

uctio

ns in

he

adco

unt a

nd o

pera

ting

cost

s, b

ut in

suffi

cien

t to

mee

t cur

rent

se

ques

tratio

n ex

pect

atio

ns

 C

ontin

ued

exce

ss la

yers

and

cos

ts a

s de

mon

stra

ted

by: d

eput

ies

with

de

putie

s, G

S-1

5s re

porti

ng to

GS

-15s

, spa

ns o

f con

trol o

f onl

y 1-

3 st

aff

 D

EP

SE

CD

EF

initi

ativ

e (7

/31/

13 m

emo)

to re

duce

HQ

sta

ff by

20%

indi

cate

s co

ntin

ued

com

mitm

ent t

o co

st m

anag

emen

t. H

owev

er:

– O

nly

cove

rs a

sm

all p

erce

ntag

e of

the

peop

le c

osts

em

bedd

ed in

ove

rhea

d ac

tiviti

es

– C

an o

ffer n

ear-

term

cos

t sav

ings

, alth

ough

not

the

mos

t effi

cien

t app

roac

h lo

ng-te

rm

– A

cros

s th

e bo

ard

cuts

with

out r

e-en

gine

erin

g th

e w

ork

have

pot

entia

l for

incr

ease

d re

sour

ce

cost

s ov

er ti

me

– S

ervi

ces

have

follo

wed

DE

PS

EC

DE

F le

ad w

ith d

ecen

traliz

ed in

itiat

ives

to a

ccom

plis

h ta

rget

s

 N

umer

ous

exam

ples

of r

e-en

gine

erin

g op

erat

ing

proc

esse

s at

the

dece

ntra

lized

leve

l exi

st b

ut th

is a

ppro

ach

runs

the

risk

of s

ub-o

ptim

izin

g th

e re

quire

d ch

ange

s fo

r fut

ure

DoD

effe

ctiv

enes

s

Hum

an C

apita

l Man

agem

ent

Staf

fing,

Lay

ers,

and

Spa

ns o

f Con

trol

- D

oD T

oday

66

33

1. 

Com

mit

to tr

ansf

orm

atio

nal c

hang

e (5

+ ye

ars)

with

stro

ng p

rogr

am

man

agem

ent a

nd s

enio

r lea

ders

hip

over

sigh

t 2. 

Exe

cute

in “W

aves

” for

man

agea

bilit

y an

d su

stai

nabi

lity

– W

ave

1:

Incr

emen

tal i

nitia

tives

that

yie

ld im

med

iate

hea

dcou

nt

redu

ctio

n an

d co

st s

avin

gs

– W

ave

2:

Tran

sitio

nal i

nitia

tives

that

alig

n an

d le

vera

ge c

ore

busi

ness

pr

oces

ses

that

yie

ld fu

rther

effi

cien

cies

and

effe

ctiv

enes

s. E

nabl

es

read

ines

s fo

r im

plem

entin

g fu

ndam

enta

l cha

nges

info

rmed

by

DoD

– 

Wav

e 3:

Tr

ansf

orm

atio

nal i

nitia

tives

that

ena

ble

futu

re m

issi

on

capa

bilit

y pe

r DoD

’s fu

ture

stra

tegy

3. 

Targ

et a

Milp

ers/

Civ

pers

/Con

tract

Ser

vice

s co

st a

nd p

opul

atio

n “m

ix” r

atio

that

wou

ld y

ield

$8B

sav

ings

per

yea

r by

2018

4. 

Fully

util

ize

the

perfo

rman

ce m

anag

emen

t sys

tem

for S

ES

ac

coun

tabi

lity

Hum

an C

apita

l Man

agem

ent

Staf

fing,

Lay

ers,

and

Spa

ns o

f Con

trol

- R

ecom

men

datio

ns

Estim

ated

Sav

ings

: $5-

8B a

nnua

lly

67

34

Staf

fing,

Lay

ers,

and

Spa

ns o

f Con

trol

Wav

e 1

Incr

emen

tal (

0-2

year

s):

Incr

easi

ng C

ore

/ Non

-Cor

e W

ork

Rat

io

 Im

med

iate

ly e

xpan

d th

e H

Q s

taff

initi

ativ

e (7

/31/

13 m

emo)

acr

oss

the

Dep

artm

ent

− A

ll in

dire

ct o

rgan

izat

ions

(ove

rhea

d or

tail)

sho

uld

redu

ce h

eadc

ount

cos

ts a

t a

20%

leve

l con

sist

ent w

ith H

Q o

ver a

two

year

per

iod

− N

on-c

ore

wor

k sh

ould

be

scru

tiniz

ed fo

r elim

inat

ion

or s

ourc

ed to

the

“Bes

t P

rovi

der”

− 

Est

ablis

h sp

an o

f con

trol g

uida

nce

to re

duce

redu

ndan

cy a

nd a

dmin

istra

tive

cost

s (e

.g.,

set a

min

imum

of 1

:5.

