“What We Do Is Life or Death.”

No company has more demanding customers than the Defense Logistics Agency. An interview with CFO J. Anthony Poleo.

Ever wonder how the Army, Navy, Air Force, and Marine Corps get the essential supplies they need to do their jobs — food, fuel, medical supplies, uniforms, repair parts, and more? Tony Poleo knows. As CFO of the Defense Department’s Defense Logistics Agency (DLA), the 47-year-old Poleo runs the finances of what is arguably the world’s biggest supply-chain operation. Even Wal-Mart might be impressed by some of the numbers he deals with: 23,000 employees; eight global supply chains; 100,000 orders a day for matériel and services; 11,000 contract actions a day; and 15 million gallons of fuel purchased daily. In fiscal 2008, the agency conducted some $42 billion worth of business, which Poleo says would put DLA “around No. 56″ on the Fortune 100. “We are a military organization,” he says, “but in our day-to-day operations, we think and operate like a business where we can.”

Supplying military personnel in various and often dangerous locations is a tall order, to put it mildly, yet DLA cites “perfect order fulfillment” as a goal. Can you explain that?
The idea is that the customer gets exactly what he wants, the quality he needs, in the time frame he needs it. If all that happens, that’s a perfect order. But DLA owns only segments of that [process]. We can try to influence the other segments, but we don’t control the entire supply system.

How close do you come to the goal of perfect order fulfillment?
We’re just starting to talk in terms of perfect order fulfillment. Previously, we talked about availability of materials, which wasn’t quite as rigorous, but that number has always ranged somewhere between 85 and 95 percent. And I would contend that that means 10 or 15 percent of the time we are not satisfying our customers. Let’s remember what these customers are doing. Not to put too fine a point on it, but what we do in some cases is literally life or death. So my point is that being off 10 or 15 percent of the time is unacceptable. There’s plenty of room for improvement.

Aren’t there some things that will always get in the way of overall improvement — for example, the fact that your inventory turns only every 18 months?
Even when you consider that some things are unique to the military — such as the fact that we support weapons systems, like the B-52, which is more than 50 years old now — we still need to get better at our inventory management. That’s no secret. There are two costs involved. One is the carrying cost to have inventory that we’re not using. Two, there’s an opportunity cost from the standpoint that if we could turn that inventory back into cash, we could buy more of what we actually need.

Does improving inventory management run contrary to the troops’ need for readiness?
There’s our challenge. Obviously, folks in financial positions like mine [might] take a little more risk in this area than, say, the operators do. The operators put a premium on having too much [rather than too little]. So there’s kind of a constant friction, or rather a professional tension. And we’re trying to use our supply- and operations-planning governance to mediate that tension. Obviously, when we’re fighting two wars, as we are right now, the pendulum is going to swing more toward having too much.

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