Nick Kunesh Deputy Assistant Secretary of the Navy (Logistics)

1. 2005 SpringProduct Support Conference Naval Logistics TransformationClearwater Beach, FLMay 10, 2005 Nick Kunesh Deputy Assistant Secretary of the Navy (Logistics)

2. “…transforming the military. What is different today is this sense of urgency: The need to build this future force while fighting this present war. It is like overhauling a car engine while you are going 80 miles an hour.” George W. Bush President of the United States “We simply have totransform this place. It is every bit as important to the success of the global war on terrorism as the other things we're doing.” Donald B. Rumsfeld Secretary of Defense “…we will create an enterprise culture and achieve Operational Excellence….like most major corporations, we need to build a process centered organization that eliminates the variation between goals and results through Six Sigma improvements.” Gordon R. England Secretary of the Navy The Need to TransformWhat Are Our Leaders Saying? “…I am the one Chief that is asking for fewer people. This year 7,900, without getting into details I believe I can expect that curb to continue because what I'm trying to do is to figure out how to learn from industry and lean manufacturing techniques and the things that will allow us to provide the greatest opportunity to the people who decide they are going to commit themselves in our profession.” ADM Vern Clark Chief of Naval Operations

3. Secretary of the Navy’s Near Term Priorities • Combat Capability • Win the War on Terrorism • People • Ensure quality of service • Technologies • Recapitalize our Forces • Improving Business Practices • Transform the Business of Defense Process characteristics needed to support SECNAV’s priorities: • Speed • Agility • Flexibility • Sustainment (TAV, ITV)

4. DoN Total Obligation Authority (TOA) FY04 TOA $115.1B $119.4B 65% is people cost

5. On Demand GPS 6-8 fixes/day SATNAV 2 fixes/day SEXTANT Latitude 1 LOP Line of Sight COASTLINE Navigation to TAV/ITV AnalogyLead-time Reduction Open Ocean fix accuracy FORCEnet Omni-Object Intelligence GPS xxxx yds SATNAV 1 NM SEXTANT 4 NM Polaris Celestial Reference Point 30-50 NM LOS Electronic Age 1911 2005 2050 2200 BC ERP AIT-UID/RFID eProcurement

6. R O A D M A P Today Focused Logistics JCS/ OSD and Services Logistics Transformation Roadmap Destination Focused Logistics Capability Areas: • Joint Deployment / Rapid Distribution • Agile Sustainment • Operational Engineering • Multi-National Logistics • Force Health Protection • Information Fusion • Joint Theater Logistics Management |

7. Sea Power 21 Key is cost

8. Transformation Enablers EXAMPLES • Lean /Six Sigma • AIRSpeed • Task Force Lean • Enterprise Resource Planning • Human Capital Strategy • SYSCOM Alignment • Productive Ratios • Performance Based Logistics • Naval Logistics Integration • Navy Readiness Integrated • Improvement Program • Ship Maintenance Program • Task Force EXCEL • Strategic Sourcing • Navy-Marine Corps Intranet • Commander, Navy Installations • ACNO-IT Enabling Processes Sea Trial Sea Warrior Sea Enterprise

9. Sea Base Vision Not to Scale Joint Operations Area Air Surface Future-TBD Strategic Airlift Strategic Sealift APOD SPOD CONUS High Speed Sealift Sea Base Commercial Resupply Military/Commercial Re-supply Austere SPODs Air/Surface Shuttle Ships High Speed Connectors (HSC) Intermediate Log Source Strategic Airlift Intra-theater Aircraft Advanced Base Strategic Sealift The sea base is an inherently maneuverable, scalable aggregation of distributed, networked platforms that enable the global power projection of offensive and defensive forces from the sea, and includes the ability to assemble, equip, project, support, and sustain those forces without reliance on land bases within the Joint Operations Area.