Rol

es w

ith le

ss th

an 5

dire

ct re

ports

sho

uld

be s

crut

iniz

ed, e

limin

ated

, and

/or s

taff

mer

ged

into

larg

er g

roup

s)

• D

evel

op g

uida

nce

to e

limin

ate

posi

tions

that

repo

rt to

som

eone

at t

he s

ame

GS

or

mili

tary

leve

l (e.

g. G

S-1

5 re

porti

ng to

ano

ther

GS

-15

shou

ld b

e el

imin

ated

) • 

Targ

et a

2 m

anag

emen

t lay

er re

duct

ion

for e

ach

orga

niza

tion

− Id

entif

y th

ose

stat

utes

, per

sonn

el p

olic

ies

and

busi

ness

pra

ctic

es th

at in

cent

m

anag

ers

to u

tiliz

e m

anpo

wer

inef

ficie

ntly.

Wor

k w

ith C

ongr

ess

to re

fine

or

elim

inat

e • 

Whe

reve

r pos

sibl

e el

imin

ate

Milp

ers

doin

g ci

vilia

n w

ork

and

cont

ract

ors

perfo

rmin

g w

ork

that

cou

ld b

e do

ne b

y C

ivpe

rs (e

.g.,

Com

bata

nt C

omm

ands

)

Hum

an C

apita

l Man

agem

ent

DB

B R

ecom

men

datio

ns

68

35

Staf

fing,

Lay

ers,

and

Spa

ns o

f Con

trol

Wav

e 2

Tran

sitio

nal (

1-3

year

s):

Alig

ning

and

Lev

erag

ing

Cor

e B

usin

ess

Proc

esse

s  

With

in th

e D

efen

se A

genc

ies

and

Fiel

d A

ctiv

ities

, ide

ntify

and

map

thos

e co

re b

usin

ess

proc

esse

s (e

.g.,

logi

stic

s an

d su

pply

cha

in, p

erso

nnel

) tha

t co

uld

be a

ligne

d an

d le

vera

ged

to b

oth

redu

ce c

osts

and

incr

ease

ef

fect

iven

ess

of s

ervi

ce d

eliv

ery

 G

ap fi

t cur

rent

org

aniz

atio

n si

ze a

nd s

hape

with

tran

sitio

nal s

tate

to d

evel

op

an im

plem

enta

tion

road

map

and

ass

ure

affo

rdab

ility

with

in a

targ

eted

cos

t an

d po

pula

tion

mix

ratio

 

Dili

gent

ly d

eplo

y co

mm

on la

ngua

ge, o

pera

ting

proc

esse

s, m

etric

s, a

nd d

ata

arch

itect

ures

 

Targ

et a

n ad

ditio

nal 1

0% re

duct

ion

in h

eadc

ount

cos

ts a

nd a

n ad

ditio

nal 2

la

yers

of m

anag

emen

t

Hum

an C

apita

l Man

agem

ent

DB

B R

ecom

men

datio

ns

69

36

Staf

fing,

Lay

ers,

and

Spa

ns o

f Con

trol

Wav

e 3

Tran

sfor

mat

iona

l (3-

5+ y

ears

): A

ligni

ng w

ith H

uman

C

apita

l Man

agem

ent (

HC

M) C

apab

ility

 

Usi

ng th

e 20

14 Q

DR

out

put,

defin

e th

ose

futu

re m

issi

on c

ritic

al c

apab

ilitie

s an

d po

ints

of i

nter

face

bet

wee

n hu

man

cap

ital,

tech

nolo

gy a

nd th

e st

rate

gy

 G

ap fi

t req

uire

d ch

ange

s to

the

trans

ition

al o

rgan

izat

ion

size

and

sha

pe a

nd

iden

tify

chan

ges

to th

e co

st a

nd p

opul

atio

n m

ix ra

tio

 D

evel

op a

HC

M p

lan

to m

eet e

mer

ging

ski

ll an

d ca

pabi

lity

requ

irem

ents

. P

lan

shou

ld c

ompr

ehen

d re

crui

ting,

rete

ntio

n an

d co

mpe

nsat

ion

stra

tegi

es

for m

eetin

g th

e fu

ture

nee

ds o

f the

DoD

wor

kfor

ce

Hum

an C

apita

l Man

agem

ent

DB

B R

ecom

men

datio

ns

70

37

Obj

ectiv

e: A

fford

able

mili

tary

com

pens

atio

n an

d be

nefit

s sy

stem

that

attr

acts

and

re

tain

s th

e be

st a

nd b

right

est.

Con

figur

ed to

mee

t the

dem

ands

of t

he m

issi

on

Hum

an C

apita

l Man

agem

ent

Mili

tary

Com

pens

atio

n

Bes

t Bus

ines

s Pr

actic

e K

ey B

enef

its

Stro

ng a

lignm

ent b

etw

een

com

pens

atio

n an

d pe

rform

ance

man

agem

ent s

yste

ms

 S

uppo

rts d

eliv

ery

of h

igh

perfo

rman

ce a

nd

rew

ards

for r

esul

ts

Und

erst

andi

ng c

ompe

nsat

ion

and

bene

fit

valu

e th

roug

h th

e “le

ns” o

f the

em

ploy

ee

usin

g C

onjo

int A

naly

sis

 P

rovi

des

a m

ore

obje

ctiv

e pl

atfo

rm to

sup

port

seni

or m

anag

emen

t in

mak

ing

com

pens

atio

n an

d be

nefit

trad

eoff

deci

sion

s. N

ote,

a ty

pica

l U

S c

ompa

ny w

aste

s ~$

1500

/em

ploy

ee/y

ear o

n co

mpe

nsat

ion

and

bene

fits

[8]

 P

rovi

des

best

val

ue o

ppor

tuni

ty to

bot

h em

ploy

er a

nd e

mpl

oyee

s. O

ften

bene

fits

are

over

- or u

nder

-val

ued

stem

min

g fro

m p

oor

unde

rsta

ndin

g an

d/or

inad

equa

te

com

mun

icat

ion/

mar

ketin

g

71

38

Hum

an C

apita

l Man

agem

ent

Mili

tary

Com

pens

atio

n

Bes

t Bus

ines

s Pr

actic

e K

ey B

enef

its

Tran

sitio

n to

def

ined

con

tribu

tion

plan

s fro

m

defin

ed b

enef

it (D

B) p

lans

 R

educ

es v

olat

ility

of e

xist

ing

liabi

litie

s.

