DoD Logistics BSC Overview Executive PBL Tiger Team Meeting 24 February 2004

1. DoD Logistics BSC OverviewExecutive PBL Tiger Team Meeting 24 February 2004

2. Agenda • Introduction to Logistics Transformation • Introduction to the Balanced Scorecard Model • Introduction the DoD Logistics BSC • Next Steps

3. QDR Direction • Project and Sustain the Force with Minimal Footprint • Improve Customer Service through Integrated End to End Logistics Chains • Ensure Asset and Financial Accountability • Provide Real Time Actionable Information Across the Enterprise Logistics Enterprise Objectives • Structured at the National (Enterprise) Level • Designed from Joint Warfighter back through the Sustaining Base • Driven by Operational Requirements of the National Security Strategy • Directed Toward Near-Term Implementation Guiding Principles • Project and sustain the force with minimal footprint • Implement performance-based logistics to compress the supply chains and improve readiness for major weapon systems and commodities • Reduce cycle times to industry standards Force-centric Logistics (FLE) is the DoD Commitment to Logistics Transformation The DoD Logistics BSC is a key initiative in Logistics Transformation Progress is overseen by the FLE & Enterprise Governance Group

4. FLE & Enterprise Governance Group Triangle Groups DUSD(L&MR) “Guided” Groups focused on achieving FLE through Enterprise Integration Joint Logistics Board (JLB) Change Management Group - CMG “Make it Stick” Commercial Industry Team: One Rep (CIO, Exec Sponsor, VP Logistics, CEO etc) from selected companies that provide input/advice to each of the groups on varying topics Focus on: Coordination with JLB Change Management Policy changes Communications/Public Relations, Messaging Organizational Readiness Commercial Industry Team/ Advisory Team Program Implementation Group - PIG “Do it Right and Fast” Best Business Practices Group - BBPG “Reengineer for Success” Focus on: Best Implementation Practices Lessons Learned Infrastructure Integrated Schedule EI Toolkit Modernization Programs Education and Training RICE Security Focus on: Architecture Balanced Scorecard - KPI/Metrics COTS Product Exploitation Business Process Reengineering End-to-End Processes Roles/Org Model Logistics Education

5. Customer Perspective Financial Perspective Internal Business Process Perspective How do customers see us? How do we look to shareholders? What must we excel at? Introduction to Kaplan and Norton’s Balanced Scorecard Concept The traditional balanced scorecard model translates an organization’s vision and strategy into a set of measures built around four perspectives: financial, customer, internal business processes, and innovation & learning. • The balanced scorecard is one of several tools for performance measurement and management. • The Kaplan and Norton model provides a more holistic approach by supplementing the traditional financial measures with three additional perspectives: customer, internal business process, innovation and learning: • FinancialPerspective - Is the organization creating value for its shareholders? • Customer Perspective - How is the organization performing from the perspective of those who purchase the organization’s products or services? Internal Business Process - How is the organization managing its internal business processes to meet its client’s expectations? Is throughput improving? Other processes include fulfillment, customer retention, and financial planning. Innovation & Learning Perspective - Is the organization improving its ability to innovate, improve, and learn? • It incorporates both leading and lagging indicators. • The emphasis is on balance across multiple dimensions of performance; ensuring that good performance in one area is not offset by poor performance elsewhere. • The strategy drives the choice of performance measures. A failure to meet targets could be because the strategy is wrong Vision and Strategy Innovation & Learning Perspective Can we continue to improve our employees’ skills and create value for our clients? Robert S. Kaplan and David P. Norton have developed what is considered to be the standard Balanced Scorecard template Source: Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management System,” Harvard Business Review (January-February 1996)

6. Building a Balanced Scorecard Following the Norton-Kaplan BSC methodology, the DoD Logistics BSC development approach builds on this vision to create strategic objectives and performance measures Creating the Balanced Scorecard Use strategy to identify the objectives 1. Business Strategy Start with the Business Strategy, which should be a bold, future-oriented statement Use objectives to identify the measures that will be used 2. Business Objectives Develop key business objectives that will help you to attain your strategy Use measures to build the balanced scorecard Use progress against objectives to confirm strategy 3. Measures & Metrics Develop specific measures and metrics to track progress Use measures/ metrics to evaluate progress against objectives 4. Implement Gather measures, create the balanced scorecard and use it to make decisions. Incorporate a continuous improvement philosophy in the process Use scorecard to determine if targets are met and the right measures are being measured Using the Balanced Scorecard