10. Future Capability to Project Power is Joint Sea Basing

11. Sea-Base: Open Ocean Environment • Sea State 4 • Whitecaps are everywhere with spray • Average waves are 8´ high • Significant waves are 12´ • Average highest waves are 16´ • Beaufort Wind Force is 6 (22–27 knots) • Sea condition described as rough

12. Required Enabling Capabilities • Intra-Ship Capabilities • Modular Packaging Designs • Selective Offload • Improved Internal Cargo Handling • Total Asset Visibility • Interface & Transfer Capabilities • Skin-Skin Transfers • At-Sea Container Transfer • Heavy Unrep • Integrated Logistics Platform Lean Standardization Reduce logistics footprint, decrease demand, increase commonality, joint interoperability Capabilities required to provide interface between connectors to facilitate the transfer of containers, quadcons, pallets, personnel, ordnance, and equipment. Without them … limited to current methods of resupply.

13. Critical Seabase CapabilitiesLynchpin is Logistics • Fully joint capable • Maneuverable, dispersed – able to coalesce rapidly as needed • Integrated command and control • At-sea arrival, assembly, and transfer of material and personnel • Selective, robust offload • Conduct and sustain forcible entry and subsequent operations • Facilitate movement ashore • Force protection • Re-suppliable throughout the follow-on force build-up period in adverse weather • Ability to reconstitute and redeploy the force • Robust in challenging seas

14. Optimization Synchronization Common Theme of Sea Base • Success depends on an end-to-end supply chain with a complete IT solution that provides TAV and ITV crucial for time-phased replenishment and retrograde. • Our mandate requires an order of magnitude improvement in our processes to yield speed, agility, flexibility, and sustainment in an environment of constant change (battlefield) with the difficulty of conducting distribution operations in the open ocean (sea state 4). Deputy Assistant Secretary of the Navy for Logistics View

15. Efficiency Methodologies and Tools for Continued Improvement • Enablers for speed, agility, flexibility & sustainment in an affordable manner. • Information Technology • Global Combat Support System (GCSS) • US Army, USAF, USMC • Navy Enterprise Resource Planning (ERP) • Efficiency Methodologies • Theory of Constraints (TOC) • Lean • Six Sigma • Others : ISO 9000, Malcolm Baldridge Award, CMMI • Automation Identification Technologies (AIT) • Unique Identification (UID) • Radio Frequency Identification (RFID) All provide an environment for lead time reduction in the Value Chain.

16. As - Is Push to a Common Environment FORCEnet Target Integrated Networks & Communications GIG-BE Stovepipe Communications GIG JTRS TCS IP CDL TDL Representative Building Blocks DistributedServices • Key Enablers • XML • IP • End-to-End • Information Assurance • Open Systems ISR C2 Combat Systems JC2 DJC2 DCGS NCES OA RAPIDS/C2ERA Security Security ISR Security C2 Combat Systems Servers B2B B2B B2C B2C B2C B2C Consumers C2C C2C C2C Clients B2B = Business to Business B2C = Business to Consumer C2C = Consumer to Consumer (Enabling Publish/Subscribe Solutions)

17. No End-to-End Management • Lack of Visibility • Long-Cycle Times • Increased Inventory Levels • Limited Ability to Forecast Current Environmental Landscape:E-2C Gyroscope Repair Example DRAFT Physical Moves Building Moves Site Moves IT Transactions Info Systems Logbooks • 35 • 25 • 10 • 52 • 11 • 7 Gyroscope Organization Space NAVICP Lean Lean VAW-120 Item VAW-120 Work Maps Pilot Maps Manager Center VAW-120 Pack and Preservation Maintenance Control Quick Statistics: FISC Building 36 VAW-120 Supply Physical Moves: 35 Container Reclamation VAW-120 QA Building Moves: 25 Site Moves: 10 SRS MDU 472 Work Center # of Nodes: 29 SRS 472 Production Contractor Control • Although this Instruments Shop Work SRS Materiel gyroscope is a one- Center for-one exchange, the repairable sent Instruments Shop DCU (Supply) Production Control to NADEP North Island may not be Instruments Shop sent back to Norfolk AMSU (AIMD) Planner • Over 400 of this type of gyroscope Instruments Shop AIMD 62A Work Center Pre-stage Area are in inventory FISC AIMD 600 Production Control Information Flow DDDC ATAC Norfolk CFS Intra-site Physical Flow ATAC Norfolk Building 3304 ATAC Inter-site Physical Flow Government CFS Houston North Site Marker 12 Island CFS Building Marker