 P

rovi

des

empl

oyee

flex

ibili

ty/p

orta

bilit

y. N

ote,

onl

y se

ven

of th

e F1

00 c

ompa

nies

stil

l offe

r a tr

aditi

onal

D

B p

lan

to n

ew h

ires.

[9]

Aver

age

priv

ate

sect

or

pens

ion

cont

ribut

ions

rang

e fro

m 4

-12%

per

yea

r

Cha

nges

to b

usin

ess

stra

tegy

, and

/or

orga

niza

tion

stru

ctur

es a

ccom

pani

ed b

y ta

rget

ed c

hang

es to

the

com

pens

atio

n sy

stem

 P

rom

otes

gre

ater

org

aniz

atio

nal a

lignm

ent a

nd

effic

ienc

ies

Hig

h an

d lo

w p

erfo

rmin

g em

ploy

ees

are

com

pens

ated

acc

ordi

ngly

for t

heir

resu

lts

with

in a

com

pany

– w

ide

perfo

rman

ce

man

agem

ent s

yste

m

 In

cent

iviz

es a

nd re

war

ds s

trong

per

form

ers

whi

le

prov

idin

g va

luab

le fe

edba

ck to

low

er p

erfo

rmin

g em

ploy

ees

Rec

ogni

tion

of im

porta

nce

of b

enef

its b

eyon

d ba

se p

ay (e

.g.,

flexi

ble

wor

king

hou

rs,

geog

raph

ical

loca

tion,

wor

k st

ruct

ure)

 In

crea

ses

empl

oyee

sat

isfa

ctio

n an

d pr

omot

es

effic

ienc

ies

 A

llow

s fo

r non

-cas

h be

nefit

s to

be

inco

rpor

ated

into

pa

y/be

nefit

s sp

ectru

m

72

39

 Le

gacy

com

pens

atio

n an

d be

nefit

s sy

stem

s w

ere

not a

djus

ted

to s

uppo

rt/su

stai

n th

e A

ll-V

olun

teer

For

ce*,

resu

lting

in

‒ M

ilita

ry S

ervi

ce m

embe

rs n

ot fu

lly e

duca

ted

on th

e va

lue

of th

eir b

enef

its p

acka

ge

‒ Le

gacy

sys

tem

s de

sign

ed to

sup

port

care

er p

erso

nnel

with

littl

e at

tent

ion

to th

e m

ajor

ity o

f M

ilita

ry S

ervi

ce m

embe

rs

‒ Le

gacy

sys

tem

s ill

-equ

ippe

d to

man

age

the

tale

nt a

ttrac

tion

and

rete

ntio

n re

quire

men

ts

pres

ente

d by

the

Iraq

and

Afg

hani

stan

war

s le

adin

g to

cos

tly re

actio

nary

incr

ease

s in

co

mpe

nsat

ion

and

bene

fits

 C

onse

quen

tly, D

oD p

erso

nnel

cos

ts a

re o

n an

uns

usta

inab

le tr

ajec

tory

; fo

reca

sted

to c

onsu

me

the

entir

e D

oD 2

030

budg

et p

uttin

g at

sig

nific

ant r

isk

natio

nal s

ecur

ity

‒ B

asic

pay

for t

he a

vera

ge s

ervi

ce m

embe

r fro

m J

an 2

002

to J

an 2

010

incr

ease

d by

29%

ad

just

ed fo

r EC

I (th

is in

clud

es p

revi

ousl

y pl

anne

d re

stor

atio

n pa

y); h

ousi

ng a

llow

ance

s in

crea

sed

by 8

3%, a

nd th

e su

bsis

tenc

e (fo

od) a

llow

ance

incr

ease

d by

40%

in n

omin

al d

olla

rs

[10]

‒ 

Enl

iste

d an

d of

ficer

cas

h co

mpe

nsat

ion

is a

t the

90t

h an

d 83

rd p

erce

ntile

s, re

spec

tivel

y, w

hen

com

pare

d to

civ

ilian

s w

ith c

ompa

rabl

e ed

ucat

ion.

DoD

goa

l has

bee

n 70

th p

erce

ntile

[11,

12]

‒ 

With

the

lega

cy p

ensi

on s

truct

ure

of 2

0 ye

ar c

liff v

estin

g an

d a

2.5

mul

tiplie

r (1.