7. Purpose of the DoD Logistics BSC The DoD Logistics BSC initiative, under the umbrella of the FLE initiatives, aims to integrate and quantify business process performance to transform Defense Logistics activities. The JLB has recognized that the BSC will: • Serve as the senior management (JLB) tool to assess logistics chain effectiveness in support of the warfighter to enable better decision-making • Facilitate strategic actions to guide logistics transformation at the DoD level • Capture and portray outcome (capability) metrics balanced with performance and efficiency • Link logistics performance and capability to the broader DoD corporate performance (DoD BSC) • Serve as a critical component of FLE Transformation – it enables better management (i.e., process measurement and improvement) of DoD logistics • Enable DoD log execs to see comprehensive ‘big picture’ of logistics status, across the DoD enterprise at a DoD Strategic level • Enable the full decision support capabilities of the Integrated Development Environment (IDE), once IDE has been implemented • Provide performance measurement and compliance components for BEA-LOG architecture • Allow for quantification of risk trade-offs

8. JLB Use of the DoD Logistics BSC • Assess logistics chain effectiveness through • Quarterly reporting of data • Regular review of trend information • Ad hoc reporting and trending • Assess logistics transformation progress and identify areas for improvements • Review performance goals and achievements, and publish them in DoD Logistics Annual Report

9. DoD Logistics Vision Drives the BSC Support rapid, agile deployment, employment, sustainment and reset/reconstitution of the Total Force, within acceptable risk,across the full spectrum of operations in a cost-effective manner.

10. Ensure affordable logistics support through resources and choices that enable effective joint warfighter capability to include: • Accurately forecast and identify logistics requirements • Identify and understand the risks associated with logistics resource allocation • Improved cost predictability and constrained cost growth. Resource Planning Perspective Logistics Process Perspective • Provide effective logistics chain performance and capacity while reducing the logistics footprint to include: • Reducing cycle time, improving effectiveness, improve product quality,leveraging IT improvements and Commercial Advances Innovation & Learning Perspective • Ensure a skilled capable workforce responsible for meeting the warfighter logistics support requirements to include: • Introduction of leading edge advanced concepts • Organization adaptability • Workforce shaping DoD Logistics BSC Structure The four JLB-approved perspectives of the DoD Logistics BSC are: Warfighter, Logistics Process, Resource Planning, and Innovation & Learning. Warfighter Perspective* • Provide optimum responsive logistics support to the joint warfighter to ensure: • Immediately employable force options • A rapidly deployable capability • A sustainable total force Vision andStrategy *Anchor of DoD Logistics BSC

11. Warfighter I&L requires additional work L1: Force Closure L2: Distribution Capacity L2: Distribution Visibility & Control L2: Distribution Effectiveness L2: Combat Effectiveness Achievement L2: Prepositioned Effectiveness L1: Reset L2: Reset L2: Operational Draw-down L1: Force Readiness L2: Equipment Readiness L2: MC Rates L2: Commodity Availability L2: Logistics Units Readiness L2: Prepositioned Readiness L1: Force Sustainment L2: Materiel Support L2: Services Support Logistics Process Innovation & Learning L1: Innovation Realization L2: Rate of Transformation L2: Rate of Improvement L1: Workforce Capability L2: Workforce Shaping L2: Learning Transformation L2: Employee Climate L1: Logistics Chain Reliability L2: Perfect Order Fulfillment L1: Logistics Chain Effectiveness L2: Logistics Chain Agility L2: Logistics Chain Cycle Time Resource Planning L1: Logistics Chain Cost Effectiveness L2: Total Logistics Chain Cost Percentage L2: Total Logistics Chain Cost L2: Value Added Productivity L1: Logistics Chain Predictability L2: Planned Cost to Actual Cost L2: Demand Forecast Accuracy JLB Approved DoD Logistics BSC Level 1 and 2 Metrics