18. ERP Foundation ERP enables • Inherently within SAP are over 20 generations of best commercial practices • Lean & Six Sigma will no doubt require alignment with IT (ERP and DIMHRS) to be successful • Closeness of our common reengineered processes will give us the order of magnitude improvements we seek A0 Speed Cycle Time Productivity

19. Financial Management • Financial Accounting • Revenue and Cost Controlling • Asset Accounting • Public Sector Management • Materials Management • Procurement • Sales and Distribution • Inventory Management, Warehouse Management • Environment, Health, and Safety • Material Requirements Planning (Regional Level) FM IM SD MM FI SAP PP WMS CO mySAP • Plant Maintenance • Plant Maintenance • Quality Management • Environment, Health, and Safety QM NetWeaver AM EH&S • Program Management • Project Management PM PS WF HR IS-PS BW DMS • Workforce Management • Time Management • Certification & Assignment Control • Training and Event Management • Wholesale Supply/APS • Production Planning and Procurement Planning • Advanced Planning System (APS) Processing • Business-to-Business Procurement Release 1.0 Navy ERP Functional Scope Release 1.1 Release 1.X

20. Functional Design Specifications (FDSs)Breakdown by Process Area

21. AIRSpeed The Way Ahead Lean-Pathways/AirSpeed Accelerated Improvement Workshop Onboard USS Harry S. Truman (CVN-75) 2 April 2004 700 Division BRU-32

22. Lean Process Improvement BRU 210 Day Inspection Cycle “As is” BRU 210 Day Inspection Cycle Tool Box Computer Printer To GSE to Clean Parts To Hazmat Locker Pallet Parts Locker BRU Bench Work Bench Computer Locker Test Bench Computer Work Bench Sink Locker People distance: 3,232 feet Parts distance: 281 feet

23. Lean Process Improvement BRU 210 Day Inspection Cycle “To be” BRU 210 Day Inspection Cycle Tool Box Computer Printer Pallet Parts Locker Work Bench Computer 2nd Stage Disassembly 1st Stage Disassembly Locker kanban Computer Parts Washer Sink Locker 2nd Stage Re-assembly Final Assembly and Test People distance: 85 feet (before LEAN 3,232 ft) Parts distance: 67 feet (before LEAN 281 ft)

24. Business Financial Management Community (BFMC) Lean Pilot Project

25. Current State Analysis 30 plus steps (all serial) 16 queues 8 work-arounds Multiple hard copies 12 review and approval steps An average of 28 days processing time Future State Solution 15 steps (4 performed concurrently) 4 queues No work-arounds Fewer hard copies 5 review and approval steps An average of 4 days processing time Lean Tools BFMC Lean Pilot Solution OutcomeReimbursable Funding Documents to NAVAIR Field Activities • Moved downstream activities up front • Brought all parties to table – expanded IPT • Removed WAIT time (queues) • Ensured complete and accurate product early • Reduced rework/rejects • Leveraged ERP ensuring all financial links match project plan to performing activity

26. NAVICP Lean/Six Sigma ProjectPerformance Based Logistics (PBL) Contract Development Current State Analysis • Cycle time – 29 mo avg. • Touch time – 1.8 MY per PBL • SOW development – 21 events avg. • J&A manual process • Rerun BCA – 7 times avg. • Future State Solution • Cycle time – 14 mo avg. • Touch time – 1 MY avg. • SOW development – 2 events • Automating J&A process • Rerun of BCA – 3 times avg. • Moved to an “Event Driven” Process • Removed variation in the process • Standardized the SOW • Reduced reviews/rework • Reduced learning curve

27. Lean/Six SigmaConclusion • Continuous Improvement (CI), with Lean/Six Sigma as the cornerstone, has been endorsed by the highest leadership • Lean/Six Sigma applied in the industrial base is providing “order of magnitude” throughput improvements returning Aircraft, Submarines and Marine Corps assets faster to our warfighters • Squadrons of Aircraft and Helicopters have been more effectively utilized • Squadrons did not need to be purchased • Intensive Lean/Six Sigma education and training focused on Value Streams including non-industrial activities • From leadership to sailors, marines, and civilians at all levels