1 fo

r priv

ate

sect

or),

only

17%

of e

nlis

ted

mili

tary

per

sonn

el w

ill re

ceiv

e a

pens

ion

with

a d

ispr

opor

tiona

te

vest

ing

amon

gst t

he o

ffice

r pop

ulat

ion

(~40

%) [

11, 1

2, 1

3]

Hum

an C

apita

l Man

agem

ent

Mili

tary

Com

pens

atio

n - D

oD T

oday

*Not

e: R

egul

ar M

ilita

ry C

ompe

nsat

ion

(RM

C):

1962

; Pen

sion

: 196

5; tr

ansi

tion

to A

ll-Vo

lunt

eer F

orce

: 197

3

73

40

 C

urre

ntly

, for

eac

h do

llar s

pent

on

basi

c pa

y, D

oD c

ontri

bute

s 33

cen

ts to

the

Mili

tary

Ret

irem

ent F

und

(MR

F).

In F

Y12

, DoD

and

Tre

asur

y co

ntrib

uted

$2

1.9B

and

$70

.1B

, res

pect

ivel

y, to

the

MR

F, fo

r a n

et to

tal o

f $92

B [1

4]

 A

s of

FY

2011

, the

MR

F pe

nsio

n lia

bilit

y is

~70

% u

nfun

ded

[15]

– R

educ

tion

of fo

rces

will

slo

w fu

ture

gro

wth

 A

rece

nt s

tatis

tical

ly li

mite

d co

njoi

nt a

naly

sis

[16]

indi

cate

s D

oD c

ould

ben

efit

from

util

izin

g th

is m

etho

dolo

gy o

n a

larg

er s

cale

to m

ore

fully

und

erst

and

wha

t the

cur

rent

div

erse

wor

kfor

ce tr

uly

valu

es. F

indi

ngs

requ

iring

furth

er

valid

atio

n:

– A

dol

lar s

pent

incr

easi

ng e

nlis

ted

pers

onne

l bas

ic p

ay h

as m

ore

than

six

tim

es th

e im

pact

th

an a

dol

lar s

pent

incr

easi

ng s

enio

r offi

cer b

asic

pay

– 

One

-third

of o

ffice

rs v

alue

com

mis

sarie

s as

muc

h or

mor

e th

an th

ey c

ost c

ompa

red

to le

ss

than

6%

of e

nlis

ted

who

val

ue it

in th

e sa

me

man

ner

– M

ajor

ity o

f Mili

tary

Ser

vice

mem

bers

val

ue m

ilita

ry e

xcha

nges

as

muc

h or

mor

e th

an th

ey c

ost

– M

ore

than

75%

of j

unio

r offi

cers

and

99%

of a

ll ot

her r

ank

grou

ps d

o no

t val

ue c

hild

, you

th,

and

scho

ol s

ervi

ces

as m

uch

as it

cos

ts to

pro

vide

Hum

an C

apita

l Man

agem

ent

Mili

tary

Com

pens

atio

n - D

oD T

oday

"Now

that

we

are

goin

g to

hav

e an

All

Volu

ntee

r For

ce, w

e de

sper

atel

y ne

ed to

add

ress

th

ree

criti

cal c

ompo

nent

s to

sup

port

its s

ucce

ss: m

ilita

ry c

ompe

nsat

ion,

the

up o

r out

pr

omot

ion

stru

ctur

e, a

nd m

ilita

ry re

tirem

ent.”

Thom

as G

ates

, Cha

ir of

the

All-

Volu

ntee

r For

ce S

tudy

, Feb

ruar

y, 1

970

74

Bas

ic P

ay, 5

6.1B

C

ilivi

an P

ay, 5

8.8B

BA

H, 2

0.1B

B

enef

its, 1

8.4B

BA

S, 4

.6B

Sp

ec. &

Ince

ntiv

e Pa

ys, 4

.7B

A

llow

ance

s, 3

.3B

DH

P, 3

2.3B

MER

HC

F, 1

0.8B

Ret

ired

Pay

Acc

rual

s,

19B

Soci

al S

ecur

ity, 4

.3B

PC

S Tr

avel

, 4.6

B

Oth

er M

ilper

s, 2

5B

$-

$20

$40

$60

$80

$10

0

$12

0

$14

0

$16

0

$18

0

$20

0

MilP

ers

+ D

HP

(FY1

2)

Civ

Pers

(FY1

2)

Billions H

uman

Cap

ital M

anag

emen

t M

ilita

ry C

ompe

nsat

ion

- DoD

Tod

ay

41

Enl

iste

d an

d of

ficer

com

pens

atio

n ar

e at

the

90th

and

83r

d pe

rcen

tiles

, re

spec

tivel

y, w

hen

com

pare

d to

ci

vilia

ns w

ith c

ompa

rabl

e ed

ucat

ion

[12]

Sour

ce: F

Y20

14 D

oD C

ompt

rolle

r Gre

enbo

ok

75

42

1. 

Dev

elop

and

impl

emen

t a H

uman

Cap

ital M

anag

emen

t (H

CM

) pla

n th

at tr

ansi

tions

ove

r the

nex

t 5 y

ears

to a

com

pens

atio

n an

d be

nefit

s fra

mew

ork

that

is s

usta

inab

le a

nd s

uppo

rts th

e at

tract

ion

and

rete

ntio

n re

quire

men

ts o

f the

All

-Vol

unte

er W

orkf

orce

– 

Def

ine

the

near

and

long

-term

tale

nt re

tent

ion

requ

irem

ents

from

enl

istm

ent t

o re

tirem

ent (

e.g.

