During the Internet boom, retailers and consumer packaged goods manufacturers began talking about a new kind of demand-driven supply chain. Rather than build product based on historical forecasts, load up a warehouse and then push it out to the marketplace, savvy supply chain managers would capture real-time demand from point of sale systems and cash registers and use the emerging supply chain planning and management tools to make things according to demand. Sell one, make one. If a company could really capture what its customers were buying, less excess inventory would pile up in warehouses.

Maintaining an aircraft, especially one as complicated as a military fighter jet, is more complicated than bottling cola or manufacturing running shoes. So much of what is repaired is unplanned that it is hard to plan. What's more, there is no check-out counter next to a hangar to capture demand. Worse yet, the consequences of having an aircraft on the ground because of a stock-out are greater than a convenience store running short of diet cola on a Friday night.

Still, the U.S. Defense Logistics Agency (DLA) is taking a page from the retail supply chain playbook. Beginning with a roll-out at Robins Air Force Base in Warner Robins, Ga., this August, the DLA is working with the consulting firm Accenture to overhaul its supply chain management processes and systems to become demand-driven.

Rather than look at historical records to forecast the parts and supplies it thinks it will need to support aviation MRO, the DLA will collaborate more closely with engineers and maintenance technicians on the ground to understand the condition of the aircraft that will be serviced months in advance and use that knowledge to drive the supply chain.

With that information, the agency will be able to create better forecasts of the depot level repairs that will be performed more than a year in the future at each of the six aviation repair depots. It also will translate those forecasts into the bills of materials and tools required for those repairs, and then arrange to have the parts and supplies delivered just in time when the mechanics and technicians are ready to do the work.

The DLA calls it knowledge-based planning. When the process is complete in 2011, the DLA will have implemented an end-to-end supply chain planning and inventory management system that is capable of forecasting the demand for more than 1 million aviation-related parts for up to five years in the future, with real-time visibility into inventory levels in the chain from the manufacturer all the way to the mechanic.

"The primary focus areas are extending the enterprise, connecting warfighter demand with supply and delivering supply chain excellence," says Steve St. John, the planning process owner for the Defense Logistics Agency in Ft. Belvoir, Va.

As part of this effort, the agency also is installing new ERP, planning and inventory management systems to streamline procurement, forecasting, stock positioning and inventory management. The new system is responsive enough to process a request from a mechanic for a part or a tool at the point of use in as little as five minutes, compared to two hours or more under the current system.

Ultimately, a demand-driven approach is expected to save up to $7 billion a year in excess inventory across all of the supply chains supported by the DLA.

It All Starts with Demand