Commodity management is the process of developing a systematic approach to the entire usage cycle for a group of items. Best practice in commodity management includes:
1) Looking at internal buying patterns in the aggregate,
2) Understanding the market forces in the commodity, and
3) Using this information to drive lowest total installed cost, including improving quality, reducing cycle time, driving component commonality and design for manufacturability and maintainability, along with lowered unit cost.
Commodity Management or Strategic Sourcing has been practiced within DoD, and every Component/Agency can point to examples of this best practice
- DLA and Strategic Relationship Management
- Air Force – PSCM
- OSD/Army/Navy in Indirect item commodity teams
The potential benefits are lower total cost of ownership, higher availability, shorter lead times and value engineering and design.
Commodity Pilot Teams
L&MR stood up two pilot teams (bearings and microelectronics) as learning labs, and engaged contract support to identify the Department level road ahead in commodity management. Emphasis was on using strategic commodity management techniques to improve supply chain performance. In February 2005, Bearings team was chartered by Supply Chain Capabilities Group, while microelectronics team was chartered by Total Lifecycle Management committee.
The work of the bearings team demonstrated the value of department-wide commodity management, and helped develop a way ahead for the expansion of this best practice at DoD.
As part of their final report, the team identified three areas for short term improvement:
streamlining of contracts,
reduction in the number of NIINs, and
collaborative forecasting with the supply base.
Commodity Management Road Ahead Team
The Department of Defense experience with strategic sourcing, both at the Component/Agency level and in Department level initiatives, has conclusively demonstrated the significant benefits of strategic commodity management in improving customer support levels and lowering total cost of ownership. In March 2006, the Supply Chain Capabilities Group (SCCG) tasked a working group with developing the road ahead to implement strategic commodity management for weapons system support (Class IX) items. Among other recommendations, the team identified 7 broad commodity areas in which there were potential Department level synergies. The Supply Chain Commodity Group (SCCG) established a Commodity Management Road Ahead team to develop a scalable process for commodity management at DoD.
Implementation of commodity management across the Department will ensure that the Department identifies and supports an industrial base capable of meeting the Departments requirements, which will vary by commodity (e.g., in come commodities technological change is a driver, in others volume needs will drive commodity strategy). An understanding of the capabilities of the commercial supply base will also allow the Department to identify innovative ways of working with commercial suppliers to meet warfighter needs.
- Improved industrial base capability
- Improved forecasting
- Improved quality
- Reduced cycle time
- Lower total cost of ownership
Commodity Management Policy
DoD Supply Chain Materiel Management Regulation (DoD 4140.1-R)