, Arm

y en

liste

d pe

rson

nel ~

4 ye

ars

vs. A

ir Fo

rce

pilo

ts to

20

year

re

tirem

ent)

to d

evel

op a

fram

ewor

k fo

r del

iver

ing

valu

e an

d re

tent

ive

capa

bilit

y to

se

rvic

e pe

rson

nel d

urin

g th

eir t

enur

e – 

Usi

ng th

e re

tent

ion

requ

irem

ent f

ram

ewor

k, a

ddre

ss c

ompe

nsat

ion

and

bene

fits

as a

sys

tem

, not

sim

ply

indi

vidu

al p

rodu

cts

(RM

C, b

onus

es, s

peci

al p

ay,

retir

emen

t, co

mm

issa

ry, h

ealth

care

, etc

.) – 

Dev

elop

and

adm

inis

ter s

tatis

tical

ly s

igni

fican

t mul

ti-co

hort

conj

oint

ana

lyse

s in

FY

14.

Lear

n fro

m th

e cu

rren

t sys

tem

and

bey

ond

wha

t com

pens

atio

n an

d be

nefit

ele

men

t com

bina

tions

(tan

gibl

e an

d in

tang

ible

) hav

e th

e hi

ghes

t pe

rcei

ved

valu

e w

ithin

the

vario

us g

roup

s – 

Des

ign

a fle

xibl

e H

CM

sys

tem

to b

e co

mpe

titiv

e w

ith th

e pr

ivat

e se

ctor

for

attra

ctio

n an

d re

tent

ion

of n

eede

d ta

lent

 

Man

age

unsu

stai

nabl

e ba

sic

pay

“cre

ep”,

thro

ugh

cont

inue

d ut

iliza

tion

of ta

rget

ed

bonu

ses

and

ince

ntiv

es to

mee

t req

uire

men

ts.

Em

ploy

ana

lytic

al m

odel

ing

to a

ssur

e be

st v

alue

and

avo

id o

verp

ayin

g

Hum

an C

apita

l Man

agem

ent

Mili

tary

Com

pens

atio

n - R

ecom

men

datio

ns

76

43

2. 

Util

ize

the

curr

ent f

orce

dra

w d

own

to m

ake

near

-term

reas

onab

le

adju

stm

ents

to th

e “p

rem

ium

” diff

eren

ce b

etw

een

the

mili

tary

and

pr

ivat

e se

ctor

com

pens

atio

n – 

Rig

orou

sly

com

mun

icat

e an

d ed

ucat

e pe

rson

nel o

n th

e va

lue

of th

eir t

otal

co

mpe

nsat

ion

and

bene

fits

pack

age

(impr

ove

pay

stub

info

rmat

ion,

ann

ual

sum

mar

y of

tota

l ben

efits

pai

d, e

tc.)

– S

low

bas

ic p

ay g

row

th ra

te b

y im

plem

entin

g D

oD re

com

men

ded

pay

rais

e sc

hedu

le: 0

.5%

(201

5), 1

.0%

(201

6), 1

.55%

(201

7) [1

1]

 O

ppor

tuni

ty: b

asic

pay

wou

ld re

mai

n re

lativ

ely

flat o

ver t

his

time

perio

d an

d be

low

pr

ojec

ted

Em

ploy

men

t Cos

t Ind

ex le

vels

. R

educ

ed a

ccru

al p

aym

ents

into

the

MR

F

– E

valu

ate

rein

stat

ing

cost

sha

ring

for h

ousi

ng a

llow

ance

s to

bot

h re

duce

cos

ts a

nd

ince

nt s

ervi

ce m

embe

rs to

util

ize

rece

ntly

reno

vate

d go

vern

men

t hou

sing

with

a

goal

of s

avin

g 10

% o

f the

cos

ts (a

ppro

xim

atel

y $1

1B o

ver t

en y

ears

) [10

]

Hum

an C

apita

l Man

agem

ent

Mili

tary

Com

pens

atio

n - R

ecom

men

datio

ns

Est

imat

ed S

avin

gs:

$6-2

5B o

ver 1

0 ye

ars

(d

epen

dent

upo

n fo

rce

size

and

requ

ired

utili

zatio

n of

SR

B’s

)

77

44

3. 

Wor

k vi

goro

usly

with

Con

gres

s to

add

ress

the

unsu

stai

nabl

e co

st

stru

ctur

e, fa

irnes

s, a

nd fl

exib

ility

issu

es o

f the

Mili

tary

’s D

efin

ed

Ben

efit

Ret

irem

ent P

lan

– A

dopt

the

DB

B re

com

men

datio

n to

cre

ate

a D

efin

ed C

ontri

butio

n (D

C) p

lan

for

new

enl

istm

ents

usi

ng th

e ex

istin

g M

ilita

ry T

hrift

Sav

ings

Pla

n to

incl

ude

the

follo

win

g [1

3]

 S

ervi

ce p

erso

nnel

und

er c

urre

nt D

B p

lan

gran

dfat

here

d

 

Ave

rage

ves

ting

of 4

yea

rs, p

ayou

t at a

ge 6

0-65

with

flex

ible

pay

out o

ptio

ns

 R

isk

adju

sted

to re

cogn

ize

com

bat r

oles

and

har

dshi

p  

Opp

ortu

nity

of ~

$0.5

B re

duce

d fu

ture

fund

liab

ility

by

FY34

[13]

– 

To s

uppo

rt su

stai

ned

affo

rdab

ility

thro

ugh

trans

ition

, con

side

r:  

Inde

x pa

yout

of r

etire

men

t ben

efits

to 6

7 ye

ars

of a

ge

 A

djus

t ben

efit

mul

tiplie

r to

2.0

(40%

of b

ase

pay)

from

pre

sent

2.5

% (5

0% o

f bas

e pa

y).

