Case Study: Budget-Constrained Inventory Procurement

U.S. Naval Supply Systems Command (NAVSUP)

SITUATION AND BUSINESS PROBLEM

The U.S. Naval Supply Systems Command (NAVSUP) went live on a Pilot SAP implementation in January 2003. Shortly after going live, they realized their various funds for different parts programs were being depleted quickly. They realized that standard SAP did not offer availability control on inventory purchases. This presented a problem as Governmental agencies are obligated under federal legislation to work in a funds managed/budget constrained environment. The corporate sector does not have such constraints. However, all Navy procurement is budget constrained. This dilemma resulted in dealing with procurement proposals out of their SAP system that were well in excess of the Navy’s budget, due to sporadic demand and redundant levels of supply. Without the proper controls in place, the NAVSUP sites running SAP would run out of allowable funds far before year-end, which could pose huge risks to aircraft readiness during wartime.

THE DICKINSON + ASSOCIATES SOLUTION

Consultants from Dickinson + Associates identified this problem and designed a procurement prioritization model in SAP that enabled the Item Managers to focus their attention on purchasing materials that were in high demand. In addition, Dickinson + Associates designed a budget approval tool to help the purchasing supervisors monitor their budget and approve only those requisitions they could afford.

The procurement prioritization model classified materials according to their previous demand. Based on 3 and 12 month demand buckets, materials were placed in one of 7 groups. MRP Controllers were used to segregate and manage the groups. Corresponding MRP & Forecast Profiles were created to control the master data settings required of each respective group. The material groupings would also give the users the ability to evaluate demand history and procurement behavior by group. The Forecast Model, Lot-sizing Procedure, and both historical & forecast periods could be evaluated separately and changed only for a specific group. Each group could be forecast and procured differently based on specific demand behavior.

The model offered users the ability to prioritize inventory shortages based on demand and thus focus purchase requisition processing activities accordingly. The final step in the process involved the supervisor release. Dickinson + Associates, working with NAVSUP’S prime contractor, EDS, helped design a program that enabled supervisors to compare the PRs available for release against the available budget, and then choose which PR to release. The custom program then released the PR and automatically convert it to a purchase order.

Dickinson + Associates, working with EDS, designed a custom master data maintenance program that realigned the groups at the end of each month based on their demand history and changed the appropriate master data profiles.

THE DICKINSON + ASSOCIATES ADVANTAGE

The Dickinson + Associates design allowed one of the sites implemented to cut annual consumable stock procurement from $48 million to $26 million for 2004, while significantly increasing their supply effectiveness (a common military inventory management metric). This case study exemplifies how Dickinson + Associates approaches every project as a business opportunity, not just a technical implementation. We use our years of industry and functional experience to understand the business issues and help craft our solutions. This combination of business experience and SAP know-how sets us apart. In this case it produced dramatic results that were recognized and valued by our customer. Since all government spending is budget-constrained and standard SAP is not intended to control inventory procurement, each branch of the government could potentially achieve profound results through a similar model and related master data design.