12. DoD Logistics BSC Progress to Date • Established working group (July 2002) • Surveyed applicable “umbrella” documents (September 2002) • Quadrennial Defense Review • Future Logistics Environment • Developed initial strategic objectives (October 2002) • Confirmed approval for strategic Objectives (November 2002) • Drafted metrics for inclusion in phase I BSC (January 2003) • Outlined requirements for development and build of a BSC dashboard (January 2003) • Finalized DoD Logistics BSC white paper (May 2003) • Gained BBP approval of Level 1 metrics (April 2003) • Incorporated metrics into EI Toolkit (On-going) • Achieved JLB approval of Level 1 & 2 Metrics for 3 of 4 Perspectives and the Way Ahead (December 2003) • Refocused metric development team structure based on critical process groups requirements (January 2004)

13. DoD Logistics BSC Next Steps • Document existing and develop desired Level 3 & 4 metrics by critical processes by 15 Feb 04 (Process Focused IPTs as tasked by Mr. Berkson) • Identify data sources for Level 3 & 4 metrics by 15 Feb 04 (Process Focused IPTs) • Map Level 3 & 4 metrics to JLB-approved Level 1 & 2 metrics by 15 Feb 04 (Process Focused IPTs & BSC Team) • Report Level 3 & 4 metrics progress to CMG on 26 Feb 04 • Revisit Innovation & Learning Metrics (BSC Team)

14. Backup Slides Backup Slides

15. DOD BSC DOD Logistics BSC Services, Agency, Commands, Organizations and Supplier BSC * Program / Project BSC * DoD Enterprise – BSC Hierarchy Each level of the enterprise uses performance measures to drive toward strategic objectives. Samples include: Examples DoD / Industry View • DOD Level Metrics • Joint Con Ops Progress • Operational Availability • Joint Quarterly Readiness Executive • DOD Logistics Metrics • Force Closure • Force Readiness Domain / Corporate / Strategic More Strategic -- More Tactical -- • DLA Operational Metrics • Customer Wait Time • Stock Availability Component / Department • USMC Operational Metrics • Operational Availability • Total Log Chain Cycle Time • Asset Utilization Functional • LMP Metrics • Asset Visibility • Collaborative Planning • Forecast Accuracy * PBAs / PBL will set and ensure performance targets are attained

16. Institutional Risk Operational Risk Force Management Risk Future Challenges Risk Joint Con Ops Progress Operational Availability Joint Quarterly Readiness C-Sorts Specific Issues List Quality Index Force Tempo Trend Quality of Life Index Total Force Cost Trend Civilian Workforce Progress PMA Human Capital BRAC Progress Life-Cycle Cost Trends FMMP Progress v. Plan Competitive Sourcing Progress Acquisition Cycle Time Other PMA Experiments Progress Joint Training Progress New Organization Standup National Capabilities Definition Transformation Budget Resource Planning Metrics Logistics Process Metrics Innovation & Learning Metrics* Logistics Chain Predictability Logistics Chain Cost Effectiveness Logistics Chain Reliability Logistics Chain Effectiveness Innovation Realization Workforce Capability Warfighter Metrics Force Readiness Force Closure Force Sustainment Reset PA&E/OSD Log Performance Measurement Alignment The DoD Logistics BSC will provide performance measures to the DoD BSC from the Logistics domain DoD Logistics BSC Quadrants DoD BSC Quadrants * Draft Level 1 metrics

17. Building a Balanced Scorecard Develop key business objectives that will help you to attain your strategy. —Objectives— 1. Drive rapid revenue growth 2. Manage operating costs and profitability 3. Achieve profitability 4. Effectively utilize assets 5. Manage risk 6. Improved Shareholder Value Financial Perspective Internal Business Process Perspective 1. Rapidly penetrate market segments 2 Sustain significant customer growth 3. Retain customers 4. Achieve high customer satisfaction 5. Provide extremely positive customer on-line experience 6. Achieve customer satisfaction 1. Develop provocative offers 2. Build brand awareness 3. Expand distribution 4. Drive incremental revenues 5. Offer leading high-speed Internet service 6. Provide compelling internet experience 7. Maintain technological leadership Customer Perspective Vision andStrategy Innovation & Learning Perspective 1. Sustain employee satisfaction 2. Maintain employee productivity 3. Retain employees 4. Innovate operationally 5. Measure training quantities 6. Measure training effectiveness 7. Measure and evaluate innovations The diagram illustrates an example of organizational objectives. In the balanced scorecard development process, the organizational objectives should provide a balance across the four dimensions of performance.