Ben

chm

arks

: priv

ate

sect

or 1

.1, p

ublic

and

mun

icip

al 1

.5, f

ire a

nd p

olic

e 2.

0  

Adj

ust H

igh

3 co

mpu

tatio

n to

Hig

h 5

 To

furth

er a

ccel

erat

e th

e tra

nsiti

on to

the

DC

pla

n, c

onsi

der o

fferin

g th

e ch

oice

for 1

-15

year

ser

vice

mem

bers

of f

reez

ing

thei

r acc

rual

in th

e D

B p

lan

and

optin

g in

to th

e D

C

plan

(fin

anci

al a

nd c

onjo

int a

naly

ses

will

con

firm

feas

ibili

ty)

Hum

an C

apita

l Man

agem

ent

Mili

tary

Com

pens

atio

n –

Rec

omm

enda

tions

Est

imat

ed S

avin

gs: $

254B

ove

r 20

year

s

78

45

 Th

e D

epar

tmen

t of D

efen

se is

faci

ng o

ne o

f the

wor

ld’s

mos

t de

man

ding

bus

ines

s pr

oces

s en

viro

nmen

ts in

an

incr

easi

ngly

un

pred

icta

ble

envi

ronm

ent

 Im

plem

entin

g th

e D

BB

reco

mm

enda

tions

wou

ld in

crea

se D

oD

effic

ienc

y. N

et s

avin

g w

ould

be

~$27

-37B

 

Impl

emen

ting

the

DB

B re

com

men

datio

ns w

ould

als

o in

crea

se D

oD

flexi

bilit

y an

d ad

apta

bilit

y  

As

the

Ser

vice

s an

d D

epar

tmen

t mak

e to

ugh

forc

e st

ruct

ure

choi

ces

in n

ear t

erm

, an

inw

ard

look

at t

he ‘B

usin

ess

of th

e D

epar

tmen

t’ is

im

porta

nt fo

r the

futu

re h

ealth

of o

ur N

atio

n’s

mili

tary

cap

abili

ty a

nd

the

All

Vol

unte

er F

orce

 

In S

umm

ary:

DB

B h

as a

two-

stag

e m

anag

emen

t rec

omm

enda

tion

– Sh

ort-T

erm

: G

et th

e in

effic

ient

mon

ey o

ut n

ow!

DoD

face

s up

to $

54B

ann

ual

redu

ctio

ns to

day!

* – 

Mid

/Lon

ger-

Term

: Tr

ansf

orm

DoD

for c

ontin

uous

impr

ovem

ent i

n th

e ne

w fi

scal

en

viro

nmen

t

Clo

sing

Rem

arks

* N

ote:

Pen

ding

Seq

uest

er a

nd B

udge

t Con

trol A

ct im

plem

enta

tion

79

Que

stio

ns?

DE

FEN

SE

BU

SIN

ES

S B

OA

RD

Bus

ines

s E

xcel

lenc

e In

Def

ense

of t

he N

atio

n

Thes

e ar

e th

e fin

al b

riefin

g sl

ides

as

appr

oved

by

the

Def

ense

Bus

ines

s B

oard

in it

s pu

blic

mee

ting

held

on

Janu

ary

23, 2

014.

Th

e fu

ll D

BB

repo

rt w

ill c

onta

in m

ore

deta

iled

text

whi

ch w

ill re

flect

the

tota

lity

of th

e po

ints

dis

cuss

ed a

nd a

ny m

odifi

catio

ns a

dopt

ed

by th

e B

oard

dur

ing

thei

r del

iber

atio

ns.

81

47

App

endi

x: F

ootn

otes

& R

efer

ence

s

1) 

“Who

Say

s E

leph

ants

Can

’t D

ance

,” Lo

uis

V. G

erst

ner,

Oct

. 200

9

2) 

“Def

ense

Log

istic

s A

rmy

Sho

uld

Trac

k Fi

nanc

ial B

enef

its R

ealiz

ed fr

om it

s Lo

gist

ics

Mod

erni

zatio

n P

rogr

am,”

GA

O-1

4-51

, Nov

. 201

3: p

p 15

3) 

“DO

D F

inan

cial

Man

agem

ent:

Rep

orte

d S

tatu

s of

Dep

artm

ent o

f Def

ense

's E

nter

pris

e R

esou

rce

Pla

nnin

g S

yste

ms”

GA

O-1

2-56

5R, M

ar. 3

0, 2

012:

pp

6,10

,13

4) 

“Con

cept

of O

pera

tions

for t

he D

oD F

inan

cial

Sta

tem

ent A

udit

Req

uire

men

t,” R

FI-

Aud

it_S

ervi

ces,

Def

ense

Fin

ance

and

Acc

ount

ing

Age

ncy,

Sep

. 12,

201

3

5) 

“Glo

bal L

ogis

tics

Man

agem

ent,”

DB

B R

epor

t, FY

11-0

7

6) 

“DoD

Com

preh

ensi

ve In

vent

ory

Man

agem

ent I

mpr

ovem

ent P

lan:

Mon

thly

In-P

rogr

ess

Rev

iew

,” O

ct. 2

5, 2

013:

pp

12, 1

3, 6

7

7) 

Mee

ting

with

Ass

ista

nt S

ecre

tary

of D

efen

se L

ogis

tics

and

Mat

erie

l Rea

dine

ss, S

uppl

y C

hain

Inte

grat

ion,

Jan

. 201

4

8) 

Aon

Hew

itt, T

otal

Rew

ards

Opt

imiz

atio

n da

ta, 2

013

82

48

App

endi

x: F

ootn

otes

& R

efer

ence

s 9) 

“Ret

irem

ent P

lans

Offe

red

by 2

013 Fortune

100

,” To

wer

s W

atso

n, N

ovem

ber 1

4, 2

013,

B

rend

an M

cFar

land

10) “

The

Sev

en D

eadl

y S

ins

of D

efen

se S

pend

ing,

” Cen

ter f

or a

New

Am

eric

an S

ecur

ity, D

avid

B

arno

, Nor

a B

ensa

hel,

Jaco

b S

toke

s, J

oel S

mith

and

Kat

herin

e K

idde

r, Ju

n. 2

013

11) “

Cos

ts o

f the

Mili

tary

Pay

and

Ben

efits

in th

e D

efen

se B

udge

t,” C

ongr

essi

onal

Bud

get

Offi

ce, N

ov. 2

012

12) “

Rep

ort o

f the

Ele

vent

h Q

uadr

enni

al R

evie

w o

f Mili

tary

Com

pens

atio

n,” O

ffice

of t

he U

nder

S

ecre

tary

of D

efen

se fo

r Per

sonn

el a

nd R

eadi

ness

, Jun

. 201

2

13) “

Mod

erni

zing

the

Mili

tary

Ret

irem

ent S

yste

m,”

DB

B R

epor

t FY

11-0

5

14) “

Fisc

al Y

ear 2

012

Mili

tary

Ret

irem

ent F

und

Aud

ited

Fina

ncia

l Rep

ort,”

DoD

Offi

ce o

f the

A

ctua

ry, N

ovem

ber 6

, 201

2

15) “

Valu

atio

n of

the

Mili

tary

Ret

irem

ent S

yste

m: S

epte

mbe

r 30,

201

1,” D

oD O

ffice

of t

he

Act

uary

, Feb

ruar

y 20

13

16) “

Reb

alan

cing

Mili

tary

Com

pens

atio

n,” C

ente

r for

Stra

tegi

c an

d B

udge

tary

Ass

essm

ents

, To

dd H

arris

on, 2

012

83

49

- Se

nior

DoD

Civ

ilian

Lea

ders

hip:

Rob

ert H

ale,

Eliz

abet

h M

cGra

th, C

hris

tine

Wor

mut

h, T

eres

a M

cKay

, Dr.

Dan

iel

Chi

u, D

r. Th

omas

Alle

n, P

aul B

ruba

ker,

Ric

hard

Rob

bins

, Lis

a D

isbr

ow, D

r. S

cott

Com

es, A

lan

Est

evez

, Pau

l Pet

ers,

Kev

in S

chei

d, J

ames

Haw

kins

- Se

nior

Mili

tary

Lea

ders

hip:

AD

M M

ark

Ferg

uson

, VC

NO

; GE

N L

arry

Spe

ncer

, AF

VC

OS

; GE

N J

ohn

Pax

ton,

AC

MC

; GE

N J

ohn

Cam

pbel

l, V

CS

A; A

DM

Sam

uel L

ockl

ear,

PA

CO

M;

LTG

Rob

ert L

enno

x, C

AP

E; L

TG M

ark

Ram

say,

J-8

; LTG

Rob

ert R

uark

, J-4

; M

G S

teve

n K

was

t, U

SA

F Q

DR

; MG

Ken

neth

McK

enzi

e, U

SM

C Q

DR

; RA

DM

P

eter

Fan

ta, D

ep D

ir R

esou

rces

and

Acq

uisi

tion,

J-8

- Pr

ivat

e In

dust

ry, T

hink

Tan

ks, a

nd O

ther

s:

AD

M (R

et) V

ern

Cla

rk; A

DM

(Ret

) Mic

hael

Mul

len;

GE

N (R

et) J

ames

C

artw

right

; LTG

(Ret

) Ric

hard

New

ton;

Gilb

ert L

amph

ere,

Tod

d H

arris

on,

Thom

as N

ides

App

endi

x: P

erso

nnel

Inte

rvie

wed

Implementing Best Practices For Major Business Report FY14-01Processes In The Department Of Defense Task Group

87

LIST OF ACRONYMS

AO Action OfficerAoA Analysis of AlternativesBRAC Base Realignment and Closure CBO Congressional Budget OfficeCFO Chief Finance OfficerCIMIP Comprehensive Inventory Management Improvement PlanCIO Chief Information OfficerCivPer Civilian PersonnelCMRS Comprehensive Materiel Response StrategyCONUS Continental United StatesDB Defined BenefitDBB Defense Business BoardDCAA Defense Contract Audit Agency DCMA Defense Contract Management AgencyDCMO Deputy Chief Management OfficerDeCA Defense Commissary AgencyDEPSECDEF Deputy Secretary of DefenseDFAS Defense Finance and Accounting ServiceDLA Defense Logistics AgencyDoD Department of DefenseDSS Defense Security Service ERP Enterprise Resource PlanningFIAR Financial Improvement and Audit ReadinessFY Fiscal YearGAO Government Accountability OfficeGSA General Services AdministrationHR Human ResourceJLB Joint Logistics BoardMILDEP Military Dependent


88

MilPer Military PersonnelO&M Operations and MaintenanceOCONUS Outside the Continental United StatesOEF Operation Enduring FreedomOIF Operation Iraqi FreedomPMO Performance Management OfficePSA Principle Staff AssistantQDR Quadrennial Defense ReviewRMC Regular Military CompensationSBR Statement of Budgetary ResourcesSES Senior Executive ServiceSNO Strategic Network Optimization TRANSCOM United States Transportation CommandVUCA Volatility, Uncertainty, Complexity and Ambiguity


89


91

LIST OF INTERVIEWS

Senior DoD Civilian Leadership:

Dr. Thomas Allen Deputy Director for Studies and Analysis, J8

Paul Brubaker Office of the Deputy Chief Management Officer, Director, Planning and Performance Management

Dr. Daniel Chiu Deputy Assistant Secretary of Defense for Strategy

Dr. Scott Comes Acting Director, Secretary of Defense for Cost Assessment and Program Evaluation

Lisa Disbrow Vice Director for Force Structure, Resources, and Assessment, J8

Alan Estevez Principle Deputy, Under Secretary of Defense for Acquisition, Technology, and Logistics

Robert HaleUnder Secretary of Defense (Comptroller) and Chief Financial Officer

James HawkinsDeputy Director of Strategic Logistics, J4

Elizabeth McGrathDeputy Chief Management Officer and the Department’s Performance Improvement Officer

Teresa McKay Director, Defense Finance and Accounting Service


92

Paul Peters Assistant Secretary of Defense for Logistics and Materiel Readiness

Richard RobbinsUnder Secretary of Defense for Personnel and Readiness, Director, Total Force Management

Kevin ScheidAssistant Deputy Chief Management Officer for Department of Defense

Christine WormuthDeputy Under Secretary of Defense for Strategy, Plans and Force Development

Senior Military Leadership:

GEN John CampbellVice Chief of Staff Army

ADM Mark FergusonVice Chief of Naval Operations

GEN Larry Spencer Air Force Vice Chief of Staff

GEN John PaxtonAssistant Commandant Marine Corps

ADM Samuel LocklearCommander, U.S. Pacific Command

LTG Robert LennoxPrincipal Deputy Director, Cost Assessment and Program Evaluation

LTG Mark RamsayDirector, Force Structure, Resources and Assessment, J8


93

LTG Robert Ruark Director of Logistics, J4

RADM Peter FantaDeputy Director for Resources and Acquisition, J8

MG Steven KwastU.S. Air Force Quadrennial Defense Review

MG Kenneth McKenzieU.S. Marine Corps Quadrennial Defense Review

Private Industry, Think Tanks, and Others:

ADM (Ret) Vern Clarkformer Chief Naval Operations

ADM (Ret) Michael Mullenformer Chairman Joint Chiefs of Staff

GEN (Ret) James Cartwrightformer Vice Chairman Joint Chiefs of Staff

LTG (Ret) Richard Newtonformer Assistant Vice Chief of Staff and Director Air Force

Gilbert LamphereDirector CSX

Todd HarrisonSenior Fellow for Defense Budget Studies at the Center for Strategic and Budgetary Assessments

Thomas NidesVice Chairman Morgan Stanley


97

BIBLIOGRAPHICAL REVIEW

Aon Hewitt. Total Rewards Optimization data. 2013.

Assistant Secretary of Defense for Logistics and Materiel Readiness. DoD Comprehensive Inventory Management Improvement Plan: Monthly In-Progress Review. October 2013.

Center for a New American Security, David Barno, Nora Bensahel, Jacob Stokes, Joel Smith and Katherine Kidder.

The Seven Deadly Sins of Defense Spending. June 2013.

Center for Strategic and Budgetary Assessments, Todd Harrison. Rebalancing Military Compensation. 2012.

Congressional Budget Office. Costs of the Military Pay and Benefits in the Defense Budget. November 2012.

Defense Business Board.Global Logistics Management Task Group Report. July 2011.

9 Modernizing the Military Retirement System Task Group Report. July 2011.

Department of Defense Office of the Actuary.Fiscal Year 2012 Military Retirement Fund Audited Financial Report. November 2012.

9 Valuation of the Military Retirement System: September 30, 2011. February 2013.

Government Accountability Office -14-51. Defense Logistics Army Should Track Financial Benefits Realized from itsLogistics Modernization Program. November 2013.


98

9 -12-565R. DOD Financial Management: Reported Status of Department of Defense’s Enterprise Resource Planning Systems. March 2012.

Louis V. Gerstner. Who Says Elephants Can’t Dance. October 2009.

Office of the Under Secretary of Defense for Personnel and Readiness. Report of the Eleventh Quadrennial Review of Military Compensation. June 2012.

RFI-Audit_Services, Defense Finance and Accounting Agency. Concept of Operations for the DoD Financial Statement Audit Requirement. September 2013.

Towers Watson, Brendan McFarland. Retirement Plans Offered by 2013 Fortune 100. November 2013.

implementing best practices for major business processes in the

Documents